The growth potential of energy storage has drawn interest from some of the biggest names in the power business and beyond. With the trend set to continue, Andy Colthorpe explores how three recent acquisition targets are faring under new ownership. Taken from the pages of PV Tech Power Vol.19, Part 1 of this article was published on the site last week.
Business models and scalability
Taken at face value, these are acquisitions in the truest sense. Large companies have spotted that rather than force their way up a steep learning curve by trying to do it all themselves in-house, it is better in some cases to acquire expertise and technology that fits into their plans. Whether that’s today’s plans in the case of Wartsila and Aggreko, or from a longer-term play perspective in the case of Shell and Sonnen. Big players are seeking not only expertise and technology, but those things have to fit into scalable and viable business models.
Aggreko’s Dan Ibbetson, says that post-acquisition, it wants to use Younicos’ decade of experience with battery systems to deliver complete bundled solutions, in this case for commercial and industrial (C&I) customers. He also cites the mining sector, data centres and cheap LNG-powered Caribbean Islands as huge segments of market potential perhaps previously not readily accessible to Younicos. Aggreko’s business model of renting equipment and solutions to customers is a perfect fit for the ‘energy storage as-a-service’ offerings that Younicos was already delivering to its customers, Ibbetson says. It has also enabled Aggreko to tout new product lines including mobile containerised solar-plus-storage, also for rent.
“You come to us, you want energy, we’ll have a discussion about the right mix of solar and thermal and then the kind of batteries that you need to integrate those two and then it’s all in one contract. You don’t have three different suppliers. Then all the kit is designed in a way that it fits really well together.”
The all-in-one rental model can potentially work well for both energy system provider and customer. The customer is no longer burdened with a high Capex, while what was formerly known as Younicos is able to leverage the balance sheet of its new parent to execute projects on an ongoing and presumably increasingly ambitious basis. Apricum consultant Florian Mayr cites the example of an energy intensive but temporary mining site which might be in operation for less than 10 years. The owners of that site need power, but they don’t need to buy a system.
“Having a storage solution which is more energy as a service and not being sold and needs to be amortised over 20 years but can also be moved to a different mining location, that could help a lot [in persuading customers to try it],” Mayr says.
The role technology plays
A couple of years ago, as the importance of battery and energy management and control software became clear, Younicos, Greensmith and others were selling their software platforms as a kind of side-line to their more complete system integration businesses. For both companies, this has changed, not inspired by their respective takeovers but coinciding with a wider market shift. That shift being a recognition that the system integrators’ core expertise is in delivering a complete, working system.
“I don’t believe that in this industry, there’s a strong case for a software-only business model,” Greensmith alumnus and now Wartsila’s Andy Tang says.
“The biggest challenge you run into as a software-only business is that the solution the customer is looking at is a system: it’s the total thing that’s working and any time there’s any problem, whether it be a hardware or software problem, it’s on the software vendor. A hardware problem shouldn’t be, but because it’s viewed as a system, the hardware problem becomes the responsibility of the software vendor. You don’t really have control over having specified the equipment and if you don’t have control over having the commercial relationship with the hardware equipment provider, you have no leverage to help fix the situation.”
Not only that but with Greensmith’s GEMS software platform, and those made by rivals, if deployed to manage energy storage’s operation and performance at the heart of the energy system, it is better for the software platform to run the overall system itself.
De-emphasising certain aspects of their existing strategies and in Younicos’ case making several pivots over time have been key to the survival of all of the companies pre-acquisition. Tang says that in addition to the decisions around software, Greensmith also had to know not to get too hungry for new projects during the early ‘mini-boom’ in energy storage projects from 2013 to 2015, although the company’s software ended up in around 30% of projects deployed the US that year.
In the meantime Sonnen is given scope to expand the existing base of sales of its systems and subscriptions to its services in Germany, as well as the US and particularly Australia, where the company just prior to acquisition announced the construction of a local factory to enter domestic content eligibility for South Australia’s Home Battery Scheme.
The appeal of the Australian market is something of a no-brainer at the moment, with Sonnen’s German domestic rival Senec also launching its Australian division (with Senec also in post-takeover mode after a 2018 buyout by utility EnBW) this year. But in terms of manufacturing, does the backing of a fossil fuel supermajor give Sonnen aspirations to fully vertically integrate into battery manufacturing as well? While Ostermann says system assembly and manufacturing could continue to be integrated, he is highly doubtful on the latter point.
The core focus is on the battery and energy management and control software and hardware in terms of creating a self-contained home energy system. Then, as the company has shown in becoming the first home storage participant in Germany’s Primary Control Reserve (PCR) ancillary services market, turning that into something that can become part of an orchestra of virtual power plants (VPPs) and communities of energy sharers and traders on the grid. That’s not to say the choice of battery is not important.
“Sonnen decided in the beginning of the company history in 2010 to focus on lithium iron phosphate (LFP) chemistry for two simple reasons: the first is that being a residential player, safety was extremely important for us and LFP is the safest cell chemistry you can find within the lithium-ion cell family, regarding thermal runaway – no smoke, no fire, no explosions, no crazy stuff like that, and that was key for us,” Ostermann says.
“Secondly, lithium iron phosphate has the highest cycle life. Always given that you use a decent quality [cell] of course. This choice has set us a little bit apart from other players in this industry, whereas now we recognise that more and more of our competitors, laughing at us in the past about this choice, are now also orienting themselves toward LFP, which I find interesting!”
Ostermann also says that not using higher energy density nickel manganese cobalt (NMC) cells also frees Sonnen from some of the supply chain issues which struck energy storage companies reliant on the same cells used in electric vehicles last year.
All roads lead to home
There’s an understandable excitement at these previously almost ‘alien’ and futuristic companies being taken over by such significant names, but why these three? And why now? And can being part of a much larger ‘mothership’, as one interviewee described it, bring the scale and reach our industry needs – that our planet needs – to truly play a key role in effecting the global energy transition?
Sonnen’s Christoph Ostermann certainly thinks so. Back when Shell led an investment round in the Bavaria-headquartered start-up in mid-2018, Ostermann told me that the involvement of the world’s major energy companies was a positive for the “clean energy future”, a view that he stands behind even more emphatically since the company became a part of the Royal Dutch Shell Group.
It’s a little surreal to think of a company many of whose employees still live in a renewable energy-powered village in the remote southern German countryside, that touted energy independence from the big utilities as its selling point to many of its customers, is now dependent – in the long-term at least – on the utility ambitions of an oil company. As Ostermann reels off a list of geographies that could open beyond the company’s core territories in Europe, the US and Australia in the near future, it might almost be easier to compile a much shorter list of territories, which the Sonnen CEO does not think will have a residential energy storage market before long.
“Japan is a market we will look into closely in the near future. We’re also looking at other geographies in Asia, such as the Philippines, which we will look at more intensively in the future. There are a couple of countries in Africa, so, just to give some examples, there’s Nigeria or South Africa, where we have preliminary plans to enter these markets. Then you have new markets in Latin America, where we’re looking at the moment. At the end of the day, due to the fact that renewable energy generation is already price competitive all over the world, and storage prices come down more and more, I deeply believe that we will see a lot more geographies in the future that turn out to be residential storage markets.”
Greensmith Energy’s systems on the other hand have been supplied in eight countries to date (80 systems) and Andy Tang predicts that in a year’s time the number of countries will have more than doubled.
“The growth we’re seeing because of Wartsila’s sales organisation selling our energy storage, we expect that to really, really, grow incredibly. Energy storage I think is still in its infancy as a market but I think now is the time to enter these new geographic markets that are opening up,” Tang says.
It isn’t just the geographies; it’s also the range of projects and systems the company is now integrating batteries with that’s increasing. In tandem with that, the number of different applications the systems perform increases and so too does the complexity of managing the entire energy system that is created.
“If you think about how people are beginning to use energy storage, there’s a lot of single-application deployments around the world, where energy storage is thought of as one or two things: peak shifting or smoothing out renewables. A lot of our customers are applying four or five different applications out of our software to get the maximum outcome. Not just from storage, but from software,” Tang says.
Commitments not compromises
Whether their takeovers are judged a success will all come down to the value each of these companies can provide to their new owners, although obviously they will be judged on other metrics too, such as their contribution to decarbonisation. Apricum’s Florian Mayr says that with US$1-2 billion invested per year through Shell’s New Energy Ventures VC wing the company’s “magnitude of investment is too much to be considered ‘greenwash’”. However, to put it in context, Shell is nonetheless spending perhaps tenfold that amount on oil exploration activities still and is “definitely not exiting the oil business today”, Mayr says.
The flexibility energy storage can bring to the renewable energy transition is critical on both an environment and long-term economically sustainable level. Whether that means the continued acquisition of smart new companies or the development of their own products, big players are swooping.
As Mayr says, it’s likely that for costs associated with residential storage to continue falling and “a widespread, globally applied business model” to be feasible a mass market is needed and big balance sheets and a recognition of the need to change will play a big part in that. As the examples of Aggreko and Wartsila also show, albeit from other angles, non-residential storage is also in the sights of those big players. Let’s hope it’s not too bumpy a road.
CASE STUDY: What big players are looking for
Centrica, the global energy giant behind British Gas, launched an innovation fund two years ago, seeking to plough some £100 million in tech start-ups that could help it navigate the energy transition.
In its first two years it has backed the likes of New York-based blockchain start-up LO3, Israeli EV software firm Driivz and a host of other companies operating at the grid edge.
Sam Salisbury, director at Centrica Innovations Labs, says the division starts by being led by a need, indicating that two of Centrica’s present themes are driven by societal issues, namely mobility and ‘active ageing’, or making people feel more comfortable in their homes.
“We try to have a bigger vision of what we’re trying to achieve and then look at who can contribute to that vision and who we can assemble together to create a big solution for our customers,” he says.
Plugging capability gaps with a well-timed, strategic investment stands to be significantly cheaper than ploughing resource into an in-house R&D department like other industries can, and is often the only option in an energy retail sector famed for its slim margins.
But Centrica’s activity is becoming increasingly consumer-led, a notion backed by the company’s work in establishing a peer-to-peer renewable trading network in Cornwall, one of the UK’s most sun-drenched areas, which is to feature a heady mix of solar, various storage technologies and blockchain.
“Certainly my view is we need to find out how to make the homes more self-sufficient… as an energy supplier we have to be developing more solutions for our customers,” Salisbury says.
This section by Liam Stoker, Solar Media’s UK Editor
Part 1 of this article was published on the site last week, here. This article has just appeared in PV Tech Power Vol.19, Solar Media’s quarterly tech journal for the downstream global PV industry, as part of ‘Storage & Smart Power’, a dedicated section commissioned and brought to you by the team here at Energy-Storage.news. Download the whole 119-page magazine for free (subscription required).