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Business model innovation ‘the critical piece’ for LDES sector

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Business model innovation and considering how to integrate projects into wider energy systems will be key for long-duration energy storage (LDES) companies, two venture capital (VC) investors told Energy-Storage.news.

RA Capital’s Kyle Teamey and Brigid O’Brien, managing partners of its Planetary Health division, oversee investments in companies whose solutions reduce emissions and restore environmental quality.

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The long-duration energy storage (LDES) sector has seen a lot of successful fundraises, O’Brien said, and the focus for the industry now needs to be about fine tuning use cases, understanding business models and market entries.

Many say that lithium-ion will not be widely cost-competitive for discharge durations significantly beyond 8-12 hours, but what technology fills that gap, and at what scale, is far from clear. BloombergNEF recently published analysis on lithium-ion costs versus LDES at different durations.

Asked about the prospects for the LDES sector, which has dozens, potentially hundreds, of different technologies competing to scale in a market that could soar in the coming decades, both agreed that the technology question alone isn’t the main challenge for LDES firms.

Business model innovation ‘the critical piece’

“We tend to fixate on technology but at the end of the day it’s about how I position my business. Business model innovation is at least as important as technology innovation: how to scale, serve customers, solve a customer’s problem, create value for them. It’s easy to overlook but it’s the critical piece,” Teamey said.

O’Brien similarly said that thinking about the wider electricity system you are selling into is key.

“The ones that can integrate into existing infrastructure will do well. You need to ask, what is the cost of that integration? Sometimes people forget those things, the organisational costs, the training costs, and about how you can ease those burdens,” O’Brien said.

“Companies that think about beyond just selling systems but rather about how it fits into the larger system, for that ease of integration. For a startup, that means having a high degree of corporate empathy.”

LDES companies taking note

The need for this has certainly been noted among at least some LDES technology companies. Several have moved from being primarily technology plays to owning and operating projects in full, or via minority stake investments.

In the past year, Energy-Storage.news has interviewed vanadium redox flow battery (VRFB) firm Invinity Energy Systems, ‘CO2 Battery’ company Energy Dome and gravity energy storage technology firm Energy Vault about (amongst other things) their moves to directly owning and operating projects.

Being a developer and independent power producer (IPP) meanwhile is baked into the business models of compressed air energy storage (CAES) firm Corre Energy and advanced-CAES (A-CAES) firm Hydrostor, both of which are building some of the largest LDES projects seen anywhere in the world.

How many different technologies will commercialise?

With so many different technologies – the ones above are just a snapshot and are amongst the furthest along in commercialising – the question of how many will successfully scale is an open one.

“We’ve looked at LDES from the perspective of different use cases. We don’t think there will be hundreds of technologies but there will be multiple. It’s an open question as to how many in total,” Teamey said.

Kyle also noted that there are still huge opportunities for new solutions within the lithium-ion industry: “One lens on LDES is the new technology, but you have lithium that already has massive scale. For that, it’s about asking how we remove friction points so that it can scale ever faster. Any fast-growing industry will have tons of friction points. There is a lot of value to be had in solving those friction points.

He also pointed out that China is making big investments in the sodium-ion technology space. “That tells you there will be at least two chemistries deployed at scale in EVs and the grid. And even within chemistries, there are lots of variations. There’s lots of variations within ICE (internal combustion engine) vehicle engines,” Teamey said.

One big reason China could be jumping into sodium-ion at scale is that, for that chemistry, it doesn’t have to worry about being cut off from critical materials, he added. Most lithium is mined in Australia and Chile, and Australia recently outlined plans to increase its local battery industry.

Note that the largest lithium-ion battery manufacturer CATL recently joined the LDES Council.

RA Capital Planetary Health’s first investments have been Sortera, a firm using proprietary tech to sort recyclable materials, and AM batteries, a player in the lithium-ion dry-electrode battery space. VC firms in general have been active in funding LDES companies as well.

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