Why Energy Vault went from disrupting batteries to selling them

In the long-ago days of 2019, buzzy startup Energy Vault raised a record amount of capital to produce a fundamentally new climate technology: a specialized crane that stores clean energy by stacking heavy blocks. But the company has since departed from that initial vision, revealing the challenges of taking big swings at clean energy problems while trying to actually make money in the near term.

Energy Vault launched in 2017 with a very slick pitch deck that asserted the energy storage technologies everyone else was building weren’t up to the task of decarbonizing the electricity system. Founder Bill Gross, who made his fortune in software and now supports early-stage startups out of tech incubator Idealab, promised to improve on standard lithium-ion batteries, improbably, by erecting six-armed cranes to stack monolithic blocks into temporary Babel-like towers teeming with potential energy.

At the time, other storage entrepreneurs grumbled that simple back-of-the-envelope calculations showed this would never make much sense as a cost-effective storage mechanism. Indeed, several other companies had already tried to reinvent pumped hydro, the original gravity-based grid storage, only to find that it’s hard to improve on the fundamentals of water stored at differing elevations. But that didn’t stop Energy Vault from raising what was then the largest equity investment in a grid storage hardware startup, $110 million from SoftBank’s Vision Fund. (At the time, SoftBank appeared to have a knack for picking the next big thing; its major investment in WeWork didn’t go horribly wrong until a few weeks later.)

Five years after its splashy debut, Energy Vault has not revolutionized clean energy storage with cranes, but the startup has shown a penchant for reinvention and survival. It cashed in on the short-lived cleantech SPAC wave in February 2022, and it now operates as a publicly traded company with $165 million in the bank, as of June 30, though it posted a loss of $26 million for the second quarter. It scrapped the crane design in favor of a much larger engineered structure that lifts blocks on elevators, but much of the company’s revenue now comes from the exact lithium-ion batteries it once derided.

Crane drain

The basic physical concept behind the crane was simple enough: When you use surplus clean electricity to raise a heavy mass, you can regenerate most of that electricity when you drop the mass down. It’s the principle that drives pumped hydro storage, by far the largest source of grid storage in spite of the recent growth in lithium-ion installations. But it’s extremely difficult to find suitable sites on which to build pumped hydro; the crane, theoretically, would make tried-and-true gravity storage available in far more locations.

Nonetheless, Energy Vault’s crane design raised plenty of doubts. Would those freestanding piles of blocks really stay upright? Given that gravity storage is highly dependent on height, would a crane ever be able to stack enough blocks high enough to get a meaningful amount of power? When it comes to height differentials, it’s hard to engineer a replacement for 1,000-foot cliffs.

The ​“fundamental issue” that did it in, according to Chief Product Officer Marco Terruzzin, was the power-to-energy ratio. The blocks equate to energy capacity, but the number of crane arms limited how many blocks the system could let down at once, thereby restricting the instantaneous discharge capacity. It could supply a low level of power over many hours, but it couldn’t surge a lot of power onto the grid all at once.

Rather than throw in the towel and hand back $100 million, Energy Vault invented a building-sized storage device that it calls the G-Vault. The boxy, latticed structures loom 300 to 400 feet tall, raising heavy blocks on specialized elevators and then sliding them into the upper floors for storage. When energy is needed, the building lowers blocks, spinning a turbine to regenerate power.

“The height is our friend, because the cost of energy goes down,” Terruzzin said.

The challenges with engineering such a thing weren’t so much in the basic mechanics of lifting heavy objects in tall buildings, which happens all the time in elevators, Terruzzin noted. The issue was driving cost out of the design to keep it competitive with other storage options.

Once the designs were ready, Energy Vault pulled off a feat that may well be unique in the history of grid storage startups: It got paid, handsomely, to let someone else build its first full-scale installation. Chinese company Atlas Renewable and its majority shareholder CNTY invested $50 million in Energy Vault when it went public, and then paid another $50 million to license the technology and construct the building-sized battery.

Construction has wrapped up on the structure in Rudong, China; as of mid-September, it was still going through final commissioning, which involves testing all the components to clear them for commercial operations.

“It’s a bit of a science experiment,” said Pavel Molchanov, a cleantech stock analyst at Raymond James, in an interview with Canary Media. ​“We know the laws of physics — it’s simply a matter of what is going to be the productivity or the efficiency of this particular solution once it is actually built and operating.”

Energy Vault guarantees performance over 35 years and designs the building and the blocks to last for 50, Terruzzin said. The company promises ​“no degradation,” which tends to be harder in real life than it is in theory (though it has softened earlier claims of 90% efficiency to a more attainable 80%). This being a first of its kind, though, no G-Vault has ever lasted 35 years or proven it resists any form of degradation. CNTY bought itself the golden ticket to see how it goes.

Who’s buying long-duration storage anyway?

Energy Vault initially pitched itself as a long-duration storage hardware breakthrough; it was answering the clarion call to turn variable renewable generation into something like a dependable baseload power source.

There’s just one problem with building a business plan around long-duration storage: You need someone to actually buy it, and those customers don’t yet exist in great quantities.

“Are you familiar with a company here in the United States today that is willing to buy 12-hour-duration energy storage?” Terruzzin asked rhetorically. He recalled pitching a power company on 8-hour gravity storage, only to have them ask, ​“How can we monetize the third, fourth, up to the eighth hour?”

To be clear, this is a common critique of this fledgling wing of the clean energy industry. It’s just not something you typically hear from companies founded to, you know, make a fortune selling long-duration storage.

To Terruzzin’s point, the first grid batteries had very short durations and made money on rapid-fire interventions to maintain the frequency of the grid. Energy markets have only recently supported battery plants getting into the 4-hour range, but then diminishing returns set in: There’s value in shifting solar power to cover a few hours of peak demand in the evening, but the cost of storing clean power through the night hasn’t yet matched up with sufficient economic payoff. At the same time, modeling of a future grid that runs predominantly on renewable electricity shows that some form of ​“clean, firm” power will be necessary to provide clean power on demand when the solar and wind aren’t popping off.

In business, the saying goes, being early is the same as being wrong. It seems that Energy Vault no longer wishes to risk its commercial survival on the imminent arrival of a bustling long-duration storage market — especially when customers are clamoring for proven battery products right now.

As a result, the initial project in China only stores energy for a 4-hour duration, exactly the sort of application that lithium-ion batteries win at almost every time. Energy Vault sells the product on longevity: Batteries degrade, but if a G-Vault works for 35 years, the levelized cost of storage goes down. This requires selling to the sorts of companies willing to sink money into novel assets with a longer promised life expectancy than the well-understood lithium-ion options.

Batteries are great, actually

When I asked Terruzzin about why the company had softened its earlier, more oppositional stance toward conventional grid batteries, he mentioned that, as a publicly traded company, Energy Vault has a fiduciary duty to its shareholders.

“As a company, we made the decision to be relevant in the industry,” he said. In other words, to be relevant in a grid storage market where lithium-ion wins 95% of the time, sell lithium-ion.

This decision coincided with a philosophical shift, in which Energy Vault went from being a ​“product company” to ​“providing the customer with the solutions that are needed,” as Terruzzin phrased it. Instead of building a startup around commercializing a single form of energy storage hardware, Energy Vault built out a team that could line up different storage tools on a project-by-project basis, depending on what its customers need. They hired John Jung, who founded and sold pioneering grid battery startup Greensmith Energy, and they brought in Craig Horne to lead ​“advanced energy storage,” which includes hydrogen.

Energy Vault recently installed its first battery project in Stanton, Orange County, which ended up being one of the largest in Southern California. The company integrated and provided software to operate 68.8 megawatts/275.2 megawatt-hours for W Power and Wellhead Electric, which have begun adding batteries to existing gas peaker plants to deliver more and cleaner capacity (Wellhead also employed Horne before he joined Energy Vault).

Utility PG&E separately chose Energy Vault to provide clean backup power for the town of Calistoga when wildfire risks prompt power shutoffs. The assignment was to provide at least two days’ worth of power without the broader grid, and at a lower price than trucking in mobile diesel generators. Horne’s team packaged a small battery with an 8-megawatt hydrogen fuel cell from Plug Power that runs on energy-dense liquid hydrogen stored in tanks on the site, which only measures two-thirds of an acre.

It’s hard to fault a company for choosing to sell things it can make money on. But there are risks to straying too far from the raison d’etre that initially attracted historic levels of investment.

“The core IP in this case is this gravity storage concept,” said Molchanov, the stock market analyst. ​“It would be bizarre if Energy Vault were to walk away from the gravity storage concept and become just a generic battery company. Battery companies are a dime a dozen.”

At the time of publication, Energy Vault’s share price sat around $2.50, a quarter of its starting value before the SPAC transaction occurred in February 2022. That’s actually par for the course for the scores of climatetech SPAC listings, many of which fall into the category of ​“early-stage companies that have no revenue or very little revenue and are burning cash,” Molchanov said. Investors have soured on those qualities, he added, and instead are seeking stability and profitability in this time of inflation and market volatility.

Given that context, if switching from transformative technology to a more conventional grid storage business brings in more revenue now, Energy Vault’s investors may think that’s just fine.