2023 has been a difficult year for venture capital financing in the United States. Venture capital fell sharply by 30% across industries, from $242.2 billion in 2022 to $170.6 billion last year. The news comes as the economy tries to absorb the shock of inflation and rebalancing valuations. But in what was already a bleak year, several key industries saw significant growth: artificial intelligence and energy storage. Together, these sectors paint a vivid picture of where the U.S. economy is headed.
Both industries are still in their infancy, with huge technological advancements expected to be on the horizon and companies scrambling to get to the bottom. As the world leans towards decarbonization, AI and energy storage will become an integral part of the energy industry's future, requiring a near-radical overhaul of the way we produce, consume, transport, and store electricity.
As a result, achieving global climate goals will require an unprecedented system transformation that will rely heavily on intelligent, responsive and flexible computing systems capable of identifying and refining complex production and consumption patterns. Artificial intelligence and machine learning have become integral components of renewable energy**, smart grids, coordination of energy demand and distribution, maximization of power production efficiency, and research and development of new materials. It will also work alongside energy storage, which will be a key component of future grid regulation.
Energy storage is critical to the clean energy revolution because key renewable energy sources such as wind and solar are variable, meaning that their production levels increase or decrease based on variables beyond human control, such as weather patterns, seasons, and time of day. This is one of the key challenges in the transition from fossil fuels, which can be used to produce energy on demand. This shift will require a high degree of grid flexibility as well as long-term energy storage capabilities.
When solar panels and wind turbines generate more electricity than the grid needs, long-term energy storage solutions will capture and store excess energy and feed it back to the grid when demand outstrips supply. This can be a one-day process or a one-year process, such as excess solar energy captured in the summer being fed back into the grid during the shorter winter months.
At present, the energy industry is dominated by lithium-ion battery packs. But this technology has some major drawbacks for the industry as a whole. The biggest problem is their problematic short-term storage capacity, which is measured in hours rather than months or years. To solve this problem, a massive R&D race is underway to discover the next large-scale long-term energy storage solution. Venture capital funding is currently helping research teams around the world try out innovative solutions, from future green hydrogen initiatives to simple methods involving pulleys, weight, and gravity.
While the puzzle of long-term energy storage is not yet fully solved, it will become a lucrative industry. The law firm of Morgan Lewis recently referred to the storage industry as "the technology that will cash the cheques drawn by the renewable energy industry" and goes on to describe that "the global energy storage market will continue to grow rapidly, with 387 GW of new energy storage capacity expected to be added by 2030, a 15-fold increase in global energy storage capacity compared to the end of 2021." ”
The investment model is following these trends. In 2023, venture capital firms poured a record $9.2 billion into 86 energy storage deals, according to a report by Mercom Capital Group, a research and communications firm. This marks a 22% increase over 2022. Thirty-three of the 86 deals were related to battery technology, with $2.6 billion dedicated to lithium-ion batteries. Other funded storage solutions include thermal batteries and gravity-based energy storage. (Compiled by Xiao Chen).
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