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The Bullish Case for Energy Storage

4 Reasons to Invest in Energy Storage

Written by Nick Hodge
Posted August 4, 2010

**Editor's Note Update: Be sure to read Energy and Capital's up-to-date resource page on energy storage companies.

We have I've said it before. Energy storage is the Holy Grail of the energy market.

Batteries are already a booming market, supplying juice for everything from power tools to smart phones to Kindles. And that trend will accelerate.

But we're also going to start using batteries — and other forms of energy storage — to power the grid and even our cars.

Here are the top four reasons you should be buying energy storage companies right now.

1. The presidential agenda

There's a reason Obama has made four highly publicized visits to battery factories since being elected. The Washington Post reported this week that the White House is making “an aggressive push to tell what one senior official called "the battery story" — the tale of a small piece of technology that could affect daily life and spur employment if properly nurtured.”

The stimulus awarded $2.4 billion to advanced batteries, and the administration has given an additional $2.6 billion in technology loans to Nissan, Tesla Motors (NASDAQ: TSLA), and Fisker to establish electric vehicle manufacturing facilities.

Which leads us to reason number two...

2. Electric Transportation

The top auto news this year has been all electric.

Any news about Chevy's Volt goes viral, including the announcement of its $41,000 price tag last week. (But you can get a $7,500 tax credit, thanks to reason #1.)

Nissan's Leaf and Ford's all-electric Focus are equally popular subject matter.

Two of the most highly anticipated recent IPOs were electric vehicle related. Ever heard of Tesla (NASDAQ: TSLA) or A123 Systems (NASDAQ: AONE)?

Every city I've been to recently has electric or hybrid-electric buses. Government and utility fleets are converting to electric.

Even Buffett has bought a battery company.

3. China

The company Buffett bought was Chinese. That should come as no surprise.

Just today, the country announced it will invest $15 billion to subsidize its green car industry. And a report out last month from the Beijing office of the Freedonia Group said “demand for batteries in China is projected to increase 8.5 percent annually to $41.6 billion in 2013."

Another recent report by Global Resources (NASDAQ: GSOL) surveyed dozens of Chinese battery suppliers an found that they produced 1.9 billion units last year. And 90% of respondents were increasing capital expenditures to keep up with demand they expect to “grow by more than 20% in the coming months.”

China's position as the largest battery manufacturer in the world is only going to strengthen.

4. Renewables & the Grid

I'll yield to a segment of a report from Piper Jaffray entitled Energy Storage: Game-Changing Component of the Future Grid:

Thanks to government mandates across the world, particularly in the U.S. and Europe, as well as continually declining costs for renewable energy, we will see a growing proportion of electricity generated from renewable sources over the next several years. In particular, we expect wind and solar to account for ~40%-50% of the total energy generated through renewables by 2020. Also, we expect renewable sources to account for ~20% of overall energy sources. We expect the annual installed wind capacity to be ~160-180GW in 2020 (from ~28GW in 2008) and solar to be ~20-25GW (from ~4GW in 2008). As electricity generation using renewable sources increases over the next several years, utilities will need to adopt energy storage solutions to help integrate these renewable sources into the grid — mainly due to the intermittent nature of most of the renewable sources, especially wind and solar.

We believe energy storage for stationary power will prove to be an important component of the future “Smart” Grid and will help utilities optimize power transmission and distribution. Also, an increasing proportion of energy generated from renewable sources such as solar and wind over the next several years will almost mandate the need for storage to assist in integrating these intermittent energy sources into the grid. Based on our proprietary checks with several utilities across the U.S. and Europe, we expect initial energy storage growth opportunities will be driven first by independent power producers (IPPs)/unregulated utilities followed by regulated utilities. We estimate spending of ~$600B+ on energy storage solutions over the next 10-12 years.


$600 billion.
..

With that kind of anticipated spending, you should seriously start thinking about allocating a portion of your portfolio to energy storage companies.

Call it like you see it,

Nick Hodge

Nick

P.S. In anticipation of this coming bull market, I've prepared a full investor briefing on the battery company that Buffett took a major stake in. It's making electric vehicles as well as batteries for the grid. The briefing details why Buffett's right-hand man calls it “one of the most interesting small companies in the world,” and why you should be buying shares right now.

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