Energy storage: Held in reserve

CleanMax Solar needed no prompting to set out on its new energy storage vertical. As a leading provider of rooftop solar panels the company sought to position itself as the sustainability partner of choice for corporate India. But the missing element from its offering was a way to even out the inconsistency of solar power supply. By incorporating batteries into its solar panels, CleanMax hopes to help its clients harness the sun's energy even on cloudy days.

A recent $100 million investment from Warburg Pincus is intended to support the new venture, and the company is optimistic about its success. But despite a growing acceptance of renewable energy, the idea of using batteries to power entire buildings or even energy grids is relatively new. Customers taking a cautious approach can place unreasonable expectations on providers looking to meet the need.

"Right now, everyone is shooting in the dark. But every tendering agency wants to be risk averse and ask for very high standards in terms of guarantees and warranties, which adds to the cost and makes the economic case for batteries weaker," says CleanMax founder Kuldeep Jain.

With energy users and suppliers at an impasse, venture capital and private equity players can potentially support the innovation required to make energy storage viable on a wide scale. But without a clear path forward for the industry, investors will need to be prepared for the long haul.

Filling the gap

In some ways, the increased interest in energy storage solutions is, in turn, a sign of the acceptance of renewable energy. With the benefits of wind and solar power – decreased reliance on imported fossil fuels, lower levels of pollution – taken for granted and governments across the region looking to grow renewable sources' share of their national grids, attention is now turning to mitigating their shortfalls.

Proposed solutions have included some quite exotic approaches, such as using solar or wind power to store water or gas and release it for energy when needed. However, investors have so far focused on batteries. This technology is familiar and well-understood, which can be an asset in a field where the difficulties can be as much regulatory as technological.

This is not to say that the battery industry is stagnant or lacks diversity. Though lithium-ion batteries are currently the most common solution among storage solution developers for their depth of discharge and long lifespan, older lead-acid batteries are favored in some applications for their safety and cost.

In addition, several companies are pursuing innovative new approaches to the tested technology. For example, US-based Gridtential, which cross-border PE firm 1955 Capital recently invested in along with several battery manufacturers, is developing a new silicon-based battery architecture that attempts to marry the best of lithium-ion and lead-acid batteries.

"The field is dominated by a technology from the 1990s originally designed for laptops," says Andrew Chung, founder of 1955 Capital. "Lithium-ion batteries weren't designed for electric vehicles, or to be strung up by the millions to get to megawatt-scale grid deployment. These are multi-billion dollar markets, and if a next-generation technology can be identified and commercialized, then it could be a breakthrough moment for the industry."

In many countries utility providers are eager to pursue storage solutions with multiple applications. Along with supplementing the unpredictable output of wind and solar facilities, energy storage can play a role alongside conventional power sources such as coal by reducing the need of power purchases for frequency regulation purposes. Stored energy can also be used to meet high demand.

"If a power system has heavy reliance on large thermal plants, which is the case in much of Asia, then the costs and limits to ramping up and down these thermal fleets need to be seriously considered," says Bradley Way, principal consultant on energy at consulting firm Black & Veatch. "Batteries can often mitigate or smooth stress on the thermal fleet or broader system as it responds to peak demand conditions."

Despite the attractiveness of storage for utilities, providers have for the most part held back from implementing existing battery solutions on a large scale. Concerns about safety and reliability play a part, but regulation is also an important factor – not in terms of forbidding the use of storage solutions, but of making them uneconomical to implement.

In many cases, a simple regulatory tweak would make storage more feasible. For example, pricing energy at different rates for on-peak and off-peak hours would allow utilities to store excess power produced while the lower rate is in effect, and sell it at periods of higher demand, thereby saving the need to run up other facilities.

"We know how batteries work, we understand the principles behind them,'" says Black & Veatch's Way. "Our challenges are more around finding locations, fiscal regimes and power markets that match the challenges we face in the physics and chemistry of the battery and the coimplexity of the electrical system."

Building momentum

Industry observers believe that as evidence of the usefulness of energy storage solutions grows, regulators will be open to setting up structures that are more accommodating to the sector. The challenge will be maintaining the momentum of development while that track record is building.

Private equity and venture capital investors, which can provide both working capital and industry contacts, are seen as valuable partners in this regard. GPs have the benefit of a relatively uncrowded market, but must also be prepared to shepherd their investee companies until opportunities in the region begin to open up.

"Venture investors are very good at helping small companies focus on core success factors," says Christian Beekhuis, CEO of Gridtential. "Focus is the number one factor. If you let yourself get distracted, you compound the challenges of bringing a new product to market."

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• Infrastructure
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• 1955 Capital
• energy