Are Batteries an Answer to Our Grid Energy Storage Problems?
As the world shifts to renewable energy, efficient grid management and energy storage systems are crucial. Since renewables aren't always available, effective storage helps balance supply and demand, enhancing grid resilience during outages by absorbing or supplying power as needed. Investing in these technologies paves the way for a more sustainable, reliable energy system for the future.
Jan 23, 2024
Vineeth Nair
TL;DR
Efficient grid management systems and energy storage technologies are essential with the rise of renewable energy.
However, developing innovative battery chemistries face numerous challenges: these tend to be CAPEX-intensive and struggle with scale-up and commercialisation, and significant time to market.
Additionally, raw material and machinery shortages complicate the value chain, with lithium expected to be able to cover only 50% of the 2030 storage demand.
Next, the environmental impact of the battery manufacturing process must also be considered to create a more sustainable industry, with battery recycling and repurposing schemes having the potential to have a major impact.
Finally, software solutions for battery analytics focusing on energy efficiency in B2B and B2C markets and managing end-of-life processes are essential for the circular economy.
Find our list of 70+ early-stage companies in the battery-based energy storage space and more at the end of our article!
Introduction
With renewable energy sources becoming increasingly prevalent, efficient grid management systems and energy storage technologies are essential. Energy storage allows us to overcome the inherent intermittency of renewable energy sources and enhance the grid’s resilience during outages by absorbing or injecting power.
Energy storage systems can range in capacity from a few kWh for household use to GWh for the grid system. Key energy storage solutions include batteries, hydrogen production, pumped hydroelectricity, compressed air storage, gravity, and thermal storage.
These technologies can be utilized in many instances, such as frequency and voltage regulation, peak shifting, and renewable energy smoothing. Battery energy storage solutions are particularly attractive as they offer many advantages over other storage solutions, such as high energy density, efficiency, fast response, modularity, small footprint, low maintenance, ease of installation, and reduced geographical limitation.
This article focuses on battery energy storage and surrounding enabling solutions.
The Market View
The world is rapidly moving towards electrification, fueled by the following regulations and decarbonization schemes:
COP28 committed to triple global renewable energy capacity, double energy efficiency improvements by 2030, and phase down unabated coal use while limiting new coal power generation.
Decarbonization schemes aiming to reach net-zero emissions by 2050 require carbon-neutral energy sources.
Globally, there are only 30 GWh of installed storage capacity, but this will increase 15x by 2030. The International Energy Agency predicts global grid storage, based on 4-hour battery storage systems, will need to reach 2,500 GWh by 2030 to achieve net-zero emissions by 2050.
Electric grid energy storage is likely to be provided by two types of technologies:
Short-duration energy storage: such as fast response batteries, provides energy storage for less than 10 hours.
Long-duration energy storage: providing load shifting over many hours or days (not covered in this article)
Trends in the VC World
The continued expansion of the renewable energy sector is largely dependent on the successful adoption of efficient energy storage technologies. Among these technologies, batteries, battery storage solutions, energy efficiency enhancements, and smart grid systems have become an increasing area of focus for venture capitalists in recent years. Below are highlights of the VC investment trends in these areas:
Batteries: In 2022, VC investments in batteries amounted to $7bn, with $6.1bn in growth stage and $0.8bn in early-stage startups.
Energy Efficiency: Venture capital investments in this area in all of 2023 were around $1.4bn.
Energy Storage: By Q3 in 2023, VC funding in Energy Storage rose to $8.6 billion in 68 deals with 89 participating VC investors, up from $4 billion in 74 deals in the first 9 months of 2022. The energy storage market is expected to reach $34.72B by 2030, growing at a CAGR of 27%.
Smart Grid and Energy Efficiency: VC funding in Smart Grid companies decreased to $1.2 billion by Q3 2023 with 51 participating VC investors, compared to $2.5 billion raised in the first 9 months of 2022. The global smart grid market is expected to grow at a CAGR of 10.8% between 2023 and 2032.
Our Take
There’s no denying it — batteries are changing the world. This all-encompassing technology and its rapid progress is expected to result in a market worth billions and probably even trillions of dollars, competing with the fossil fuel infrastructure it intends to replace.
….but batteries are highly complex.
There are three main parts of battery manufacturing: electrode fabrication, cell assembly, and end-of-line.
A high-level representation of different steps in the battery manufacturing process (source).
These stages contain several individual steps, each involving many different equipment settings such as temperature, pressure, etc. Suppose you want to achieve a commercially viable battery. In that case, all those steps have to work together perfectly to be able to produce successful throughput and yield (i.e., the production speed and the number of batteries with high enough quality to pass end-of-line testing).
Therefore, it can take years of iteration before building a new successful factory, even for well-established players. For example, Panasonic’s gigafactory in Nevada, after the start of the production line, struggled with quality issues and financial losses for the first four years before fine-tuning its systems accordingly.
The challenge is exacerbated when dealing with new battery chemistries stemming from the latest innovations, which have never been mass-produced before. All the manufacturing processes need to be carefully calibrated to meet the new demands of those chemistries and face new hurdles.
Therefore, early-stage VCs interested in this space would be well advised to make several bets (think SOSV/HAX) vs. a single shot on goal. For Micro VCs, given the high CAPEX requirements, it might be smarter to look outside of battery manufacturing and into areas enabling battery-based storage, such as second-life solutions, battery analytics platforms, and grid energy management instead.
Hardware Solutions for Batteries in Grid Energy Storage
Apart from the manufacturing hurdles linked with developing new chemistries for lithium-ion solutions, redox flow, sodium, and solid-state batteries, a new set of challenges has emerged around assembling large numbers of relatively small battery cells into monolithic, large-scale battery systems for energy storage.
Below are some key specs to consider when looking at battery-based energy storage solutions (BESS):
Power capacity — the maximum rate of discharge from a fully charged state (in kilowatts [kW] or megawatts [MW])
Energy capacity — maximum amount of stored energy (in kilowatt-hours [kWh] or megawatt-hours [MWh])
Storage duration — the time a battery can supply a specific amount of energy
Cycle life — number of charging/discharging cycles before failure or significant degradation of the system
State of charge — It shows the current charge level and ranges from completely discharged to fully charged.
Self-discharge — expressed as a percentage, shows the reduction of the stored energy over time, often caused by internal chemical reactions. It is an important factor to consider in batteries intended for longer-duration applications.
Round-trip efficiency — expressed as a percentage, represents the total efficiency of the battery system, including losses from self-discharge and other electrical losses.
End-of-Life Solutions
Batteries can be repurposed or recycled at the end of their life. Companies worldwide are researching circular economy approaches to increase battery value by reducing waste and energy.
The two main end-of-life processes are repurposing (modifying the battery for a new purpose) and recycling (breaking it into components for reuse). Some batteries, like lead batteries, are recycled up to 99% due to strict regulations. Lithium-ion batteries are particularly beneficial to repurpose and recycle due to their costly components and difficult-to-access raw materials. In the case of energy storage, battery repurposing is particularly important.
Circular economy model for energy materials according to National Renewable Energy Laboratory (NREL). (source)
Repurposing lithium-ion batteries can be particularly advantageous for the stationary storage industry, significantly lowering production costs compared with brand-new lithium-ion battery storage solutions. EV batteries are interesting candidates for repurposing, as they have to be replaced once they reach 70% to 80% of their original capacity, but they can still be utilized for less demanding applications such as grid storage. The chemical composition of batteries determines their availability for reuse, with cobalt-containing batteries being often more suitable for recycling than repurposing due to their high inherent value.
Predictions for second-life applications vary widely. Bloomberg New Energy Finance (BNEF) estimates that almost 40 GWh of EV batteries will be available for reuse by 2030, while McKinsey predicts that second-life battery capacity for stationary storage could surpass 200 GWh by 2030. Nevertheless, it is clear that the need for these systems is rapidly increasing every year.
End-of-life EV batteries can be repurposed at the pack or module level but not at the cell level due to high labor costs. Some EV companies are beginning to design their batteries for later reuse. Efforts in the EV battery repurposing for energy storage are powered by companies such as Renewance, which provides recycling and repurposing tools to ease the management of battery energy storage assets, or Smartville, which offers innovative solutions for second-life EV battery refurbishment and assembly for a larger scale energy storage.
Opportunities for second-life batteries (source). T&D = transmission and distribution, C&I = commercial and industrial.
Another example of the EV repurposing approach is a California-based company, B2U, which has built the world’s largest grid-scale stationary storage system from 1,300 recycled electric vehicle batteries. The system has a capacity of 25 MWh and is connected to a solar farm. Their patented technology enables the use of EV battery packs without reconfiguration in large-scale energy storage. The system offers grid services to California’s wholesale grid market 24/7, automating market bids and taking advantage of predictable daily price spikes and unpredictable demand shortages.
Software-based solutions for Battery-based Energy Storage for Grid
Battery Analytics Systems
Batteries for energy storage must meet specific requirements before they can be used in commercial applications. Battery Management Systems (BMS) help to ensure that batteries meet requirements such as frequency regulation, peak shaving, integration with renewable energy sources, and power management. BMS, such as PowerUp and Nerve Smart Systems, introduce an electronic system that monitors the performance of rechargeable batteries, ensuring their safe and optimal operation. Such systems often control charging, discharging, temperature regulation, and cell balancing to maximize battery performance and lifespan.
Additionally, battery analytics platforms, such as About:Energy, Accure, and Voltaiq, gather data from all stages of battery production, applying specialized analytics to provide actionable insights throughout the manufacturing process. This ability gives battery manufacturers advantages such as an accelerated production ramp, improved yield, and faster response to issues occurring in the production line.
On the other hand, ReJoule provides an efficient and easy-to-use battery diagnostic platform for second-life applications, while Zitara and Relyion focus on battery energy storage management and smart predictive analysis for large deployments, such as grid-scale and residential energy storage.
Battery Marketplaces
To address the difficulties with collecting, sorting, storing, and transporting used batteries, marketplaces such as Circunomics and Cling Systems are important to incorporate into the market. Battery recycling marketplaces offer solutions that build trust among participants, increase market transparency, reduce waste, and limit dependence on foreign resources for raw materials. Such circularity platforms focus on aspects such as end-of-life batteries, enabling repurposing, reusing, and recycling to supply materials and energy for the future.
Vehicle-to-Grid
Another approach to implementing EV batteries for energy storage use is Vehicle-to-grid (V2G), also known as Vehicle-to-X, which uses plugged-in EVs to provide demand response services to the grid. These demand services can deliver electricity or reduce the charging rate of vehicles. An example is LADE and Vool, which use V2G technology to let EVs feed energy back into the grid from designated areas such as parking lots and retail spaces, creating a distributed buffer storage of electricity.
V2G technology has the potential to reduce capital costs and material-related emissions. A recent study highlighted the critical need to harness V2G potential in the energy transition and its potential to provide 32–62 TWh of short-term storage globally by 2050.
Outlook:
With renewable energy sources becoming more prevalent, efficient grid management systems and energy storage technologies are essential. Although solutions such as battery-based energy storage have great potential, their grid-scale applications face several challenges that need to be addressed to ensure significant improvements and opportunities for various commercial applications in grid energy storage.
Cost reduction: cost plays a significant role, particularly in the application of batteries as grid-level energy storage systems. Battery repurposing can significantly lower the costs involved with lithium-ion batteries used for grid energy storage. Additionally, manufacturing and maintenance optimization can also significantly bring the costs down.
Efficient battery management: using appropriate tools can lower energy expenditures and optimize the development process by utilizing appropriate control software. Additionally, specified marketplaces can help source appropriate materials faster, cheaper, and more sustainable.
End-of-life approaches: are particularly important for LIBs, which are being gradually repurposed or recycled, thus decreasing the environmental footprint and reducing the need for raw materials extraction.
New battery technologies: The development of alternative chemistries to enhance battery performance and increase their lifetime is crucial, but it is important to keep in mind that battery development is often CAPEX-intensive, and new battery chemistries may struggle with scale-up and industrialization and have a long time to market.
Comprehensive grid management: Smart grids use digital tech, sensors, and software to match electricity supply and demand while keeping costs low and the grid stable. They help manage the transition to clean energy, reduce the need for costly grid infrastructure, and make grids more reliable. Another approach to implementing batteries in grid energy storage is V2G, which uses plug-in EVs to provide demand response services to the grid.
Early-stage battery-based energy storage solutions for grid
https://airtable.com/appj5KT1t4PCspStp/shrlbwQiKnHnCtEPL/tbltFyzRId00qDHbt
As a climate-focused fund, there has never been a better time for investment in energy storage, and we are excited about the number of opportunities that are out there in this space. If you are a founder building in this sector, please feel free to reach out as we are actively looking to make an investment as we feel it holds the key to a more sustainable future.
TL;DR
Efficient grid management systems and energy storage technologies are essential with the rise of renewable energy.
However, developing innovative battery chemistries face numerous challenges: these tend to be CAPEX-intensive and struggle with scale-up and commercialisation, and significant time to market.
Additionally, raw material and machinery shortages complicate the value chain, with lithium expected to be able to cover only 50% of the 2030 storage demand.
Next, the environmental impact of the battery manufacturing process must also be considered to create a more sustainable industry, with battery recycling and repurposing schemes having the potential to have a major impact.
Finally, software solutions for battery analytics focusing on energy efficiency in B2B and B2C markets and managing end-of-life processes are essential for the circular economy.
Find our list of 70+ early-stage companies in the battery-based energy storage space and more at the end of our article!
Introduction
With renewable energy sources becoming increasingly prevalent, efficient grid management systems and energy storage technologies are essential. Energy storage allows us to overcome the inherent intermittency of renewable energy sources and enhance the grid’s resilience during outages by absorbing or injecting power.
Energy storage systems can range in capacity from a few kWh for household use to GWh for the grid system. Key energy storage solutions include batteries, hydrogen production, pumped hydroelectricity, compressed air storage, gravity, and thermal storage.
These technologies can be utilized in many instances, such as frequency and voltage regulation, peak shifting, and renewable energy smoothing. Battery energy storage solutions are particularly attractive as they offer many advantages over other storage solutions, such as high energy density, efficiency, fast response, modularity, small footprint, low maintenance, ease of installation, and reduced geographical limitation.
This article focuses on battery energy storage and surrounding enabling solutions.
The Market View
The world is rapidly moving towards electrification, fueled by the following regulations and decarbonization schemes:
COP28 committed to triple global renewable energy capacity, double energy efficiency improvements by 2030, and phase down unabated coal use while limiting new coal power generation.
Decarbonization schemes aiming to reach net-zero emissions by 2050 require carbon-neutral energy sources.
Globally, there are only 30 GWh of installed storage capacity, but this will increase 15x by 2030. The International Energy Agency predicts global grid storage, based on 4-hour battery storage systems, will need to reach 2,500 GWh by 2030 to achieve net-zero emissions by 2050.
Electric grid energy storage is likely to be provided by two types of technologies:
Short-duration energy storage: such as fast response batteries, provides energy storage for less than 10 hours.
Long-duration energy storage: providing load shifting over many hours or days (not covered in this article)
Trends in the VC World
The continued expansion of the renewable energy sector is largely dependent on the successful adoption of efficient energy storage technologies. Among these technologies, batteries, battery storage solutions, energy efficiency enhancements, and smart grid systems have become an increasing area of focus for venture capitalists in recent years. Below are highlights of the VC investment trends in these areas:
Batteries: In 2022, VC investments in batteries amounted to $7bn, with $6.1bn in growth stage and $0.8bn in early-stage startups.
Energy Efficiency: Venture capital investments in this area in all of 2023 were around $1.4bn.
Energy Storage: By Q3 in 2023, VC funding in Energy Storage rose to $8.6 billion in 68 deals with 89 participating VC investors, up from $4 billion in 74 deals in the first 9 months of 2022. The energy storage market is expected to reach $34.72B by 2030, growing at a CAGR of 27%.
Smart Grid and Energy Efficiency: VC funding in Smart Grid companies decreased to $1.2 billion by Q3 2023 with 51 participating VC investors, compared to $2.5 billion raised in the first 9 months of 2022. The global smart grid market is expected to grow at a CAGR of 10.8% between 2023 and 2032.
Our Take
There’s no denying it — batteries are changing the world. This all-encompassing technology and its rapid progress is expected to result in a market worth billions and probably even trillions of dollars, competing with the fossil fuel infrastructure it intends to replace.
….but batteries are highly complex.
There are three main parts of battery manufacturing: electrode fabrication, cell assembly, and end-of-line.
A high-level representation of different steps in the battery manufacturing process (source).
These stages contain several individual steps, each involving many different equipment settings such as temperature, pressure, etc. Suppose you want to achieve a commercially viable battery. In that case, all those steps have to work together perfectly to be able to produce successful throughput and yield (i.e., the production speed and the number of batteries with high enough quality to pass end-of-line testing).
Therefore, it can take years of iteration before building a new successful factory, even for well-established players. For example, Panasonic’s gigafactory in Nevada, after the start of the production line, struggled with quality issues and financial losses for the first four years before fine-tuning its systems accordingly.
The challenge is exacerbated when dealing with new battery chemistries stemming from the latest innovations, which have never been mass-produced before. All the manufacturing processes need to be carefully calibrated to meet the new demands of those chemistries and face new hurdles.
Therefore, early-stage VCs interested in this space would be well advised to make several bets (think SOSV/HAX) vs. a single shot on goal. For Micro VCs, given the high CAPEX requirements, it might be smarter to look outside of battery manufacturing and into areas enabling battery-based storage, such as second-life solutions, battery analytics platforms, and grid energy management instead.
Hardware Solutions for Batteries in Grid Energy Storage
Apart from the manufacturing hurdles linked with developing new chemistries for lithium-ion solutions, redox flow, sodium, and solid-state batteries, a new set of challenges has emerged around assembling large numbers of relatively small battery cells into monolithic, large-scale battery systems for energy storage.
Below are some key specs to consider when looking at battery-based energy storage solutions (BESS):
Power capacity — the maximum rate of discharge from a fully charged state (in kilowatts [kW] or megawatts [MW])
Energy capacity — maximum amount of stored energy (in kilowatt-hours [kWh] or megawatt-hours [MWh])
Storage duration — the time a battery can supply a specific amount of energy
Cycle life — number of charging/discharging cycles before failure or significant degradation of the system
State of charge — It shows the current charge level and ranges from completely discharged to fully charged.
Self-discharge — expressed as a percentage, shows the reduction of the stored energy over time, often caused by internal chemical reactions. It is an important factor to consider in batteries intended for longer-duration applications.
Round-trip efficiency — expressed as a percentage, represents the total efficiency of the battery system, including losses from self-discharge and other electrical losses.
End-of-Life Solutions
Batteries can be repurposed or recycled at the end of their life. Companies worldwide are researching circular economy approaches to increase battery value by reducing waste and energy.
The two main end-of-life processes are repurposing (modifying the battery for a new purpose) and recycling (breaking it into components for reuse). Some batteries, like lead batteries, are recycled up to 99% due to strict regulations. Lithium-ion batteries are particularly beneficial to repurpose and recycle due to their costly components and difficult-to-access raw materials. In the case of energy storage, battery repurposing is particularly important.
Circular economy model for energy materials according to National Renewable Energy Laboratory (NREL). (source)
Repurposing lithium-ion batteries can be particularly advantageous for the stationary storage industry, significantly lowering production costs compared with brand-new lithium-ion battery storage solutions. EV batteries are interesting candidates for repurposing, as they have to be replaced once they reach 70% to 80% of their original capacity, but they can still be utilized for less demanding applications such as grid storage. The chemical composition of batteries determines their availability for reuse, with cobalt-containing batteries being often more suitable for recycling than repurposing due to their high inherent value.
Predictions for second-life applications vary widely. Bloomberg New Energy Finance (BNEF) estimates that almost 40 GWh of EV batteries will be available for reuse by 2030, while McKinsey predicts that second-life battery capacity for stationary storage could surpass 200 GWh by 2030. Nevertheless, it is clear that the need for these systems is rapidly increasing every year.
End-of-life EV batteries can be repurposed at the pack or module level but not at the cell level due to high labor costs. Some EV companies are beginning to design their batteries for later reuse. Efforts in the EV battery repurposing for energy storage are powered by companies such as Renewance, which provides recycling and repurposing tools to ease the management of battery energy storage assets, or Smartville, which offers innovative solutions for second-life EV battery refurbishment and assembly for a larger scale energy storage.
Opportunities for second-life batteries (source). T&D = transmission and distribution, C&I = commercial and industrial.
Another example of the EV repurposing approach is a California-based company, B2U, which has built the world’s largest grid-scale stationary storage system from 1,300 recycled electric vehicle batteries. The system has a capacity of 25 MWh and is connected to a solar farm. Their patented technology enables the use of EV battery packs without reconfiguration in large-scale energy storage. The system offers grid services to California’s wholesale grid market 24/7, automating market bids and taking advantage of predictable daily price spikes and unpredictable demand shortages.
Software-based solutions for Battery-based Energy Storage for Grid
Battery Analytics Systems
Batteries for energy storage must meet specific requirements before they can be used in commercial applications. Battery Management Systems (BMS) help to ensure that batteries meet requirements such as frequency regulation, peak shaving, integration with renewable energy sources, and power management. BMS, such as PowerUp and Nerve Smart Systems, introduce an electronic system that monitors the performance of rechargeable batteries, ensuring their safe and optimal operation. Such systems often control charging, discharging, temperature regulation, and cell balancing to maximize battery performance and lifespan.
Additionally, battery analytics platforms, such as About:Energy, Accure, and Voltaiq, gather data from all stages of battery production, applying specialized analytics to provide actionable insights throughout the manufacturing process. This ability gives battery manufacturers advantages such as an accelerated production ramp, improved yield, and faster response to issues occurring in the production line.
On the other hand, ReJoule provides an efficient and easy-to-use battery diagnostic platform for second-life applications, while Zitara and Relyion focus on battery energy storage management and smart predictive analysis for large deployments, such as grid-scale and residential energy storage.
Battery Marketplaces
To address the difficulties with collecting, sorting, storing, and transporting used batteries, marketplaces such as Circunomics and Cling Systems are important to incorporate into the market. Battery recycling marketplaces offer solutions that build trust among participants, increase market transparency, reduce waste, and limit dependence on foreign resources for raw materials. Such circularity platforms focus on aspects such as end-of-life batteries, enabling repurposing, reusing, and recycling to supply materials and energy for the future.
Vehicle-to-Grid
Another approach to implementing EV batteries for energy storage use is Vehicle-to-grid (V2G), also known as Vehicle-to-X, which uses plugged-in EVs to provide demand response services to the grid. These demand services can deliver electricity or reduce the charging rate of vehicles. An example is LADE and Vool, which use V2G technology to let EVs feed energy back into the grid from designated areas such as parking lots and retail spaces, creating a distributed buffer storage of electricity.
V2G technology has the potential to reduce capital costs and material-related emissions. A recent study highlighted the critical need to harness V2G potential in the energy transition and its potential to provide 32–62 TWh of short-term storage globally by 2050.
Outlook:
With renewable energy sources becoming more prevalent, efficient grid management systems and energy storage technologies are essential. Although solutions such as battery-based energy storage have great potential, their grid-scale applications face several challenges that need to be addressed to ensure significant improvements and opportunities for various commercial applications in grid energy storage.
Cost reduction: cost plays a significant role, particularly in the application of batteries as grid-level energy storage systems. Battery repurposing can significantly lower the costs involved with lithium-ion batteries used for grid energy storage. Additionally, manufacturing and maintenance optimization can also significantly bring the costs down.
Efficient battery management: using appropriate tools can lower energy expenditures and optimize the development process by utilizing appropriate control software. Additionally, specified marketplaces can help source appropriate materials faster, cheaper, and more sustainable.
End-of-life approaches: are particularly important for LIBs, which are being gradually repurposed or recycled, thus decreasing the environmental footprint and reducing the need for raw materials extraction.
New battery technologies: The development of alternative chemistries to enhance battery performance and increase their lifetime is crucial, but it is important to keep in mind that battery development is often CAPEX-intensive, and new battery chemistries may struggle with scale-up and industrialization and have a long time to market.
Comprehensive grid management: Smart grids use digital tech, sensors, and software to match electricity supply and demand while keeping costs low and the grid stable. They help manage the transition to clean energy, reduce the need for costly grid infrastructure, and make grids more reliable. Another approach to implementing batteries in grid energy storage is V2G, which uses plug-in EVs to provide demand response services to the grid.
Early-stage battery-based energy storage solutions for grid
https://airtable.com/appj5KT1t4PCspStp/shrlbwQiKnHnCtEPL/tbltFyzRId00qDHbt
As a climate-focused fund, there has never been a better time for investment in energy storage, and we are excited about the number of opportunities that are out there in this space. If you are a founder building in this sector, please feel free to reach out as we are actively looking to make an investment as we feel it holds the key to a more sustainable future.
TL;DR
Efficient grid management systems and energy storage technologies are essential with the rise of renewable energy.
However, developing innovative battery chemistries face numerous challenges: these tend to be CAPEX-intensive and struggle with scale-up and commercialisation, and significant time to market.
Additionally, raw material and machinery shortages complicate the value chain, with lithium expected to be able to cover only 50% of the 2030 storage demand.
Next, the environmental impact of the battery manufacturing process must also be considered to create a more sustainable industry, with battery recycling and repurposing schemes having the potential to have a major impact.
Finally, software solutions for battery analytics focusing on energy efficiency in B2B and B2C markets and managing end-of-life processes are essential for the circular economy.
Find our list of 70+ early-stage companies in the battery-based energy storage space and more at the end of our article!
Introduction
With renewable energy sources becoming increasingly prevalent, efficient grid management systems and energy storage technologies are essential. Energy storage allows us to overcome the inherent intermittency of renewable energy sources and enhance the grid’s resilience during outages by absorbing or injecting power.
Energy storage systems can range in capacity from a few kWh for household use to GWh for the grid system. Key energy storage solutions include batteries, hydrogen production, pumped hydroelectricity, compressed air storage, gravity, and thermal storage.
These technologies can be utilized in many instances, such as frequency and voltage regulation, peak shifting, and renewable energy smoothing. Battery energy storage solutions are particularly attractive as they offer many advantages over other storage solutions, such as high energy density, efficiency, fast response, modularity, small footprint, low maintenance, ease of installation, and reduced geographical limitation.
This article focuses on battery energy storage and surrounding enabling solutions.
The Market View
The world is rapidly moving towards electrification, fueled by the following regulations and decarbonization schemes:
COP28 committed to triple global renewable energy capacity, double energy efficiency improvements by 2030, and phase down unabated coal use while limiting new coal power generation.
Decarbonization schemes aiming to reach net-zero emissions by 2050 require carbon-neutral energy sources.
Globally, there are only 30 GWh of installed storage capacity, but this will increase 15x by 2030. The International Energy Agency predicts global grid storage, based on 4-hour battery storage systems, will need to reach 2,500 GWh by 2030 to achieve net-zero emissions by 2050.
Electric grid energy storage is likely to be provided by two types of technologies:
Short-duration energy storage: such as fast response batteries, provides energy storage for less than 10 hours.
Long-duration energy storage: providing load shifting over many hours or days (not covered in this article)
Trends in the VC World
The continued expansion of the renewable energy sector is largely dependent on the successful adoption of efficient energy storage technologies. Among these technologies, batteries, battery storage solutions, energy efficiency enhancements, and smart grid systems have become an increasing area of focus for venture capitalists in recent years. Below are highlights of the VC investment trends in these areas:
Batteries: In 2022, VC investments in batteries amounted to $7bn, with $6.1bn in growth stage and $0.8bn in early-stage startups.
Energy Efficiency: Venture capital investments in this area in all of 2023 were around $1.4bn.
Energy Storage: By Q3 in 2023, VC funding in Energy Storage rose to $8.6 billion in 68 deals with 89 participating VC investors, up from $4 billion in 74 deals in the first 9 months of 2022. The energy storage market is expected to reach $34.72B by 2030, growing at a CAGR of 27%.
Smart Grid and Energy Efficiency: VC funding in Smart Grid companies decreased to $1.2 billion by Q3 2023 with 51 participating VC investors, compared to $2.5 billion raised in the first 9 months of 2022. The global smart grid market is expected to grow at a CAGR of 10.8% between 2023 and 2032.
Our Take
There’s no denying it — batteries are changing the world. This all-encompassing technology and its rapid progress is expected to result in a market worth billions and probably even trillions of dollars, competing with the fossil fuel infrastructure it intends to replace.
….but batteries are highly complex.
There are three main parts of battery manufacturing: electrode fabrication, cell assembly, and end-of-line.
A high-level representation of different steps in the battery manufacturing process (source).
These stages contain several individual steps, each involving many different equipment settings such as temperature, pressure, etc. Suppose you want to achieve a commercially viable battery. In that case, all those steps have to work together perfectly to be able to produce successful throughput and yield (i.e., the production speed and the number of batteries with high enough quality to pass end-of-line testing).
Therefore, it can take years of iteration before building a new successful factory, even for well-established players. For example, Panasonic’s gigafactory in Nevada, after the start of the production line, struggled with quality issues and financial losses for the first four years before fine-tuning its systems accordingly.
The challenge is exacerbated when dealing with new battery chemistries stemming from the latest innovations, which have never been mass-produced before. All the manufacturing processes need to be carefully calibrated to meet the new demands of those chemistries and face new hurdles.
Therefore, early-stage VCs interested in this space would be well advised to make several bets (think SOSV/HAX) vs. a single shot on goal. For Micro VCs, given the high CAPEX requirements, it might be smarter to look outside of battery manufacturing and into areas enabling battery-based storage, such as second-life solutions, battery analytics platforms, and grid energy management instead.
Hardware Solutions for Batteries in Grid Energy Storage
Apart from the manufacturing hurdles linked with developing new chemistries for lithium-ion solutions, redox flow, sodium, and solid-state batteries, a new set of challenges has emerged around assembling large numbers of relatively small battery cells into monolithic, large-scale battery systems for energy storage.
Below are some key specs to consider when looking at battery-based energy storage solutions (BESS):
Power capacity — the maximum rate of discharge from a fully charged state (in kilowatts [kW] or megawatts [MW])
Energy capacity — maximum amount of stored energy (in kilowatt-hours [kWh] or megawatt-hours [MWh])
Storage duration — the time a battery can supply a specific amount of energy
Cycle life — number of charging/discharging cycles before failure or significant degradation of the system
State of charge — It shows the current charge level and ranges from completely discharged to fully charged.
Self-discharge — expressed as a percentage, shows the reduction of the stored energy over time, often caused by internal chemical reactions. It is an important factor to consider in batteries intended for longer-duration applications.
Round-trip efficiency — expressed as a percentage, represents the total efficiency of the battery system, including losses from self-discharge and other electrical losses.
End-of-Life Solutions
Batteries can be repurposed or recycled at the end of their life. Companies worldwide are researching circular economy approaches to increase battery value by reducing waste and energy.
The two main end-of-life processes are repurposing (modifying the battery for a new purpose) and recycling (breaking it into components for reuse). Some batteries, like lead batteries, are recycled up to 99% due to strict regulations. Lithium-ion batteries are particularly beneficial to repurpose and recycle due to their costly components and difficult-to-access raw materials. In the case of energy storage, battery repurposing is particularly important.
Circular economy model for energy materials according to National Renewable Energy Laboratory (NREL). (source)
Repurposing lithium-ion batteries can be particularly advantageous for the stationary storage industry, significantly lowering production costs compared with brand-new lithium-ion battery storage solutions. EV batteries are interesting candidates for repurposing, as they have to be replaced once they reach 70% to 80% of their original capacity, but they can still be utilized for less demanding applications such as grid storage. The chemical composition of batteries determines their availability for reuse, with cobalt-containing batteries being often more suitable for recycling than repurposing due to their high inherent value.
Predictions for second-life applications vary widely. Bloomberg New Energy Finance (BNEF) estimates that almost 40 GWh of EV batteries will be available for reuse by 2030, while McKinsey predicts that second-life battery capacity for stationary storage could surpass 200 GWh by 2030. Nevertheless, it is clear that the need for these systems is rapidly increasing every year.
End-of-life EV batteries can be repurposed at the pack or module level but not at the cell level due to high labor costs. Some EV companies are beginning to design their batteries for later reuse. Efforts in the EV battery repurposing for energy storage are powered by companies such as Renewance, which provides recycling and repurposing tools to ease the management of battery energy storage assets, or Smartville, which offers innovative solutions for second-life EV battery refurbishment and assembly for a larger scale energy storage.
Opportunities for second-life batteries (source). T&D = transmission and distribution, C&I = commercial and industrial.
Another example of the EV repurposing approach is a California-based company, B2U, which has built the world’s largest grid-scale stationary storage system from 1,300 recycled electric vehicle batteries. The system has a capacity of 25 MWh and is connected to a solar farm. Their patented technology enables the use of EV battery packs without reconfiguration in large-scale energy storage. The system offers grid services to California’s wholesale grid market 24/7, automating market bids and taking advantage of predictable daily price spikes and unpredictable demand shortages.
Software-based solutions for Battery-based Energy Storage for Grid
Battery Analytics Systems
Batteries for energy storage must meet specific requirements before they can be used in commercial applications. Battery Management Systems (BMS) help to ensure that batteries meet requirements such as frequency regulation, peak shaving, integration with renewable energy sources, and power management. BMS, such as PowerUp and Nerve Smart Systems, introduce an electronic system that monitors the performance of rechargeable batteries, ensuring their safe and optimal operation. Such systems often control charging, discharging, temperature regulation, and cell balancing to maximize battery performance and lifespan.
Additionally, battery analytics platforms, such as About:Energy, Accure, and Voltaiq, gather data from all stages of battery production, applying specialized analytics to provide actionable insights throughout the manufacturing process. This ability gives battery manufacturers advantages such as an accelerated production ramp, improved yield, and faster response to issues occurring in the production line.
On the other hand, ReJoule provides an efficient and easy-to-use battery diagnostic platform for second-life applications, while Zitara and Relyion focus on battery energy storage management and smart predictive analysis for large deployments, such as grid-scale and residential energy storage.
Battery Marketplaces
To address the difficulties with collecting, sorting, storing, and transporting used batteries, marketplaces such as Circunomics and Cling Systems are important to incorporate into the market. Battery recycling marketplaces offer solutions that build trust among participants, increase market transparency, reduce waste, and limit dependence on foreign resources for raw materials. Such circularity platforms focus on aspects such as end-of-life batteries, enabling repurposing, reusing, and recycling to supply materials and energy for the future.
Vehicle-to-Grid
Another approach to implementing EV batteries for energy storage use is Vehicle-to-grid (V2G), also known as Vehicle-to-X, which uses plugged-in EVs to provide demand response services to the grid. These demand services can deliver electricity or reduce the charging rate of vehicles. An example is LADE and Vool, which use V2G technology to let EVs feed energy back into the grid from designated areas such as parking lots and retail spaces, creating a distributed buffer storage of electricity.
V2G technology has the potential to reduce capital costs and material-related emissions. A recent study highlighted the critical need to harness V2G potential in the energy transition and its potential to provide 32–62 TWh of short-term storage globally by 2050.
Outlook:
With renewable energy sources becoming more prevalent, efficient grid management systems and energy storage technologies are essential. Although solutions such as battery-based energy storage have great potential, their grid-scale applications face several challenges that need to be addressed to ensure significant improvements and opportunities for various commercial applications in grid energy storage.
Cost reduction: cost plays a significant role, particularly in the application of batteries as grid-level energy storage systems. Battery repurposing can significantly lower the costs involved with lithium-ion batteries used for grid energy storage. Additionally, manufacturing and maintenance optimization can also significantly bring the costs down.
Efficient battery management: using appropriate tools can lower energy expenditures and optimize the development process by utilizing appropriate control software. Additionally, specified marketplaces can help source appropriate materials faster, cheaper, and more sustainable.
End-of-life approaches: are particularly important for LIBs, which are being gradually repurposed or recycled, thus decreasing the environmental footprint and reducing the need for raw materials extraction.
New battery technologies: The development of alternative chemistries to enhance battery performance and increase their lifetime is crucial, but it is important to keep in mind that battery development is often CAPEX-intensive, and new battery chemistries may struggle with scale-up and industrialization and have a long time to market.
Comprehensive grid management: Smart grids use digital tech, sensors, and software to match electricity supply and demand while keeping costs low and the grid stable. They help manage the transition to clean energy, reduce the need for costly grid infrastructure, and make grids more reliable. Another approach to implementing batteries in grid energy storage is V2G, which uses plug-in EVs to provide demand response services to the grid.
Early-stage battery-based energy storage solutions for grid
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