Dive Brief:

• Global energy storage, smart grid and energy efficiency companies raised $1.6 billion in venture capital funding in the first quarter of 2022, up from $1.3 billion during the same period last year, according to a report released Monday by Mercom Capital Group.
• Meanwhile, total corporate funding – which also takes into account debt and public market financing – for these sectors soared to $13.3 billion this quarter, with the majority going to energy storage companies, compared to $5 billion in the first quarter of 2021. 
• This is the fifth quarter in a row that the storage sector has seen venture funding of $1 billion or more, Mercom CEO Raj Prabhu said. "That’s a big leap for the industry and to me, that shows the importance of storage to the investment community, and the money is now starting to flow in, comparable to its importance," he added.

Dive Insight:

The global energy storage sector saw $12.9 billion in total corporate funding the first quarter of 2022, spread across 26 deals – a significant increase from $4 billion across 27 deals in the last quarter of 2021, as well as $4.7 billion over 18 deals during the first quarter of 2021. Venture capital funding for storage companies, meanwhile, totaled $1.1 billion across 21 deals in Q1 2022, rising from $1 billion across 14 deals in Q1 2021, but falling from $1.6 billion across 21 deals in Q4 2021.

One of the key factors driving the growth of storage investments is the demand for installing solar-plus-storage systems, according to Prabhu. Energy storage on its own is still pretty expensive but when combined with solar, it becomes a lot more affordable for commercial and industrial customers, especially in light of reliability challenges in places like California. 

"We’re adding so much solar and wind, which are intermittent… so you need storage to make these stable," Prabhu said. 

One of the top VC-funded storage companies this quarter was Hydrostor. This January, Goldman Sachs invested $250 million in the long-duration energy storage provider. The money will go to compressed air energy storage projects the company is developing in Australia and California, and to help expand the company’s development pipeline. 

Hydrostor in recent months has announced plans to build two different storage projects in California – a 400 MW/3,200 MWh compressed air facility scheduled to come online by 2027, helping replace the 2.2 GW Diablo Canyon nuclear plant, as well as a 500 MW/4,000 MWh project in Southern California. 

So far, storage funding trends have remained steady despite the supply chain issues and price increases facing the sector. Questions remain, however, on what Q2 2022 will look like for storage companies, "especially because we’re looking at higher interest rate trends going forward," Prabhu said.

Another headwind Prabhu is keeping his eye on is the outcome of the Department of Commerce’s anti-dumping circumvention investigation of solar cells from four Southeast Asian countries. 

"Everyone is waiting to see what’s going to happen to this tariff investigation because storage is so tied to solar right now, if tariffs come on solar… and solar projects slow down, that will slow down storage also," he said.