California’s Sunverge Energy secured most of the VC funding for its storage systems, taking about US$36 million out of the US$54 million over 10 deals that was raised. Image: Sunverge
Texas-headquarted Mercom Capital Group recently released its Q1 2016 funding and M&A report for energy storage, smart grid and energy efficiency sectors. Mercom’s CEO and co-founder Raj Prabhu discussed the energy storage trends tracked in this quarter with Energy-Storage.News, especially in light of the drop in venture capital funding this quarter.
California’s Sunverge Energy secured most of the venture capital (VC) funding for its storage systems, taking about US$36 million out of the US$54 million that was raised over 10 deals. Sunverge is continuing its winning streak; having recently partnered with AGL, Australia’s biggest utility, which invested US$20 million in the company as part of its climate change initiative funding.
As previously reported, the top five VC-funded storage companies in Q1 2016 were Sunverge, VionX, Skeleton Technologies, Geli and Voltaiq. Year-over-year (YoY) funding was lower compared to the US$69 million across seven deals in the first quarter of last year. Not all companies disclosed their funding types, but are reported to be in different stages.
“What we are seeing in general in the last Q1 to this Q1 is that most of the money right now on the VC side is going to energy storage systems or to flow batteries. Between the two of them, since last Q1, they raised about a quarter of a billion dollars.
“[The energy storage market] is in an early developmental stage; a lot of technologies are fighting each other, and we saw this in solar. Eventually a lot of those companies split into crystalline silicone. We see somewhat similar trends playing out in battery storage. It’s very early and we don’t know which technology is going to [come out on top].
“The reason you don’t see a whole lot of funding going into lithium-ion and lead acid and such is because the companies manufacturing them are all big electronics firms. Right now the lithium-ion batteries that are going into energy storage systems are from the likes of Samsung and Panasonic. They are big public companies, and so don’t really need to come out and raise new money; they fund it internally.
“[The top five, however], are going to have to get more funding in the future. With Sunverge, their funding was a series C; they are in a pretty advanced stage. Overall I think they are going to do well: most of these companies getting funded are being thoroughly vetted and researched.
“We generally try and look on a year-over-year (YoY) basis because it fluctuates a lot quarter to quarter. We might not see anything at all next quarter and the quarter after that we might see three huge deals, for example. The number of players is still very small, even though there are quite a few start-ups. The ones that are out there and doing most of the installations are literally five-six companies; so it is still pretty small and very competitive right now.”
Although VC funding for battery and storage companies dropped 50% with US$54 million in 10 deals this quarter, compared to US$108 million in eight deals in Q4 2015, the nature of such funding that is used to seed early stage emerging growth companies is that it does tend to be volatile.
M&A and project finance funding
This quarter there were two mergers and acquisitions (M&A) transactions involving storage companies. In Q4 2015 there were also just two deals, but again, according to Prabhu, this is something to be expected:
“M&A activity has been very small – not much at all – but with the industry being so young, you can’t expect a lot of M&A activity right now. As we develop a little bit more, get a little bit more funding and get a little bit more traction in terms of sales and market share, then we will start seeing some consolidation with companies buying each other out. Right now activity is still very sparse; especially in the first quarter, and we didn’t see much at all.”
US energy storage provider Green Charge Networks managed to bag US$20 million for non-recourse project financing for energy storage systems.
“We will see [this sort of deal] randomly. Last year we saw over US$100 million of such funds. One trend is energy storage systems but the problem is that no one wants to spend all that money upfront on this. As a result, some storage companies will have to have some sort of fund to revert to that will serve as partial funding to entice investment, and then they can be reimbursed over the terms of the contract. The US$20 million by Green Charge Networks is a project fund that will therefore go towards installations.
“So most of these energy storage companies have to have some sort of fund where they can go and tell the company, I understand you don’t have US$100,000 to put up, so we will fund that and then you will pay us back over the term of whatever the contract is, 10 years, 20 years...and so on.”
Trends going forward
As a general rule, Q1 is too early to make predictions about how the rest of the year will play out. Prabhu also said the majority of activity is happening in the commercial sphere with residential funding being rare so far.
“There are not a lot of products for [the] residential [market]. The one that is being talked about is the PowerWall from Tesla. Till [residential products] pick up, there aren’t many products out there at all that are ready to be commercially deployed. So, we are waiting for Tesla’s first and see how the market reacts and how the competitors jump in after that.
“We are expecting to see more activity as we go forward. Looking at Quarter-on-Quarter, for some reason the first quarter each year tends to be weak; I don’t know if that’s a trend yet but last Q1 was also weak.
“There are a lot of policy announcements right now – pretty much in every state and country we hear rumours. In Australia, a lot of stuff in storage going on, and we hear rumours that in India right now there are auctions based on storage. So it’s spreading. Once the market picks up and deployments pick up I think we [can] expect to see VC and private equity funding to ramp up pretty soon. It’s a slow start to the year but I think the rest of the year, hopefully, will pick up.”