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Can data center customers pull LDES out of the valley of death?

Armed with the promise of $300 million in new funding, zinc battery maker Eos has a pipeline of buyers spurred by the AI boom.

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Published
July 2, 2024
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Photo credit: Eos

Photo credit: Eos

Last week long-duration energy storage company Eos Energy, which makes a zinc-based battery, announced it had secured an investment of up to $315.5 million from Cerberus Capital Management. And yesterday, the company said it had started commercial production of its “Eos Z3” batteries in Pennsylvania.

The company’s next challenge is one that has largely evaded the LDES sector more broadly: deployment at scale. But at long last, investors have said that they see a light ahead for the sector — and Eos is aiming to prove out that bet.

  • The top line: For Eos and its new financial backer Cerberus, the next stage of growth is about meeting hard production targets. They’re hoping that evidence of the company’s ability to move from the lab to production will find a ready market, one that has simply been waiting for the right LDES tech to reach scale.
  • The nuts and bolts: The range of Cerberus’ investment — up to just over $315 million — reflects the risk-based structure of the deal, which requires Eos to hit certain manufacturing efficiency, production, pipeline, and cost targets in the coming years. 
  • The current take: The lack of a viable long-duration tech that can deliver for large projects is a big part of what has hindered LDES deployments to date, Eos CEO Joe Mastrangelo said. “I think the market has been waiting for more and more of the companies that have been in development to get into operations, and that’s the step we’ve been focused on,” he told Latitude Media

As in any field, being among the first to reach the production or deployment scale comes with immense challenges: “This is the hardest thing I’ve done in my career,” Mastrangelo said.

When it comes to getting investors on board for something like LDES, there’s a lot of interest in early stage companies seeking funding to get their tech to work in a lab setting, he added. But that funding can taper off as companies inch closer to the hurdle of leaving the lab.

“Everybody gets nervous [once companies get to the pilot and manufacturing phases],” Mastrangelo said. “But if we want to make that leap to the new technology, people are going to have to come in and start investing in those types of companies.”

That’s what the Cerberus deal represents. There’s a massive need for that type of mid-stage investment in LDES in particular, he added, and as other companies scale they’ll need to find similar backers.

“It’s the classic startup valley of death you need help getting through,” Mastrangelo said. 

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An unexpected boost

Eos’ pipeline has grown dramatically in the last year — by around 51%, according to Mastrangelo. And, he said, projects in the pipeline are getting bigger, with longer discharge durations.

In the past, the bulk of that pipeline has been made up of independent power producers and utilities, but that balance is starting to shift. As energy storage increasingly evolves into a baseload technology, commercial and industrial customers, namely data center developers and hyperscalers, are expressing more interest.

But that segment is still “somewhat nascent” in terms of how quickly demand from commercial and industrial customers has ramped up, Mastrangelo said; AI energy demand “exploded on the scene, and now the industry is reacting.”

Sales to data center developers tend to be somewhat “turnkey” at this point, he added. While IPP customers tend to have more of an eye toward cost, data center customers are focused on operations, and tend to want to customize both how they purchase and how they operate the batteries.

But there’s another, more anticipated boost to the LDES pipeline, Mastrangelo said: the IRA. That legislation is incentivizing the types of investments that the sector so desperately needs — like the one Cerberus is making in Eos. 

“That’s definitely driving some of the opportunity and the demand surge we’re seeing,” he added.

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