Why Grid Storage Is Cleantech’s Next Big Thing

First there was the ethanol bubble, then the solar bubble and now the electric car investment bubble. Could the energy storage bubble be next?

I think it is a possibility. Cleantech investors are clearly focused on the space and the potential of breakthrough technology is whetting their appetites. Talk to just about any green VC these days and his or her top interests include grid storage.

Just this year, VCs have invested about $250 million in 16 energy storage startups. Most of the money is going into new battery technologies, but VCs are also backing companies working on storage systems built around water, ice and compressed air.

Firms that have made bets in the space include Bessemer Venture Partners, Canaan Partners, Charles River Ventures, Draper Fisher Jurvetson, Greylock Partners and VantagePoint Venture Partners.

Venture Capital Journal tackles the topic in this month’s cover story. VCJ subscribers can read it here: All Charged Up.

Motivating the enthusiasm for grid storage is the potential of an enormous market. Utilities around the globe almost certainly need to incorporate storage for a variety of reasons, the primary one being that it will store back up power for days when renewable power fails. If the wind doesn’t blow or the sun is blocked by clouds, solar and wind farms need to have stored power to deliver to consumers.

What’s more, today’s most prevalent technology – a technique called pumped hydro – won’t cut it over the long term. Most of the new market demand will go to emerging efforts. It is a market ripe for innovation and the payback could be huge.

Also huge are the technical challenges of raising the efficiency of products such as lithium ion batteries and lowering costs.

On the question of whether another bubble will form, VCs obviously recognize the danger. Many say they have learned from the excesses of solar and ethanol investing. They repeatedly claim they will be disciplined and not deploy too much money in any one company. If this is so, maybe they can stave off over investing.

If not, all bets are off. Either way, it will be an interesting gamble to watch.