Renewable energy is a serious rival to fossil fuels —but only when the sun shines and the wind blows. To take the industry to the next level, companies are now investing heavily in storage technologies, from huge battery arrays to high-tech flywheels, that allow them to literally save surplus energy for a rainy day.

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2. Is energy storage the magic bullet
for renewables?
Renewable energy is a serious rival to fossil fuels
— but only when the sun shines and the wind
blows. To take the industry to the next level,
companies are now investing heavily in storage
technologies, from huge battery arrays to high-
tech flywheels, that allow them to literally save
surplus energy for a rainy day.

3. Despite limited opportunities for equity investors, the sector is worth watching, since
continuing advances are all but inevitable, writes McKinsey analyst Scott Nyquist. Storage is
the renewable-energy business’s magic bullet, he argues: the game-changer that will allow
clean energy to break fossil fuel’s stranglehold on baseload generation. “Investment … is
growing. Costs are falling. Technologies are proliferating. And people want it,” he writes.
“There is one word that sums up the likely consequence of those trends: progress.”
Companies to watch
Invenergy was single-handedly responsible for the bulk of America’s Q2 energy storage
deployment, adding 31.5 megawatts to the country’s capacity with a new utility-scale project
in Illinois. The company now has 65 megawatts of storage in operation or under construction.
Panasonic (OTCMKTS:PCRFY) is challenging Tesla Motors in the small-scale storage sector by
marketing standalone battery packs in Europe. That could create tension between the two
firms, given that Panasonic also currently manufactures Tesla’s Model S batteries.
SunEdison (NYSE:SUNE) is making a big play in the energy storage sector: in March, it acquired
Solar Grid Storage, along with a 100-megawatt pipeline of new projects. The company also
struck a deal to buy batteries from Imergy Power Systems for use in India.

4. A sign of the surging interest in the sector: total US energy storage
deployments rose sixfold between the first and second quarters of 2015,
according to a new report, with 40.7 megawatts of new energy storage
capacity added in Q2. Improving battery technologies are a significant part
of the reason for that uptick, and the sector received a big PR boost when
Tesla Motors (NASDAQ:TSLA) unveiled its Powerwall domestic battery
systems, which began shipping to customers last week. Still, utility-scale
deployments are where the action is really at: large-scale installations
accounted for 87 percent of the Q2 energy-storage increase, with
Powerwall-sized deployments accounting for only 1 percent of new
capacity.
Battery prices remain relatively high, but that could change: a report for
the Australian Renewable Energy Agency suggests that battery prices will
fall by up to 60 percent over the next five years, potentially triggering a
boom in battery deployments. “The rapid uptake of solar PV provides a
useful analogy to what could occur in the energy storage market,” the
report notes. Another report, from Navigant Research, predicts that strong
demand in Asia, the US and Europe will drive battery-sector revenues from
$221.8 million in 2014 to $17.8 billion in 2023.

5. Compressed-air storage systems, which pump air into pressurized caverns, have many of
the same advantages as pumped-storage hydropower, but are far less widely used. One of
the world’s few operating facilities, a 110-megawatt Alabama plant run by the PowerSouth
co-op, has been running successfully for more than two decades, and utilities including
FirstEnergy, PG&E and PSE&G are all making significant investments in compressed-air
projects. LightSail Energy, a startup whose backers include Total (NYSE:TOT), meanwhile, is
developing above-ground compressed-air technologies with a wide range of potential
applications.
Flywheels are also an effective energy-storage system for specialized applications: the
British Navy is experimenting with flywheels to power laser weapon systems, for instance.
The technology’s ability to rapidly capture and release relatively small amounts of energy
has also seen flywheels deployed in utility settings: Ireland’s SchwungradEnergie is
currently building Europe’s first grid-connected flywheel system, while Beacon Power is
developing a combined flywheel-battery storage system for use by remote Alaskan utilities.
Ultimately, experts envision a blend of storage technologies feeding into various points of
the electricity supply pipeline, ranging from distributed, domestic-scale storage to colossal,
centralized systems. “There’s going to be a mix between energy storage that’s grid
connected, energy storage that’s customer connected, and energy storage that will be
generation connected,” says Fred Redell, managing director of Abengoa, which uses
molten-salt thermal energy storage at its solar farms.

6. One key factor that could shape the industry’s growth: the degree to which
politicians throw their weight behind energy-storage initiatives. California
passed the country’s first energy storage directive in 2013, requiring utilities to
jointly purchase 1325 megawatts of storage by 2020. Oregon this summer
implemented a similar, though less ambitious, measure, and at least eight other
states have introduced legislation to encourage energy storage. Federal
legislation to create a storage mandate for utilities was introduced in May, but is
currently languishing in a Senate committee.
Investment in the sector is choppy, and driven mostly by early-to-mid-stage
financing deals, according to a CB Insights report. “Tesla has put a spotlight on
the industry and we may see more dollars enter the sector,” the report states.
There aren’t many pure energy-storage plays for equity investors, but several
ETFs have energy-storage exposure. BlackRock BGF New Energy (MERNEWA:LX)
includes energy storage — chiefly hydrogen and flywheel technologies — as one
of its key focuses. Invesco’s PowerShares WilderHill Progressive Energy
Portfolio (NYSEARCA:PUW) also tracks a basket of storage companies, while
First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID)
includes storage exposure as part of a focus on smart-grid technologies.

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