Energy Storage Is The Next Big Trend - Here’s What You Need To Know Before Investing

May 23, 2018

Energy Storage Is The Next Big Trend – Here’s What You Need To Know Before Investing

  • The technology is close to being profitable.
  • This will not only boost the industry, but also renewables.
  • Knowing what’s going on is key to profitable investing.



Introduction

Right now, solar is doing really well with the latest positive news being the state of California making it mandatory to install solar roofs on new houses by 2020.

However, solar and wind energy, the drivers of renewable energy, are both very volatile and don’t produce most of their energy when it’s needed. You never know whether it will be windy, and solar energy is mostly produced during midday despite the highest consumption occurring in the evening. This leads us to the key component for renewables, which is energy storage. 

Battery costs have been constantly declining over the past few years, and are becoming more and more attractive to investors and renewables projects.

Figure 1: Battery costs declining. Source: Cleantechnica.

News from Electrek shows that Audi promises batteries at a cost as low as $114 per kWh which would really be a game changer for electric vehicles and energy storage. The lower costs might increase demand for storage as it becomes profitable.

The Issue With Renewable Energy

One issue with renewable energy is that you can’t store it which means that you might even have to sell it at a negative price.

Figure 2: Cost of renewable energy when abundant. Source: BNEF.

The problem with the abundance of renewable energy in peak production times can only be solved with storage which would give a boost both to the battery and solar industries. So, the demand is here, the technology is approaching profitability or will soon reach such a target, but the question remains, how to invest?



How To Invest In The Trend

There are three main trends to follow: utilities, commercial buildings, and homeowners.

Utilities can smooth the impact of the volatile renewable energy market by storing it, while commercial buildings can save on their energy bill as they often buy at peak times. Some homeowners will love to detach themselves from the grid if possible but also as more and more houses install solar, it’s better to store it than to sell it back to the utility at wholesale prices.

To understand how to invest specifically, we have to look at the components of the system.

Figure 3: Energy storage system. Source: Schneider.

So, besides the batteries and PV modules, there are inverters, meters, controllers, power conversion systems, there is also the capital needed to invest in such a venture. As it’s an industry in infancy, you must be careful not to trust promises because that is betting and not real investing. Looking for companies that have sustainable and profitable business models might be the best to still take advantage of the trend while also limiting the downside.

One company that is the leader in battery production is Berkshire owned BYD, but their revenue from batteries is just 8%.

Figure 4: BYD’s revenue breakdown. Source: BYD.



7% and 8% aren’t really big exposures, but keep in mind that the trend is still in its infancy and with costs declining, those who have the best technology may do very well. Further, 53% of BYD’s revenue comes from selling electric cars in China which is also not such a bad business, but the margins are relatively normal with the net margin being 4%.

Another company that plans to invest $10 billion in energy storage is EDF, the French utility. Further, given the extremely low interest rates in Europe, other European utilities like E.On, Total, and Enel are also investing in the sector. This means there will be demand for such products that will have to be supplied from various companies.

The steps to take for investing are the following:

  1. Look at the metals used in the batteries (lithium, cobalt, nickel, etc.).
  2. Look at the metal used in creating the infrastructure (copper).
  3. Look at what produces the energy (wind turbines and solar panels).
  4. Look at the producers of all the other components.
  5. Look at the return on investment (the most notorious might not be the best).
  6. Look at the political support and interest rates.

The key is to become a specialist in the sector and not just invest in what looks promising. Those who invested in the solar sector in 2007 when it first looked promising didn’t really achieve great returns.

Figure 5: First Solar’s stock price dropped 95% from 2008 to 2012. Source: Yahoo Finance.



By Sven Carlin Energy Sector Investiv Daily Share:
Search