As investment in renewable energy generation continues to rise to match increasing demand so too does investment, and the opportunity to invest, in energy storage. Estimates indicate that global energy storage installations rose over 75% (measured by MWhs) year over year in 2024 and are expected to go beyond the terawatt-hour mark before 2030. That continued development, together with the broader industry focus on dissociating generation from consumption, decreasing development costs, innovation with respect to new storage solutions, the current political landscape and, in many respects, a fragmented market, presents opportunities for venture capital, private equity, and M&A alike.
Investors may look toward battery storage solutions with differing investment theses. For example, energy storage systems are seen by some investors as a potential solution to reduce some of the pressure data centers and other load growth are placing, and are expected to place, on transmission and distribution networks. For other investors, these solutions are viewed as a hedge on traditional renewable portfolios aimed at normalizing the spreads between low- and high-priced hours. Regardless of the investment thesis, energy storage transactions continue to grow.
Through the first three quarters of 2024, 83 energy storage financing and investment deals were reported completed for a total of $17.6 billion invested[1]. Of these transactions, 18 were M&A transactions, up from 11 transactions during the same period in 2023. Venture capital transactions took a backseat to debt and public market financings, which demonstrates further acceptance of the technology being deployed. With developers continuing to add new capacity, including 9.2 GW of new lithium-ion battery storage capacity in 2024 through November of 2024[2] and comparable levels of growth expected through the fourth quarter of 2024, we anticipate energy storage investments and M&A activity to continue on their trajectory through 2025.
M&A transaction trends in energy storage continue to largely track broader renewable investment trends and are often not distinguishable from the acquisition of other renewable energy assets. Generally, energy storage targets can be broken down into two categories: (1) development-stage, pre-operational projects and (2) operational projects.
Key diligence areas when considering energy storage projects include evaluating the battery technology as well as the supplier and country of origin of the batteries and other key components such as inverters. Any tariff and change in law risk should also be well understood. Similarly, if the seller has already engaged a primary contractor to construct the project, the buyer should understand any risks it may step into with respect to the provision of such materials (assuming the contractor is not providing a “full-wrap” and “turnkey” project). Buyers should also ensure they thoroughly review the proposed system’s design, perform a site assessment that includes a review of any potential local land use and interconnection issues, and review any agreed upon offtake agreements, including any performance testing and operational requirements. Further analysis of issues to consider in connection with energy storage contracting can be found in A 2025 Update on Utility-Scale Energy Storage Procurements.
The purchase price for development-stage acquisitions is most often tied to capacity milestones whereas sellers of operational projects receive the majority of the purchase price at the closing of the transaction, and indemnification packages, when included at all, are more limited in acquisitions of operational projects than of development-stage projects. Sellers will often require representation and warranty insurance in lieu of providing any indemnity. However, as a result of the risks and costs associated with early-stage development and the number of storage installations being developed, we anticipate buyers will soon have more leverage to wait to deploy capital on late-stage projects nearing commercialization or, if acquiring earlier-stage assets, structure M&A transactions in a way that further limits the assumption of any development risk.