What you need to know: • Due to the fluctuating levels of energy produced on an hourly basis by renewable energy sources, energy storage is required to smooth out supply and demand • The grid is becoming increasingly unstable due to its old age and extreme weather conditions, and is not set up to accommodate a net-zero system • Small and mid-cap players in the space are down over 60% since 2021, making today’s valuations a great entry point Why Do We Need Energy Storage? Intermittent Supply from Renewables Solar and wind energy cannot produce energy 24/7 since there is not constant sunshine or wind in most regions. The levels of energy generated in a given hour vary based on weather, time of day, and the season. Thus, for the renewable energy transition to progress forward, we need to find solutions that can effectively store energy into the future (both short-term and long-term) in order to smooth out supply and demand. A typical energy consumption and generation pattern can be seen in Figure 1 below; ideally, grids can store excess energy during the lowest consumption hours and deploy (discharge) it in the higher consumption hours. The Fraunhofer Institute of Solar Energy estimates that if the grid transitioned to 80% renewables, about one month of energy would need to be stored at all times for stability (rising to two months at 90%). Outages & Cost Savings Furthermore, energy storage is needed to provide backup power in the event of an outage or emergency (i.e., for critical infrastructure, hospitals, and data centres) if the globe insists on moving away from fossil fuels. Lastly, energy storage can reduce the overall cost of energy by reducing energy generated during peak hours. Adoption of Renewable Energy While the adoption of renewable energy has been slower than most expected, the transition is inevitable over the coming decades as costs to deploy renewable projects continue to decrease. The IEA estimates that 95% of the increase in global power over the next five years will come from renewable sources. While we think peak fossil fuel demand will likely occur into the 2030s/2040s, the globe needs to set up its energy systems to accommodate for the intermittent supply as outlined above. The energy transition simply cannot occur without adequate energy storage; BloombergNEF estimates that the globe will install 411 GW of energy storage by 2030, a 15x from current levels (Figure 3).