US Energy Storage M&A Activity Conference
Carl Fleming, Associate of McDermott’s Energy and Project Finance practice group and leader of its energy storage team, hosted a panel of industry leaders from KKR & Co. Inc., CohnReznick Capital and Pine Gate Renewables who explored the opportunities and challenges currently facing the energy storage market. energy storage, as well as the future of the market. Below are the main takeaways from the discussion:
1. Valuation: The models underlying energy storage projects are complex, consist of a large number of variables, and rely heavily on third-party data and analytics in an emerging technology. In uncertain times like now, it’s critical that storage teams be extremely rigorous in their due diligence and flexible in their approach to revenue stack assessments and development for these projects.
2. Supply chain issues: Supply chain issues have changed the outlook for many players in the storage industry in 2022. While demand remains robust, the storage industry faces global supply chain issues (as the whole of the industry) and competition among manufacturers over whether cells will be allocated for storage. or electric vehicles (EV). The accelerated growth of the electric vehicle market could negatively impact the growth of the storage market unless vendors find ways to increase production.
3. Buy or wait: Right now, the cost of modules, cells, commodities, and transportation is skyrocketing. At the same time, the demand for storage is just as high. It remains to be seen whether buying storage assets at a time of such volatility will be a winning or losing proposition. Some speculated that now was the time to buy, while others suggested staying on the bench for this round. However, based on the higher cost of solar assets from years ago and recent prices for selling these assets, it seems that sitting in this market would be a losing proposition.
4. Assets versus human capital: In many transactions, we see parties more interested in acquiring the human capital and team behind an asset platform rather than acquiring the asset solely on its economic merits. The experience and composition of the development team remains a key consideration when buyers consider the projects they are ready to buy.
5. Standalone, Hybrid or Conversion: Although some buyers are targeting a particular area of the energy storage market and stand-alone storage remains a hot topic, the industry as a whole has ready and willing buyers for all forms of energy storage projects (for exampleautonomous storage, storage plus renewable hybrids, storage plus conventional hybrids).
6. FOMO market: There is a pervasive sense of “FOMO” in the market right now. However, developers and investors must remain disciplined and stick to two key prerequisites for purchasing a project: line-of-sight to interconnect and line-of-sight to offtake revenue. These can be easy to lose sight of in today’s bubbly market and in new markets that have changing regulatory regimes for storage.