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Opinion

On Energy Storage, Investors Are Looking for Transaction Efficiency, Proven Results

As an energy executive in an emerging industry, I am focused each day on what the transition to clean energy over the next decade means for our industry and my customers. Increasingly, this transition is being driven by behind-the-meter technologies like energy storage.

Commercial and industrial customers are considering storage options as part of their overall energy management and sustainability portfolios. Storage also meets the needs of utilities and grid operators who are looking for more localized, time-dependent and flexible resources. This need is driving the growth of the energy storage market in key regions across the United States and around the world.

Customer demand, though, is not enough to ensure the continued growth of the storage industry — there must be a steady supply of both corporate equity investment and cost-effective project finance solutions. Equity investors are critical to launch and grow game-changing technologies and business models, and adequate project finance is required to deploy enough systems to satisfy the customer demand.

Innovation is the cost of entry for supply, but effectiveness is the price of closing the sale and bringing supply online. Without proven customer performance and execution, we cannot secure necessary financing.

Growth of the energy storage industry is dependent on expanding the number, quality and engagement of corporate equity and project financing partners. Equity is equally as important as project finance to drive business model evolution, technology development and market expansion.

How do we win those partners? Three markers will be key to attracting them to deploy energy storage.

Simplicity, ease of use and standardization: A simplified, turnkey offering can make it easier for retail customers and utilities to include storage in their energy management objectives. This will eliminate multiple vendors, risk and complicated coordination decisions over costs. Simplified transactions are an enticing value proposition to investors.

Customer service acumen: Customers generally do not want to own or manage storage, but they want to benefit from its automated savings. Service providers are looking to storage to find new ways to engage their customers, but the trend is increasingly toward tighter scrutiny on credit risk. Equity investors expect developers to be able to demonstrate a proven ability to satisfy customers and build out reliable markets.

Reliable economics backed by robust track records: Storage projects are financed on contracted cash flows, and the financing math must “pencil out” for a project. This requirement creates a built-in advantage that will make growth across the entire sector more stable, with less risk of overbuild and less-speculative investing. Stable storage growth assists top-tier global equity investors to use energy storage investments to diversify and mitigate risk from their investments in other asset classes.

So what does that mean in practice? Investors will increasingly look to standardization throughout the value chain, from simplified customer and utility contracts to supply chain road maps, and to long-term project investors instead of “one-off” dealmakers. Our experience in standardizing the deal at Stem, and coupled with the development and expansion of our artificial intelligence platform, Athena, has reduced project financing costs by over two-thirds in the past four years. That’s significant.

While storage is experiencing dramatic growth, we are not yet on par with solar or other renewables. The cost of installation, equipment and financing must continue to decline to foster the kind of growth at scale in energy storage that we are seeing in solar. Stem is working to cut costs and drive more value for customers and investors, and we know our colleagues in the industry are focused on the same. Further cost declines are achievable as we — and others — continue innovating and engaging new finance partners.

As the energy transition continues, customers are seeking more control over their energy decisions, and the grids are growing more decentralized, which is why customers and utilities alike see value in the numerous services energy storage can provide. The challenge is for companies such as ours to standardize, enhance customer service and prove the economic value of storage.

As more financing counterparties see storage as the key to customer satisfaction, integration of renewables, and modernizing a grid at lower cost to ratepayers, the more the industry will grow and fulfill its potential as a driver of the energy transition.

 

John Carrington is the CEO of Stem Inc.

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