Battery Sector Finance Benefits From SPAC Attack
4 min read
New York Stock Exchange (NYSE) at Wall Street on January 12, 2021 in New York City. (Photo by Angela … [+]
The rise of special acquisition companies, or SPACs, was one of finance’s biggest stories in 2020. Soaring enthusiasm for clean energy investments has now gone mainstream, fueling the proliferation of these ‘blank check companies’ designed to raise money through an IPO for the sole purpose of acquiring a company. The energy storage sector has not escaped this trend.
2020 was the year of the SPAC attack. Nearly half of all initial public offerings (IPO) made on US stock exchanges went forward via SPAC, representing a 462% year-over-year jump in SPAC proceeds. During their previous peak in 2007, SPAC IPO volumes made up about 14%.
Going public by way of SPAC IPO can significantly reduce costs and streamline the process of taking a company public. This vehicles allows companies to go public without incurring the costs of a road show, or registering with a stock exchange. They also allow unknown startups to attach themselves the reputation of often well-known SPAC founders, such as Pershing Square Tontine Holdings’ Bill Ackman and Churchill Capital’s Michael Klein.
Multiple clean energy companies rode the SPAC wave in 2020, including battery storage companies like QuantumSpace and EOS, and EV companies such as Fisker and Nikola. SPACs are likely to account for a large share of IPOs again in 2021, as pandemic-induced uncertainty and limitations on mobility continue to influence market sentiment and business decisions.
On February 10th the Power & Digital Infrastructure Acquisition SPAC raised $300 million with the intent of investing digital infrastructure, such as energy storage for data centers. Lithium-ion battery recycling company Li-Cycle is expected to reach a deal with the Peridot Acquisition Company this week worth $1.7 billion. And, behind-the-meter battery company Stem has announced it will close a merger deal with Star peak Energy Transition (SPAC) in Q1 of 2021.
Already in early January rumors surfaced suggesting that SPAC Churchill Capital Corp. IV was planning to merge with electric carmaker Lucid Motors. Since then the price of a share in Church Capital IV has nearly quadrupled. The leap in share price was one of the steepest ever for a SPAC. On Friday February 12, fresh rumors that the SPAC was nearing a deal with Lucid Motors pushed the stock up another 13%.
Decarbonization commitments by corporate behemoths such as Amazon
Google, which reached 100% net renewable power in 2017, has already announced its goal to reach 24-hour renewable power by 2030. This can only be achieved with large amounts of power storage. As more companies reach this stage, we can expect to see investment in storage skyrocket.
Yet compared to other areas of the energy economy, investment in storage is tiny. Last year global investment in wind totaled $142 billion, while solar PV hauled in $148 billion, up 12% from 2019. Meanwhile, battery projects saw just $3.6 billion of financing in 2020 – the same as its 2019 level – but down significantly from the $4.5 billion invested in 2018.
Regionally, growth in storage investment was strongest in the Americas, rising to a record-setting $1.2 billion, while the Asian Pacific Region, which includes China, South Korea and Japan, was steady at $1.8 billion. The regional disparity in investment growth could be indicative of growing attention to battery storage in America.
The amount of new energy storage activated in 2020 backs this up. In Q3 of last year utility-scale and residential energy storage deployments in the US spiked, reaching 476 megawatts (MW), which is a 240% increase over the previous high set in Q2 of 2020. The full-year deployment estimate for 2020 is around 1.275 gigawatts (GW), with an estimated 3.6GW of new storage capacity being deployed in 2021. By 2025 battery storage deployment is expected to expand to 7.5GW.
Energy storage deployments in the U.S. by sector (Quarterly). Note: “Front-of-the-meter” includes … [+]
Worldwide, the expansion of storage capacity has decelerated. Annual deployments fell from around 3.2GW in 2018 to around 3GW in 2019, followed by an estimated 17% decrease in 2020. Nevertheless, storage is expected to grow at a compound annual growth rate of 31% through 2030, dominated by utility-scale projects.
Global energy storage deployments are expected to grow by CAGR 31% through 2030.
The wave of clean-energy-hungry investors should drive down the cost of capital for batteries, while diluting risk through the pooling of capital. The latter holds potential to transform investment in these projects, which have traditionally been funded by a single-sponsor. As a nascent industry, clean energy storage is inherently risky due to a lack of historical data and established methods for analyzing projects’ profitability. Both of these issues can be mitigated by spreading risk across various sources of capital and allowing investors to sell their stakes in storage projects during these projects long lead times.
Take-off could happen sooner than later. Utility scale battery costs fell 70% from 2013 to 2018 in the US, from over $2,000/kWh to $625/kWh. Since 2010 the price of lithium-ion battery packs, like those used in electric vehicles, has fallen nearly 90%, reaching an average of $137/kWh in 2020. Bloomberg New Energy Finance estimates the average battery cost will drop to $100/kWh by 2023.
The virtuous cycle of market enthusiasm for clean energy, financial innovations and plunging hardware prices should make 2021 an exciting year for energy storage investment. SPACs will help storage companies gain access to capital without incurring the usual costs associated with going public, while the flood of new financing will help de-risk investment in this nascent industry. This means storage, along with ongoing transition clean energy in general, should outperform the markets in the coming year.
With Assistance from Luke Harris and James Grant
