- Battery storage has become one of the hottest renewable energy niches
- A “must-own” in the space
- Both start-ups and larger battery companies are pulling in billions of dollars to fund ambitious expansion plans
- UBS estimates that the United States energy storage market could grow to as much as $426 billion over the next decade
One of the biggest electric-vehicle battery companies in the world is going public.
After years of disappointment, the U.S. IPO market has been recording a strong comeback. Traditional initial public offerings raised more money than ever before in 2021, as early investors tried to cash in on sky-high valuations. This year, a record nearly 400 traditional IPOs and an additional 600 special-purpose acquisition companies (SPACs) listed on the markets. Total deal value for traditional IPOs clocked in at $153.5B while SPACs fetched $162.3B, both record highs.
Unfortunately, the same cannot be said about the energy sector.
It appears that Wall Street is still souring on the U.S. oil and gas patch, if the first initial public offering of a U.S. shale driller in four years is any indication.
Despite all the chatter about natural gas being the perfect bridge fuel in the transition to clean energy, even a natural gas explorer backed by private-equity giant Blackstone Group Inc. was unable to raise the capital it expected. In its March IPO, Vine Energy Inc. (NYSE:VEI) sold 21.5 million shares for a total of $301 million, falling short of its target of $361 million. To get the deal done, Vine had to accept a lower price than its target price, while Blackstone and its affiliates had to step in with a $60 million purchase to push it through.
Things are not much different elsewhere, with the IPO of Australian shale gas explorer Tamboran Resources also underwhelming.
In sharp contrast, investors appear a lot more enthusiastic about funding clean energy startups. Whereas oil and gas IPOs might not be in play just yet, the renewable energy sector is a different beast altogether.
Source: Wall Street Journal
Brazil's biofuel company Raizen went public in August, raising $1.3B and snagging a $14B valuation in one of Brazil's biggest-ever IPOs. Raizen is a joint venture between Cosan S.A. (NYSE:CZZ) and Royal Dutch Shell Plc (NYSE:RDS.A).
Meanwhile, Spanish renewable energy company Acciona Energia (ANE.MC) has enjoyed one of the most successful IPOs in Europe this year in an otherwise lackluster market.
Dutch e-bus manufacturer Ebusco also had a successful IPO in October that valued the company at $1.3B while shares of Swedish automotive manufacturer Volvo Cars (VOLCARb.ST) have soared 22% after its debut.
Meanwhile, battery storage has become one of the hottest renewable energy niches.
Energy storage technology and services provider, Fluence Energy (NASDAQ:FLNC), completed its IPO in November, raising just under a billion dollars. Fluence currently has a market cap of $5.7B.
Citing “undeniable fundamentals” and a sector ripe for disruption, Evercore ISI has launched coverage on the energy storage ecosystem, set to solve the problems of intermittent power generation as the energy industry pivots to renewables.
“The outlook for energy storage demand growth these next three decades is strong as the globe pivots towards decarbonization amid continued cost declines in battery prices,” the firm says.
Evercore has tapped Fluence Energy as a “must-own” in the space, noting the company provided the grid's first-ever Li-Ion battery energy storage system, and has worked through several generations of that technology since.
According to a report by global communications, research, and consulting firm focusing on cleantech Mercom Capital Group, corporate funding and M&A for the battery storage, smart grid, and energy efficiency sectors more than doubled in 2020 to $8.1 billion compared to $3.8 billion in the previous year. A more recent report by the research outfit reveals that total corporate funding (including VC, Debt, and Public Market Financing) in battery energy storage came to $4.7 billion in 17 deals compared to $3.1 billion in 19 deals in Q4 2020. Funding was up significantly year-over-year (YoY) compared to $244 million in nine deals in Q1 2020.
A host of energy experts, including the U.S. Energy Information Administration (EIA), UBS, BloombergNEF, S&P Market Intelligence, Wood Mackenzie, and others are extremely bullish about the prospects of the battery storage industry– both over the near-and long-term–as the clean energy drive gains huge momentum.
At the center of our green energy drive are solar and wind power, both of which are expected to contribute nearly half of the global power mix by 2050 as per Bloomberg New Energy Finance. The intermittent nature of these renewable sources, however, means that large-scale storage is absolutely critical if the world is to successfully shift away from high dependence on fossil-fuels.
The surge in lithium-ion battery production since 2010 can be chalked up to huge improvements in the technology from a cost and performance standpoint.
Over the past decade, an 85% decline in prices fueled a revolution in lithium-ion battery technology, making electric vehicles and large-scale commercial battery deployments a reality for the first time in history.
The next decade will be defined by a massive increase in utility-scale storage.
United States utilities are trying to cut down on emissions by implementing utility-scale battery storage units (one megawatt (MW) or greater power capacity).
In March 2019, NextEra Energy (NYSE:NEE) announced plans to build a 409-MW energy storage project in Florida that will be powered by utility-scale solar.
Xcel Energy (NASDAQ:XEL) plans to replace its Comanche coal units with a $2.5-billion investment in renewables and battery storage, including 707 MW of solar PV, 1,131 megawatts (MW) of wind, and 275 MW of battery storage in the State of Colorado.
In October, Duke Energy (NYSE:DUK) announced plans to build an energy storage project at the Anderson Civic Center, Carolina, including investments to the tune of $500 million in battery storage projects for electricity generation capacity of 300 MW.
The outlook for the battery storage industry is as rosy as they get.
According to the EIA, operating utility-scale battery storage power capacity in the United States more than quadrupled from 2014 (214 MW) through March 2019 (899 MW). The organization projects that utility-scale battery storage power capacity could exceed 2,500 MW by 2023, or a 180% increase, assuming currently planned additions are completed with no current operating capacity being retired.
UBS estimates that the United States energy storage market could grow to as much as $426 billion over the next decade.
Here are more energy storage IPOs to keep an eye on.
#1. LG Energy
Last year, LG Chem (OTCPK:LGCLF), South Korea's largest chemical company and a leading EV battery supplier, announced plans to spin off its battery division LG Energy Solution (LGES). LGES is one of the world's top electric vehicle (EV) battery makers, supplying the likes of Tesla (NASDAQ:TSLA) and General Motors Co (NYSE:GM).
LG Energy Solution applied for preliminary approval of an IPO that publication IFR says could fetch $10 billion-$12 billion, easily South Korea's biggest-ever listing.
LGES and the Korea Exchange announced the application for approval of the previously flagged IPO on Tuesday, without mentioning its size. IFR reported the potential size earlier in June, citing people close to the deal.
LGES says the IPO was planned for 2021, although the company is yet to confirm or deny the IPO size.
A $10 billion IPO would be more than double the 2010 IPO of Samsung Life Insurance, which was valued at 4.9 trillion won ($4.39 billion). If successful, it would mark the third U.S. IPO of South Korean companies following the $2 billion domestic float of material solution provider SK IE Technology Co Ltd and $4.6 billion U.S. IPO of South Korean e-commerce company, Coupang.
The timing of the IPO could not have been better, with global sales of battery-powered electric cars exploding as automakers race towards electrification.
LGES has announced plans to invest more than $4.5 billion in its U.S. battery plant by 2025.
#2. Harmony Energy
Battery energy storage company Harmony Energy Income Trust has announced its intention to go public in a bid to fund the development of 213.5MW of projects using Tesla's battery storage technology.
Harmony Energy will list on the Specialist Fund Segment of the London Stock Exchange through an institutional placing with up to 230 million new ordinary shares at an issue price of 100p per share. The company says it's targeting a dividend yield of 8% per annum, payable quarterly from 2023.
Harmony says it will use proceeds from the IPO to acquire five projects with a capacity of 213.5MW (427MWh) from Harmony Energy Limited. Harmony has contracted with Tesla for this initial portfolio, including agreed pricing and timing of delivery.
The company will follow up on this initial portfolio with a 99MW (198MWh) advanced project acquisition, bumping up Harmony's initial portfolio to 312MW (625MWh).
Paul Mason, managing director of the Investment Adviser, says battery storage offers exciting growth potential, with the country's installed capacity expected to reach 43GW by 2050 from just 1.2GW now.
“Investing in battery storage energy systems requires extensive sector expertise and knowledge, and our team has decades of investment and industry experience. Battery storage energy systems are a vital cog in the renewable energy value chain. We believe there is enormous potential in the sector and the 2-hour duration battery will be best placed to take advantage of this.“
#3. Pod Point
Pod Point, a company that provides charging points for electric vehicles in Britain, has announced plans to list on the London Stock Exchange.
Majority owned by France's EDF (EDF.PA), Pod Point has revealed that it plans a premium listing with a free float of at least 25%. Following the listing, EDF will maintain a stake of more than 50%.
Pod Point is Britain's largest provider of home charging points for EVs and the second largest provider of workplace charging infrastructure. The company booked revenue of 33.1 million pounds ($45.18 million) in the year ended Dec. 31, 2020, with an adjusted underlying loss of 12.3 million pounds.