2023 sees shifts in energy storage and smart grid funding dynamics

Venture capital surges for energy storage while the smart grid sector faces a funding downturn and M&A moderation.

In 2023, the landscape of corporate funding in the energy storage and smart grid sectors underwent a noticeable transformation, marked by a significant downturn of 29 percent compared to the previous year, totaling $22.3 billion, in contrast to the $31.2 billion recorded in 2022.

Raj Prabhu, CEO of Mercom Capital Group, highlighted the complex dynamics influencing this shift, citing factors such as high asset valuations, increased interest rates, and investor caution, which collectively contributed to subdued merger and acquisition (M&A) activity despite positive trends in venture capital (VC) funding.

The energy storage sector, in particular, witnessed a historic surge in VC funding, reaching unprecedented levels in 2023. This surge, amounting to $9.2 billion, marked a remarkable 59 percent increase year-over-year (YoY) compared to $5.8 billion raised in 2022. Notably, lithium-ion-based battery technology companies emerged as the primary beneficiaries of VC investments, buoyed by incentives like the Investment Tax Credit under the Inflation Reduction Act and manufacturing credits for battery components. Despite this surge in VC funding, overall corporate funding in the energy storage sector experienced a decline of 28 percent YoY, totaling $19 billion across 120 deals, down from $26.4 billion in 124 deals in 2022.

Moreover, M&A activity in the energy storage sector slowed, with only 15 companies being acquired in 2023, a notable decrease from the 28 acquisitions recorded in 2022. This trend underscores the cautious approach adopted by investors amidst elevated asset valuations and market uncertainties. Conversely, the smart grid sector faced a downturn in VC funding, with a 55 percent decrease YoY, amounting to $1.5 billion in 47 deals in 2023, compared to $3.3 billion in 46 deals in 2022. Corporate funding for smart grid companies also witnessed a decline of 30 percent YoY, totaling $3.3 billion across 60 deals, down from $4.7 billion in 58 deals in 2022.

Despite the overall decline in funding, there were notable developments in debt and public market financing deals, with 2023 seeing 13 such deals announced, totaling $1.8 billion, compared to $1.4 million raised in 12 deals in 2022. M&A activity in the smart grid sector mirrored the broader trend of moderation, with 11 transactions recorded in 2023, of which only four were disclosed. This represented a significant decrease from the 20 transactions, with five disclosed, recorded in 2022. 

The insights provided by Mercom Capital Group’s Energy Storage and Smart Grid Funding and M&A Reports offer valuable perspectives on the evolving financial landscape within these sectors. These comprehensive reports not only highlight the quantitative aspects of funding trends but also provide qualitative analysis, aiding professionals in navigating the complexities of the smart grid industry.

While 2023 witnessed contrasting trends in VC funding between the energy storage and smart grid sectors, both sectors experienced a slowdown in corporate funding and M&A activity. Despite the challenges posed by market dynamics, ongoing incentives and technological advancements continue to drive innovation and investment within these critical segments of the energy industry.

Source: Mercom India