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LP Forum: Energy storage, coming to a portfolio near you

The sector could be on the cusp of a private capital bonanza should revenue models firm up and costs continue to come down, champions of the technology said today.

Few fund managers looking for steady cashflows, scale and plug-and-play assets have yet placed a bet on energy storage.

Yet they should prepare for the sector's growth and “come in early” if they are not to miss the boat, said panel moderator Ray Albright, managing director of the Global Environment Fund, at Infrastructure Investor's LP Summit in New York today.

Part of the sector's attraction lied in a “precipitous” reduction in costs over the past decade, which Davion Hill, energy storage leader for the Americas at DNV GL and chairman of NAATTBatt International, said had happened thanks to incremental improvements rather than a technological revolution.

A further decline in costs could allow energy storage to penetrate many more markets, agreed Marek Wolek, a managing director at AES Corporation.

“There's not one price that energy storage has to hit, as the price you're benchmarked against depends on the market you're in. As such a small decrease in costs could have a big impact, because it could open up many more areas to compete in for the technology.”

Bill Cannon, a vice-president at Sumitomo Corporation, was especially bullish about the US and Japan, where he saw energy storage become a big area for potential investments from both strategics and financiers. 

But for this to happen, the business case for backing such projects had to stack up. Molek spent some time arguing that investors should have no qualms in trusting the technology, which he said was pretty much like “the batteries you find in electric cars but in a more controlled environment”.

He said multiple revenue mechanisms could be put in place to make the space investable, from indirect revenue schemes to PPAs and RAB-based arrangements. But he urged investors to step into the sector early, so as to reap the benefits while capital can still be deployed swiftly.

“As an LP, once you've made your decision, you'll have to spend some time finding the right team and plugging yourself into the GP's fundraising cycle. So it could take another couple of years before you start deploying your first dollars. And at that point in time the market will probably much more competitive than it is today.”