Energy storage takes a hit among investors while solar continues to soar
Published May 2, 2023
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Venture capitalists are still lining up to invest in solar projects and technologies, but just about every other sector—including energy storage—has seen funding slow in the first quarter of 2023, according to data from Mercom Capital Group.
Total corporate ffell to $2.2 billion in the first quarter from $12.9 billion in the first quarter of 2022, but is up 11% year-over-year.
Investor enthusiasm for clean tech seems to be waning with the cooling economy, but solar remains a rare exception. The Inflation Reduction Act may be at least partly responsible for solar’s good fortune, Mercom CEO and cofounder said, but whether the sector will continue to buck economy-wide trends is not yet known.
Venture capital funding for energy storage companies is down 8% year-over-year and 35% since the final quarter of 2022, according to Mercom. Total energy storage funding, including venture capital, but also public market financing and debt financing, took a dive from $12.9 billion in the first quarter of 2022 to $2.2 billion this past quarter.
Prabhu noted that LG Energy Solution’s 10.7 billion IPO during the first quarter of last year skews the year-over-year figures.
But it’s not just energy storage. Total funding for smart grid companies is down 42% since the end of last year. Outside solar, Prabhu said, “the only other sector we’re seeing that is doing well is artificial intelligence. Everywhere we look, especially with venture capital, most sectors are tanking.”
The IRA is likely helping solar companies buck the trend as investors look to get in on projects and companies that stand to benefit from the law before the incentives start pushing company valuations up, Prabhu said. But it isn’t the only factor, he said. The war in Ukraine and Europe’s acute interest in energy independence is another reason investors are betting that solar will beat the market.
Prabhu said the market fundamentals suggest solar and other clean energy sectors should continue to grow, but a possible recession coupled with other financial issues and growing concern about interconnection challenges could result in some “choppy” quarters for solar companies in the years ahead, he said.
“Everyone wants to buy a good quality solar project, but the financial sector, the talk of recession, could slow down some deal making,” Prabhu said. “Not that the deals won’t happen, but we have heard people tell us that they’re seeing some areas where prices are so high, and valuations are so high, that they’re going to wait and see.”
It’s entirely possible, Prabhu said, that solar would have posted an even better quarter were it not for the otherwise sluggish market. And it’s possible, he said, that next quarter could see slower investment in solar energy while interest in another sector like energy storage—which Prabhu said he did not expect to slow this year—gains steam again.
“Just because solar is doing well doesn’t mean that everything is good,” he said. “Next quarter it could be flipped. It’s not as even as it was before when economic conditions were normal.”