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How are disruptive business models shaping the European energy storage market?

Germany's Sonnen has started offering SonnenFlat - flat rates for electricity for the consumer while their systems are used to offer grid-balancing services. Image: Sonnen.

New value propositions which will radically change the way energy is generated and used by end-customers are already accelerating energy storage market growth.

While in the grid-scale segment, many are waiting for regulation to enable certain approaches to storage, much is happening in the distributed energy storage sector. In our recent report on business models for distributed energy storage, we identified three primary approaches to sharing value between the end-customer and energy system. In this article, I will be focusing on the first two, which we believe have the greatest short-term potential:

  1. ‘Shared Benefit’ – Business models that provide customers with an additional upside. Commonly through aggregating behind-the-meter battery storage capacity to provide ancillary and demand response services.
  2. ‘Storage for free’ – New financing models to overcome the upfront cost barrier. As part of reducing the upfront costs, the storage assets aim to provide values for both customers and tap into e.g. ancillary or capacity markets.
  3. ‘Community Storage’ – Utility side of the meter assets integrating an offering for a larger part of the value chain – DNOs, energy suppliers, customers and generators.

Looking across markets in Europe and globally, we see many different stakeholders innovating and it’s crucial to understand what propositions are shaping the market today – or risk being left behind.

A ‘flat rate’ for electricity – too good to be true?

In terms of ‘shared benefit’ models we see fast growth across European market, whether it is Fenecon or Senec.IES in Germany, Eneco in the Netherlands or Moixa in the UK, just to name a few. Interestingly, last month one of the market leaders for residential energy storage, Sonnen, announced the introduction of the sonnenFlat, which – surprise – is basically a ‘flat rate’ for electricity.

In short customers with PV and battery storage will only have to pay a flat monthly fee regardless of their specific electricity consumption. Sonnen is looking to aggregate behind-the-meter battery storage and play into Primary Control Reserve markets, sharing the value with the customer through the ‘Flatrate’. By doing so Sonnen is using battery storage as the platform to slowly squeeze out incumbent energy suppliers. The message to the customer is clear – decouple yourself from ever-growing energy prices, maximise self-consumption and support the energy transition.

Can ‘storage for free’ models be successful in a European context?

When saying ‘for free’, we really mean a no upfront cost solution. This is strongly emerging for commercial customers in the ever-prevalent Californian market. Companies such as Stem or Green Charge Networks (aka Green Charge) are effectively using the market-specific energy price structure, local demand response programmes, intelligent software, as well as clever financing mechanisms. Ultimately, ensuring energy cost savings from day one without the upfront investment is a no-brainer in the commercial sector. In Europe, similar developments are much further away from being implemented in the market. As the industrial & commercial segment is slowly starting to develop especially in the UK, we do expect initial propositions – but for now the market specific drivers remain too weak to make the model bankable.

However, there are emerging ‘storage for free’ models targeting the residential segment. In fact, the best innovations are often actually nothing new. They bring together component parts in new and creative ways that make a proposition look and feel totally different. North Star Solar’s proposition targeted at social housing tenants in the UK is a great example of this.

Using low cost financing, below market price solar PV and battery storage, as well as intelligently exploiting legislation, they want to provide solar-plus-storage at no upfront cost to the end-user.

How are disruptive business models shaping the European energy storage market?

Makers like Green Charge and Stem (pictured) are finding a variety of ways to offer value in California's commercial and industrial market. Image: Stem Inc.

Building a successful customer proposition

After analysing a wide range of examples, we wanted to understand what factors are really influencing the potential success of these business models. Importantly companies need to have the ability to access value from flexibility and power trading or build effective partnerships with those players along the value chain who can. Secondly, smart software and data are at the heart of driving innovation and will become much more important than the storage system hardware. We also see that the ability to secure financing to achieve scale and finance projects differentiates the market leaders. Lastly it’s about ‘daring to trial’ – i.e. not waiting until energy storage costs come down, but instead implementing innovation and learning from it.

Ultimately companies will be much more than just a manufacturer and vendor of energy storage products, but we expect them to become smart energy solution providers with storage at the centre of the proposition.

‘Shared value’ propositions will drive the European market in the short-term

Until 2020, we see ‘shared benefit’ models driving the market for residential and small commercial energy storage – with up to 150,000 customers taking advantage of such propositions. At the same time ‘storage for free’ propositions will slowly emerge both in the residential and C&I segment. However, as drivers are significantly weaker, we expect slower deployment speed in the short-term.

The different examples really highlight how sharing value between the energy system (e.g. through ancillary services revenues) and the end-customer creates future facing propositions. Innovation is happening at a speed that could catch-out some players. While single value grid-scale applications have been driving volume in the past, the market disruptions will be happening in the distributed segment. Residential, commercial and industrial applications will grow strongly and new business models are needed to ensure storage is financially attractive.

Ultimately, the propositions analysed in this article are a manifestation of the wider transformation of the energy system towards customer focused, service oriented, as well as smart and digital energy models.

So what are the most promising ways to develop customer facing solutions integrating energy storage? Which approaches are most likely to succeed and shape the European market in the future? Let me know what your views are and get in touch.

Tags: sonnenflat, business models, monetisation, delta-ee, shared benefit, storage for free, community storage, analysis