Navigant Research Blog

Tesla Announcement Highlights Importance of Energy Storage Partnerships

— June 9, 2015

Boatbuilder_webTesla Motor’s April announcement of stationary energy storage solutions brought an unprecedented level of attention to the burgeoning energy storage industry, benefiting all stakeholders.  Competing products providing storage for residential, commercial, and industrial customers are already on the market, however.

These systems are designed for a variety of distributed energy storage applications—currently some of the fastest-growing areas of the global storage market.  Navigant Research estimates that the global installed capacity of residential and commercial energy storage systems will grow from around 246 MW in 2015 to over 10,484 MW by 2024, with lithium ion (Li-ion) expected to account for 58% of total capacity.

The new product launches from Tesla highlight the growing importance of partnerships within the industry.  While Tesla provides a sleek battery module, the company does not offer bidirectional inverters or installation services.  The energy storage ecosystem is comprised primarily of companies like Tesla, with specialized offerings that must seek out partners to offer the complete solutions that customers demand.  (Navigant Research’s recent report Energy Storage Enabling Technologies analyzes the value chain within this industry.)

Tesla has established partnerships to complete their offering and provide storage systems for a range of end users through channel partners.  The systems will be available through solar PV provider SolarCity, demand response aggregator EnerNOC, and engineering/construction specialist Black & Veatch, among others.  These partnerships each target different market segments, each requiring varying business models and product specifications.  With Tesla’s plans, competition has intensified in the distributed storage market, as several leading companies have recently announced new partnerships to offer similar integrated solutions.

Competition Heating Up

Partnerships are essential for most storage market players: battery manufacturers need supply agreements for their products and system integrators need component suppliers, while software and power electronics providers look for integrators and developers to get their products into complete solutions.

Electrical solutions provider Gexpro recently announced an agreement with battery manufacturer LG Chem, the power conversion provider for Ideal Power, and energy management software vendor Geli to offer a fully integrated battery energy storage systems (BESS) for commercial and industrial (C&I) customers.  This follows similar announcements from LG Chem to provide Li-ion batteries in the Northeast United States through an agreement with energy services company OneEnergy for C&I customers and Eguana for residential customers.

Other notable relationships recently announced include solar PV provider SunPower partnering with storage system vendors Stem and Sunverge to offer BESSs for their C&I solar customers.  Additionally, leading Li-ion battery vendor Samsung SDI recently announced supply agreements with GreenCharge Networks, as well as with microgrid developer ABB.

Aside from battery vendors, other companies in the market are establishing similar relationships to solidify their offerings.  Notably, microinverter manufacturer Enphase, which is developing energy storage solutions utilizing its products, recently announced an agreement with battery vendor ELIIY.

Coming into Focus

While supply agreements and distribution partnerships have been developing in the stationary storage market for some time, more recent announcements targeting C&I customers are increasingly important.  In this segment, it is crucial for companies to offer integrated solutions that are easy to operate and quick to install.  As a result, leading companies are joining forces to combine their specialties into the most effective offering.  We explore these relationships within the energy storage ecosystem through various reports, including the recently published Navigant Research Leaderboard Report: Energy Storage System Integrators and an upcoming Leaderboard Report on Li-ion grid storage.

 

Powerwall Takes Tesla Into the Energy Cloud

— May 8, 2015

Elon Musk has announced that Tesla’s Powerwall, the company’s residential energy storage product, is already oversubscribed—38,000 residential systems have been reserved. The company’s PowerPack offering has an even more impressive backlog: 2500 reservations averaging an estimated 10 Powerpacks at 100 kWh, representing 7.1% of the Gigafactory’s planned capacity. Executing these orders will carry the company into 2016. In total, the reservations amount to between 2.9 GWh and 3.6 GWh. While this is an impressive feat, Tesla’s contribution to the market will not be based on technology—at least not at the battery cell level. Although the company’s battery pack offers benefits that integrators may not receive from products from LG Chem, NEC, Saft, or Samsung SDI, Tesla’s effect on the market is likely to reach far beyond hardware deployments.

Specifically, that influence will come in building economies of scale, popularizing the home storage concept with the general public, and, ultimately, developing viable financing schemes. Tesla’s move will also certainly spawn imitators in the residential space, encouraging competition and differentiation in the marketplace. Tesla can bring its sales and installation machine to bear in a portion of the market plagued by fuzzy margins, fickle business cases, and inconsistent interconnection fees. In a similar fashion, SolarCity and its peers can change the residential PV market simply by deciding to establish a market offer in a particular territory.

The Full Ecosystem

The broader play for Tesla is not to sell battery hardware into the residential market. Rather, Tesla has an opportunity to use the Powerwall as an anchor for a Tesla home energy ecosystem. The company is transforming itself into an energy provider, but not in the traditional sense. Interested in reducing your energy bills? Join the Tesla family. Purchase a vehicle, solar PV, electric vehicle charging, battery storage, and perhaps even energy-related services. Customers are buying into a platform, the same way that Mac users bought into the Apple ecosystem.

In 3 to 5 years, once market penetration nears saturation in early-adopter markets, Tesla could parlay these assets into a virtual power plant (VPP), bidding into deregulated markets or even selling directly to vertically integrated utilities. In order to expand its VPP market share, Tesla may decide to license the software and controls—the brains of the system—to other firms so that even competitors’ units can opt into a VPP in the future.

What does this mean? It signals that Tesla Energy is the newest player in the Energy Cloud.

 

Energy Storage Diversity Highlights Regional Differences

— April 14, 2015

As the global energy storage industry continues to take shape, clear differences between regions are emerging. These differences reflect of a number of factors in each area, including electricity market structure, local manufacturing expertise, industrial and energy policies, and geographic characteristics. These factors have significant influence on the diversity of energy storage technologies being deployed in each region. Navigant Research’s Energy Storage Tracker 1Q15 tracks all storage projects around the world, allowing for deep insights into the impacts that market structure and policies have on each region’s market and technological diversity.  

Map of Energy Storage Technology Diversity (Number of Deployed Technologies), World Markets: 1Q 2015

North America is the most technologically diverse region for energy storage in the world, with 19 different technologies (20 including pumped storage) currently installed. This is a result of agencies and favorable policies in North America that are focused on encouraging innovation, such as the United States’ Advanced Research Projects Agency-Energy (ARPA-E) program, as well as various state policies. The U.S. federal government supports technological diversity through the Department of Energy (DOE) Loan Programs Office, which provides secure, competitive financing for innovative clean energy projects that utilize a new or significantly improved technology. As a result of these factors, lithium-ion (Li-ion)-based storage systems (the most popular globally) only account for 12% of deployed systems in North America and 13% of the regional pipeline, which includes projects utilizing 15 different technologies.

Local Specialties

Due to local manufacturing and engineering specialties, batteries are the primary choice for energy storage in Asia Pacific, making the region less technologically diverse than North America or Western Europe. Regulatory policies tend to favor domestic technologies and manufacturers. Notably, Japanese sodium sulfur (NaS) battery manufacturer NGK Insulators has benefited from close relationships with many utilities, resulting in an installed base of over 360 MW in the region. Given recent safety concerns regarding NaS systems and the opening of new markets, domestically produced Li-ion systems now lead the Asia-Pacific region. This is also a result of the region’s grid resiliency efforts (particularly in Japan), which encourage the adoption of smaller distributed storage systems, an ideal application for Li-ion systems. Overall, Li-ion-based systems represent 76.6% of the pipeline for the Asia Pacific region.

The technological diversity of Europe’s energy storage industry falls in between North America and Asia Pacific. Europe has a much greater diversity of market rules and policies compared with other regions. In general, European policies favor innovative/foreign technologies more than in Asia, and as a result there are eight different technologies in the European project pipeline.

Regional View

Germany, the leading market in Europe, has policies and market conditions (e.g, a high penetration of distributed solar, net metering restrictions) that favor distributed energy storage. As Li-ion systems are ideally suited for distributed installations, those batteries have begun to lead the German market despite a relatively diverse base of deployed technologies.

The Energy Storage Tracker explores the global energy storage landscape by tracking projects deployed and planned around the world. Navigant’s project database allows for in-depth analysis of regional markets to understand the impact of policy on technological diversity. Technological diversity can be a key indicator of the overall health of a market and the opportunities for innovative or foreign companies to compete.

 

Energy Storage Leaders Stumbled, Then Survived

— March 20, 2015

At a time when the major electric industry players were either unwilling or not nimble enough to develop energy storage systems integration expertise, four growing energy storage players with four distinct technologies took a risk to develop this expertise. Over the last few years, each of these companies failed financially and was subsequently acquired, in some cases more than once. In nearly every case, private equity firms stepped in, seeing an opportunity to invest in a maturing technology company with specialized expertise in the market.

Citing Tesla founder Elon Musk’s determination to build a massive Gigafactory to manufacture batteries for his vehicles, E Source Senior Fellow Jay Stein has argued that company failures like these indicate the shortcomings of the overall market. This is a logical fallacy.

Number of Deployed Systems Market Share by Top 10 System Integrators, Excluding Pumped Storage and CAES, World Markets: 1Q 2015

(Source: Navigant Research)

Detours Behind

The chart above is derived from Navigant Research’s Energy Storage Tracker 1Q 15, a global database of energy storage installations that includes 808 projects. This specific graph charts the top 10 systems integrators of energy storage in terms of number of systems deployed globally. Four of the 10 market leaders for systems integration have gone bankrupt and been acquired in the past several years. NEC Energy Solutions, formerly A123 Energy Solutions, was acquired following a bankruptcy filing, and the grid business was subsequently spun off and sold to NEC Corporation for approximately $100 million in 2014. Beacon Power was acquired by a private equity firm following a bankruptcy filing in 2012, and Xtreme Power (now Younicos Inc.) was acquired by Younicos AG in 2014, also after filing for bankruptcy.

All three firms were focused on a core grid storage technology (lithium ion batteries, flywheels, and advanced lead-acid batteries, respectively), but all spent a great deal of resources in the earlier days of the market learning how to integrate complete systems. Ultimately, all three firms developed this expertise, and NEC Energy Solutions and Younicos repositioned themselves as systems integration companies, offering software, controls, and integration expertise as opposed to pure-play battery suppliers. Beacon Power is a market leader in flywheels and flywheel systems integration and has developed a modular flywheel product with built-in power electronics for simpler integration and installation.

Managers, Not Markets

Finally, Coda Energy repositioned itself as an energy storage integration firm in 2013 after filing for bankruptcy. The company rebranded and shifted its product offering to target stationary energy storage using a battery management system, battery thermal management, and a sophisticated power source controller.

Together, these four companies account for 21% of the global market share for the top 10 systems integrators (although part of this market share is attributed to Younicos AG). These companies and others like them are challenging incumbents such as ABB and S&C Electric, demonstrating that their earlier stumbles arose out of flawed management and/or strategy, not failed markets or futile technologies.

Equating a management failure with a market failure ignores the value of the technology. Whether the Gigafactory will be Musk’s Waterloo or Austerlitz has less to do with the technology and much more to do with Tesla’s strategy and execution—and Musk has proven he can accomplish both in the automotive and the financial services worlds.

 

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