Navigant Research Blog

Dell, Others Make Bold Moves in IoT Market

— November 10, 2017

Dell made a splash in the Internet of Things (IoT) market recently, announcing a $1 billion investment over 3 years to set up a new IoT division of the company and to fund new IoT-specific products, labs, and a partner program. The goal is to prod customers into speeding up the deployment of its IoT projects. This move follows a quiet 2-year period during which Dell honed its strategy. Dell’s new IoT division will be helmed by Ray O’Farrell, executive vice president and CTO at VMware.

Dell Is Not Alone

Others are also pushing hard to drive IoT adoption across multiple sectors, including energy, mining, manufacturing, and smart cities, to name but a few. Some of the other recent IoT-related moves include:

  • Apple and General Electric (GE) announced a partnership in mid-October to produce “powerful industrial apps designed to bring predictive data and analytics from Predix, GE’s industrial IoT platform, to iPhone and iPad.” The companies also released a new Predix software development kit for iOS, which developers can use to make their own industrial IoT apps.
  • Germany’s Dialog Semiconductor announced its plans to acquire California-based Silego Technology for as much as $306 million in a move to help Dialog fortify its position in the IoT market.
  • Also in Germany, business software provider Software AG recently said it would form a new IoT cloud unit in January 2018. It also set up a new strategic alliance with a group of manufacturers that will focus on new industrial applications for IoT and Germany’s Industrie 4.0 digitization initiative.
  • In Dubai, Sheikh Mohammed bin Rashid, the vice president of the United Arab Emirates and ruler of Dubai, launched an IoT strategy aimed at preserving the emirate’s digital wealth and setting the foundation for a smart lifestyle transformation process for its people.

More of these of investments and strategic moves related to IoT are expected as competition heats up among vendors trying to seize early market momentum and as the trend moves well beyond the hype phase. This should be good news for those companies seeking to leverage IoT technologies for their business processes. Customers should derive benefits as IoT solutions vendors invest more in their products, channeling engineering horsepower into solving complex industrial problems. For a window into what the industrial IoT market could look like over the next decade, see Navigant Research’s report, Industrial Internet of Things.

 

Sunrun: The Large Solar Provider Dilemma

— September 19, 2017

On August 24, Sunrun—the last of the large independent US solar providers—announced an agreement with Comcast, a leading cable provider in the country. The two companies plan to launch a strategic partnership to offer Sunrun’s services to Comcast’s clients.

Sunrun was founded in 2007 and found success innovating new ways to finance residential solar installations such as solar leases and power purchase agreements (PPAs). It created the solar as a service (SOaaS) business model, which became the foundation for the growth of the sector between 2010 and 2015. Until 2014, it seemed that solar leases and PPAs—grouped as third-party ownership in California’s Interconnection Applications Data Set—were going to be the winning business model in the SOaaS industry. These leases allowed large players to both increase the market size and displace local installers.

Changing Solar Market

In 2015, the market share of solar leases and PPAs in California—which itself represents around 60% of the US market—plunged to under 50% from 75% in 2013. Data for 1H 2017 shows third-party ownership at close to 30%.

Third-Party Ownership Market Share, California: 2005-1H 2017

(Sources: Navigant Research; California Distributed Generation Statistics)

The collapse of third-party ownership has weakened large solar providers compared to local installers. Large solar providers relied on their access to cheaper capital backed by significant margins in their leases to run large business development teams and finance the installations. As residential solar customers moved into cash or loan buys, local installers became competitive again, reducing the profit margin per installation in the industry. This left large solar providers like Sunrun with high customer acquisition costs relative to profit per installation.

Under these circumstances, it is not surprising that Sunrun is looking for new and cheaper ways to attract customers. Even if this partnership with Comcast costs Sunrun its independent status, it may be worthwhile if the strategy is successful.

What Is in It for Comcast?

Comcast has shown interest in the energy sector in the past, and its Xfinity Home service includes a smart thermostat as one of the offerings. However, scaling it into a full-fledged energy solution would be costly, as Comcast would need to build a new team from the ground.

For Comcast, this partnership offers a relatively cheap entry into the solar and energy markets in which it can rely on its core skills (customer acquisition and management) without having to invest significantly in a new product. If successful, Comcast can push a more aggressive strategy into the energy sector either through Sunrun or with its own product.

Benefits and Potential

Customers of Comcast and Sunrun could also benefit from this partnership. The companies can put together a convincing solution for home automation by tapping on their offerings on the two main services around home automation—security and energy.

The success of this partnership will depend of Comcast’s ability to cross-sell energy services to its current customer base. Comcast operates in a market with limited competition and high barriers to entry, which is different from the solar market. The sales process of solar is also different from that of cable. Solar is a long-term investment (even leases and PPAs require long-term contracts). Therefore, customers take long before making a final decision and, in some cases, it will require home visits before the deal is closed. This means that Comcast cannot simply add solar to its bundles. It will have to invest in training its sales force if it wants to sell solar services effectively. It won’t be easy, but if Comcast succeeds, it may signal a new era for energy.

 

Energy Storage to Optimize and Advance CHP Generators

— August 31, 2017

Energy storage is often associated only with the integration of renewable energy. However, recent market developments have highlighted the potential for storage to optimize both existing and new fossil fueled generators. While large-scale pumped hydro energy storage has been used on the grid for decades, those systems were rarely tied directly to any generation plants. A recent storage project built by General Electric in California is evidence that the falling costs for battery storage are opening opportunities to improve the efficiency and flexibility of existing generators.

There are attractive advantages for energy storage to optimize generators at a smaller scale. Gas-powered combined heat and power (CHP) systems are becoming increasingly popular due to the improved efficiency these systems offer customers that need a reliable supply of both heat and electricity. Because of the varying energy needs of these customers and the dynamics of CHP systems operation, there is frequently an overgeneration of either electricity or heat. This energy is often wasted, as establishing contracts that export excess energy is costly and challenging. Both thermal and electrical energy storage systems can greatly reduce wasted energy when tied to CHP systems and can provide attractive ROI for customers.

Industry Actions

Several recent acquisitions in the industry have emphasized this dynamic. In a recent blog, my colleague Adam Forni discusses these developments and the efforts of generator manufacturers to expand their offerings and participate in the emerging Energy Cloud. Notable recent investments in storage providers include Wärtsilä’s purchase of Greensmith and Aggreko’s acquisition of Younicos.

In both cases, incumbent generator providers moved to acquire storage companies focused on the software and controls required to optimize storage systems and integrate them into electricity markets. These tie-ups are mutually beneficial, as the storage providers gain access to new sales channels and potential new customers. The generator providers are likely focusing on developing the capabilities to integrate storage into their offerings and utilize new combined solutions to provide energy and capacity services in competitive electricity markets. The additional revenue generated by these grid services can greatly improve the overall economics of new storage and microgrid projects, including those that expand the capabilities of existing generators.

Into the Future  

The move toward microgrids and local power systems to improve the resilience of energy supply is an important driver for the integration of energy storage with conventional generators. Navigant Research’s recent Market Data: Combined Heat and Power in Microgrids report anticipates that 11.3 GW of new CHP capacity will be added in microgrids around the world over the next decade. The addition of these systems presents a major opportunity for both thermal and electrical energy storage to improve overall efficiency. Through the integration of energy storage and the sophisticated software platforms used to connect to energy markets, large amounts of new distributed energy capacity will become available on the grid.

 

EnerNOC Loses Its Crown as the Last of the Pure-Play Public Demand Response Companies

— June 23, 2017

And then there were none. All the pure-play energy efficiency and demand response (DR) public companies have now been gobbled up by large industry players. First, Comverge went private in 2011 and was recently acquired by Itron. Then Opower was bought by Oracle in 2016. Now EnerNOC has been acquired by Enel Green Power North America (EGP-NA) for $300 million. It was no secret that this was going to happen, as EnerNOC had essentially put itself on the auction block earlier this year. The only suspense was who the buyer would be. I don’t know anyone that had EGP-NA in their betting pool. I saw EnerNOC’s CEO Tim Healy at the Edison Electric Institute’s annual conference in Boston last week, and he did a great job keeping his poker face on.

The likely scenarios seemed to include either being taken private by a private equity company, like what happened with Comverge, or being bought by a large vendor like General Electric (GE) or Schneider Electric. It was not probable that a US utility would be in the mix. But European utilities like ENGIE have been active in getting footholds in the US distributed energy resources (DER) market with more customer-facing solutions. EGP-NA had been one of the quieter ones. By adding the EnerNOC deal to its recent acquisition of energy storage software/project developer Demand Energy, EGP-NA has pushed itself toward the forefront of this market.

A Lot of Opportunity

EGP-NA has no existing DR infrastructure, so there should not be a lot of overlap in terms of personnel or resources. The move should help EnerNOC expand more quickly in the European markets. The press release on the deal quoted Healy as saying, “we look forward to accelerating the growth of our core businesses and to delivering ever more value to our customers as we lead the transition to a more sustainable, distributed energy future.” So it seems like there is a lot of opportunity for EnerNOC to pursue, but it will likely face integration risks as the deal gets consummated.

I am glad that it appears that EnerNOC’s main business and position in the DR industry will continue. I was worried that a private equity firm might pick it apart and sell the pieces. I look forward to seeing the company expand DR further around the globe.

On the downside, I won’t have any more exciting transactions to write about. I guess we’ll have to wait and see if all of these recent deals pan out in a few years or if the next wave of news will be the large players selling the smaller DER players after unsuccessful integration attempts.

 

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