Private equity (PE)-led acquisitions of energy storage assets to rise by 180% y/y in 2022

As the world transitions away from fossil-fuel-based power systems to those backed by renewable energy sources, the need to tackle issues related to intermittency in supply, is becoming more and more important. According to a recent report by the Long Duration Energy Storage (LDES) Council, global LDES capacity will need to have scaled up to 400 times the present-day levels to 1.5-2.5 TW (85-140 TWh) by 2040, to keep pace with the expansion in renewables. However, large utilities are still unclear on the value proposition of storage assets and have shied away from investing aggressively in the space due to uncertainties on monetization. 

Enerdatics observes that private equity (PE) firms and PE-backed companies have been aggressively pursuing large-scale investments in the space, driven by the need for low-cost capital by companies with large development pipelines. Our research team has analyzed the evolution of PE-led deal activity in the space, and summarized its findings on the below slide, the highlights of which are:

– PE-led deal acquisitions account for nearly 37% of the transaction activity in the space since 2017, with its share of the total activity recording the largest jump in 2022, during which PE acquisitions accounted for more than 45% of all energy storage deals

– The US and the UK account for nearly 75% of the PE deal activity in the sector, globally - primarily due to supportive government policies, for ex: the recently passed Inflation Reduction Act (IRA)  introduced the investment tax credit (ITC) subsidy for standalone energy storage. This means that batteries will not have to be co-located onsite with solar PV generation to avail of a ~30% reduction in the upfront cost of their project equipment

– The UK has been globally an early mover in space, driven by the country’s grid interconnection landscape. According to network operator National Grid, the expected costs of congestion in the UK’s electricity grid exceed the investment required in storage technologies to mitigate it

– To capitalize on the rising demand for energy storage, PE firms are pursuing large-scale corporate takeovers and JVs, to develop gigawatt-sized pipelines of assets. BlackRock’s acquisition of US-based Jupiter Power and its 11 GW asset pipeline from EnCap Investments, Yorktown Partners, and Mercuria Energy marks the largest energy storage deal globally, in the last ~6 years. Other major PE firms include Apollo Global Management, Copenhagen Infrastructure Partners, Macquarie’s GIG, and Capital Dynamics

– Countries including the US, UK, Canada, and France lead deal activity for innovative energy storage technologies, such as sodium-ion, solid-state, compressed air energy storage (CAES), and flywheel energy storage. PE firms that have established a footprint in these niche spaces include UBS Asset Management, Goldman Sachs, Gresham House, and CPP Investments

The above analysis is proprietary to Enerdatics’ energy analytics team, based on the current understanding of the available data. The information is subject to change and should not be taken to constitute professional advice or a recommendation.

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