Energy storage has been a significant tech trend for years already because until now battery technology has lagged the broader pace of technological development.

The development of batteries small enough and powerful enough to run successive generations of consumer electronics and their growing demands on energy-hungry computing power has always been a bottleneck. That’s still a challenge, despite the huge leap forward in lithium battery technology over the past decade.

Each new iteration of the iPhone and various leading flagship Android handsets has to announce an even more powerful camera. Each new model in popular laptop lines needs to be lighter in weight despite featuring more impressive hardware and computing power and still be able to run for longer when not plugged in.

Developing the level of battery technology necessary to allow electric vehicles to run for several hours and hundreds of miles on a single charge, and be rechargeable quickly enough to be practical for long journeys has been a massive challenge billions have poured into. And despite the fact EVs are now commercially viable, on the roads, and sales are picking up, there is still some way to go before pure EVs will be a practical option for longer haul journeys.

Electric cars might be fine for the daily school run, most commutes and the day-to-day needs most of our travel is made up of. But a cross-country road trip will involve a lot of time sitting and waiting while the battery is recharged every 150-300 miles. As well as careful pre-planning to make sure there are charging points nearby at the point they will be needed.

Even if a driver only takes a couple of longer trips a year in their car, do they buy a vehicle they know won’t be up to them when required? Early adopters are doing so but the reality is the vast majority probably have the luxury of access to another vehicle they can use when a longer range than today’s EV batteries can handle is required.

But it’s another category of energy storage that is increasingly coming into focus for technologists, industry and investors – grid storage. The next three decades will see a momentous shift from a global reliance on fossil fuels for the majority of our energy consumption to a low-carbon energy economy.

Next-generation nuclear power (possibly including new nuclear fusion technology which is still a long way away from commercial viability) will almost certainly make a significant contribution to that low-carbon energy mix. But renewables such as solar, wind, tidal and geothermal as well as green hydrogen will also have to pick up a lot of slack from fossil fuels if international commitments are to be met by 2050.

Concerns over climate change and urban air quality have traditionally been the focus of the push towards a low-carbon energy economy but the geopolitical chaos that resulted in Russia’s invasion of Ukraine in early 2022 also sharpened energy security arguments. With Russia one of the world’s biggest oil and gas producers, energy commodity prices have surged since it was hit by Western sanctions. And the price of keeping on the lights aside, there are genuine concerns that Western European grids may not be able to meet demand this winter. Soaring energy prices have also caused inflation to hit levels not seen in 40 years across most developed economies, forcing central banks into aggressive interest rate rises that are expected to result in a 2023 global recession.

That, at least as much as environmental concerns, is sharpening political and investor focus on renewables capacity. By early 2025, the International Energy Agency says renewables could overtake coal to become the world’s dominant power generation technology in terms of total installed capacity.

Global renewable electricity capacity is set to grow by 75% or roughly 2,400 gigawatts in 2022-27 under the IEA’s main scenario and the promised net-zero 2050 scenario would require renewable power capacity to grow by roughly 3,750 gigawatts over the same time frame.

However, for renewables to genuinely dominate the energy mix feeding into power grids around the world, we will need a lot more storage capacity. Not every geography is blessed with enough sun, wind, hydro, tidal or geothermal capacity to meet energy needs. And those that are usually can’t fully rely on renewables because they aren’t stable enough. The sun doesn’t always shine and the wind doesn’t always blow.

The next generation of energy storage technology, not only electrochemical battery technologies but also mechanical, chemical and hydro solutions, will have to effectively capture and store the energy generated by renewable sources. If surplus generation can be efficiently stored and released into the grid when and where it is required, renewable sources can and will power a net-zero, or near enough, grid.

Precedent Research estimates the value of the stationary energy storage market globally will reach $224.3 billion by 2030 from $31.22 billion in 2021, representing an average compound annual growth rate (CAGR) of 24.9%. If net zero targets are to be reached by 2050 thanks to a large renewables contribution, energy storage sector growth would be expected to continue almost unabated from 2030 until then.

Source: Precedence Research

While the numbers presented by market intelligence companies estimating future markets should always be taken with a pinch of salt, it seems certain the energy storage market will be a hugely valuable and quickly growing one over the next three decades.

That, of course, presents a significant investment opportunity. However, like any nascent market, especially one in which the technology is still very much and very quickly developing, the trick will be spotting and investing in the winners. Of the many innovative startups and more mature companies staking a claim for a share of the multi-billion dollar energy storage market, most will fail.

But there will also be many winners who earn impressive returns for their backers. We’re still in the early stages of the grid-energy storage revolution that will allow renewables to reach their full potential. That means investments with non-diluted direct exposure to the developing market are inherently risky.

But here are some of the most talked about stocks and funds that investors keen for early exposure to the energy storage mega trend might consider:

Stocks and funds for energy storage investment

One way for smaller retail investors to take on diversified exposure to energy storage as a mega trend that is expected to strengthen over the next decade and beyond is through specialist funds focused on the sector like investment trusts, unit trusts and ETFs.

For example, several new investment trusts have sprung up in the Renewable Energy Infrastructure sector. Investment trusts offer liquidity for investments that are by nature long-term and illiquid, like infrastructure, because their units are traded on a stock exchange like company shares. If larger numbers of investors want to exit an investment trust its share price will suffer but it will not be forced into selling off assets to meet redemptions. If redemption requests total more than cash on hand, there is the risk of a liquidity crunch and investors being locked in until illiquid assets can be sold. The structure of investment trusts sidesteps that and makes them a good vehicle for investors to hold illiquid assets.

Most Renewable Energy Infrastructure investment trusts do not only invest in energy storage infrastructure and the startups developing innovative energy storage technologies. Most also invest in renewables generation infrastructure like solar and wind farms

Gresham House Energy Storage Fund

The Gresham House Energy Storage Fund invests in a portfolio of utility-scale operational battery energy storage systems across the UK which help address supply-demand imbalances in the national grid. Its unit price is up over 24% so far this year but it still trades at a discount of 7.12% to NAV and offers a dividend yield of 4.3%.

The energy storage systems owned by the GH Energy Storage Fund stockpile excess energy from wind farms when the grid is at capacity, releasing it when it is needed. Another source of income is the UK government’s capacity market mechanism. Power generators, including those that operate battery systems, are paid a fixed fee for being on call to deliver power during times of extreme need, known as ‘stress events’.

Gore Street Energy Storage Fund

GSF is London’s first listed energy storage fund, with a diversified operational portfolio located across four electrical grids in the UK, Ireland, USA and Germany. The fund’s strategy is to invest in a diversified portfolio of utility scale energy storage projects located  in the UK and internationally. It targets a sustainable and attractive dividend over the long term as well as an element of capital growth.

The investment trust’s unit price is down 4.44% this year but still trades at a premium of around 1% and offers a dividend yield of 7.15%.

The Renewables Infrastructure Group

A member of the FTSE 250 with a market cap of £3.19 billion and a nine-year track record stretching back to its 2013 launch, the Renewables Infrastructure Group is the largest and best-established London-listed investment trust with exposure to energy storage. Unlike the other two funds mentioned, this is not a pure play on energy storage but does have energy storage assets as part of its diversified renewables infrastructure portfolio.

It owns 100% of the West Lothian Broxburn Energy Storage System. a 20000kW energy storage project located in West Lothian, Scotland, UK. The trust is also increasing that exposure with a September announcement that it had exchanged contracts to acquire the right to develop three battery storage sites in the North of England.

Two of the projects, which when built will total about 165MW with a two-hour duration, are scheduled for grid connection and commencement of operations in 2024 and 2025. The third site, which has a capacity for about 85MW also with a two-hour duration, will be built later in line with its grid connection date, which is in 2029, although it may be possible to bring this date forward.

Its unit price is down 6.55% this year but it offers a dividend yield of 5.3% and currently trades at a 3.46% discount to NAV.