Cleantech Market Intelligence
Is Consolidation Good for the Energy Storage Industry?
New deployments of energy storage in 2015 broke records with more than 1,653.5 MW of new storage capacity announced. 2016 appears to be shaping up to be another big year. The past several months have seen several multi-billion dollar acquisitions of energy storage providers by large energy companies. Three of these mergers that made headlines were Total Energy’s acquisition of industrial battery manufacturer Saft, Engie’s purchase of Green Charge Networks, and Doosan’s agreement with software provider 1Energy Systems. Under synergistic circumstances, mergers can certainly jumpstart long-term growth for an enterprise, but the failure rate of mergers and acquisitions is between 70%-90%. This begs the question: will increased consolidation of the energy storage industry help or hinder the widespread adoption of new energy technologies?
To help illuminate the issue, it is important to understand why these energy giants are interested in energy storage. Daniel Halyk, CEO of Total Energy, stated that the ultimate goal of the company is to “accelerate its development in the fields of renewable energy and electricity, initiated in 2011 with the acquisition of (solar panel manufacturer) SunPower.” Total Energy is undergoing internal structural changes, and renewables are a key focus of its vision going forward. With the addition of a new fourth business, the company plans to capture several portions of the electricity value chain by expanding into downstream gas, renewables, and energy efficiency. Total Energy believes Saft is an ideal partner due to the company’s product portfolio, positioning in niche markets, international presence, and strong technical knowledge.
There exist several reasons why enterprises would choose to acquire companies: to increase profits of existing business segments (or decrease costs along the value chain), to fundamentally shift the core competencies of the company to another business segment, or some combination of the two. Creating shareholder value is important to secure longevity in any market; investor expectations help incent company innovation. Key motivations behind these acquisitions appear to be project financing and accessibility to behind-the-meter customers. Having more financial resources bolsters a storage company’s influence when bidding for larger grid storage contracts.
The Industry Looking Forward
Recent innovation in the storage industry has occurred with storage enabling technologies like software and controls and technical services components of the value chain, as several companies have emerged with primary expertise in technologies other than physical hardware. Investors recognize the value that these companies add to the profitability of a project and are making funds available to these integrators (e.g., GE Ventures’ $50 million investment in Sonnen and Macquarie’s $200 million investment in Advanced Microgrid Solutions). There could be other major mergers on the horizon in 2016, one of the largest being Tesla’s interest in purchasing Solar City. As the proposal builds upon a partnership that currently exists, some investors fear that anything beyond a partnership could lead to the demise of both companies. Tesla CEO Elon Musk states that if Tesla and Solar City truly want to scale up, the deal must happen.
While specific dynamics and patterns in energy storage markets vary considerably worldwide, energy storage systems can be invaluable assets that can provide flexible solutions for power providers and customers. Energy storage is increasingly becoming a cost-effective tool for grid operators to maximize the efficiency of existing power resources and infrastructure while helping to minimize costs passed on to ratepayers. All things considered, this is an exciting time for the energy storage industry, and we can expect many more changes to occur throughout the course of the next few years.