A top clean energy investor who's backed 30 companies reveals why he won't bet on batteries
- In the last decade, renewable energy production has doubled in the US, fueling a multi-billion-dollar energy storage industry, which analysts expect to triple in 2020.
- Tom Blum, a prominent clean-energy investor who's directly backed around 30 companies, agrees that energy storage is bound to explode, but his advice for investors looking at battery technology is clear: "Run away," he said.
- "It's an extremely complex area and it's not easy for people to make money," Blum said.
- Blum says it's easy to get seduced by new battery technologies, but he knows of few examples of investors who have scored big returns.
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You can't have solar panels and wind farms without energy storage, due to a simple reality: Most renewable resources provide intermittent power.
That's why the energy storage industry is growing at a breakneck pace, matching that only of the renewables industry in the US, which has doubled in the last decade.
Venture capitalists are among the forces propelling the industry forward. According to Mercom Capital Group, VCs invested about $1.6 billion in battery storage in the first nine months of 2019, more than double their bets in the same period of 2018. That's thanks in large part to the Swedish company Northvolt, which closed a $1 billion funding round.
But just because there's a demand for technology, and VCs are piling on, doesn't mean batteries are a good bet. In fact, one top energy investor thinks just the opposite.
The challenges of investing in batteries
"My advice to investors is, don't invest in batteries," Tom Blum, an angel investor who's directly backed around 30 companies, told Business Insider. "It's an extremely complex area and it's not easy for people to make money."
You have to consider several specs, he said, such as energy density - the amount of energy stored within a specified area - in addition to cost, how long the battery lasts, and how safely it performs under extreme conditions.
"You've got lithium-ion, lithium metal, zinc, nickel, and lots of other technologies, every one of which has someone saying ours is the best," he said. "That's a game that is easy to get seduced into."
Blum says developing new battery technologies for longer-term storage - which the grid will only continue to demand - is one challenge. Then there's the long, expensive journey to commercialization.
"Just because you invented the best battery doesn't mean anything until you've spent hundreds of millions and actually have a commercial plant," Blum said. "Even then, you still might not be making money."
Blum is a member of Clean Energy Venture Group, which funds early-stage startups in New York.
'The simple advice is: Run away'
Price is another challenge, Blum says. While the cost of storage is falling precipitously, largely thanks to a glut of lithium-ion batteries entering the market, it hasn't translated to high returns, he says.
"Send me a list of people who've made money in batteries," he said. "The simplest advice is: Run away."
Beyond battery technology, Blum says he's observed several other interesting pathways to long-term energy storage.
He mentioned one company called Highview Power that uses extremely cold temperatures to turn air into a liquid, which is then stored in insulated vessels. When the air warms, it expands by 700 times, according to the company website, and it can then drive a turbine to generate electricity.
"What's nice about the liquid air is you don't need a big footprint to do this," Blum said. "This is a fairly energy-dense medium."
There are other ways of storing power, instead of using batteries
Other ideas for long-term storage, he said, include compressing air in underground caverns (and releasing it when you need the energy) and stacking concrete blocks. Cranes use excess energy on the grid to lift the blocks up and "when you need power, you let them descend," Blum said. That turns a generator, which produces new energy.
When evaluating the potential for returns, Blum says you need to think about site requirements. Highview Power doesn't take up a lot of space. Pumped hydro, or the idea of moving water to store power, on the other hand, requires "a little mountain" or an underground cavern - not to mention a permitting process that could take years.
"I'll retire before this thing actually happens," he said.
With batteries off the table, in addition to any projects with challenging site requirements, "where do you play?" he said.
Blum, for one, says he's looking at electric vehicle charging stations and smart-building tech that collects hours of operating data, which he thinks companies will want to buy.
This story is part of Business Insider's expanding coverage of clean energy. Do you have a tip or story idea about the people and companies shaping the future of the industry? Contact this reporter at bjones@businessinsider.com.