The launch of P2P energy trading platform SonnenCommunity at the end of 2015. Image: Andy Colthorpe.
Germany headquartered “intelligent battery storage” and energy services provider Sonnen has just obtained US$85 million in its fourth financing round, from a range of investors. The company said the funds would be used both home and abroad, with Sonnen operating in markets including Italy, Australia, the US and the UK. Andy Colthorpe spoke with the company’s CEO Christoph Ostermann to learn more.
How will this funding raised be used? Will it be mainly to expand Sonnen’s existing offerings or drive on the company’s shift to energy service provider status?
This was our fourth financing round. We have three areas we are continuously investing in. The first is to continue our relatively fast and aggressive growth. We are again doubling our revenues this year as we did in the previous couple of years, so growth, working capital is still an issue for us and a requirement. The second is that we are in the middle of our internationalisation including Italy and the US and more recently Australia and also the UK so international expansion requires funding.
The third and from our point of view most interesting field is the development of new service-related business models where we are doing utility business. In the beginning of the year we launched [peer-to-peer energy trading platform] SonnenCommunity, supplying our customers with electric power through the grid and by this we are literally 100% replacing traditional utilities. The second phase of SonnenCommunity has also begun: a month ago we have also launched SonnenFlat, offering our customers the electric power they still need from the grid for free. This is possible through participating in a demand response programme where we are offering frequency regulation to the transmission system operators (TSOs) in Germany, and by this we are creating economic value, something like €500 (US$550) per year per customer. A great step forward, and we are looking at other possibilities to provide other services using aggregated storage systems connected and we want to also offer similar concepts abroad.
This always requires adjustments because electricity markets are highly regulated. The rules of the game are different from country to country so some adaptation is necessary and also some pre-qualification to be able to enter other marketplaces. This is why we decided to raise some funds in order to continue our development as fast as we can. This is our main advantage: that we are fast and traditional utilities are big, but not so fast, usually.
Sonnen's SonnenBatterie units undergoing inspection. Image: Sonnen.
In our previous discussions and observations of concepts like SonnenFlat there have been barriers to entry in the marketplace. Is it becoming impossible for regulators to ignore battery storage as numbers grow?
In the course of our growth we are now able to fulfill regulatory requirements. For example you need 5MW of power and we can do that. We have 15,000 units deployed, and we are deploying close to 1,000 units per month, on an international scope, and this why we can simply meet the requirements and therefore generate new revenue streams and give more value to our customers and help them in terms of amortisation of the storage system. The more business models we can accumulate, the better the monetisation of this asset, also to the benefit of our end customers.
What can you tell us about investors in the latest round?
It’s important to note that a significant stake of this round was invested by our current shareholders, which is very nice because it shows a high level of commitment. Regarding new investors, the most important one is (Chinese wind turbine company) Envision Energy. This is our third strategic partner: another is the European utility CEZ through its venture capital arm. Then we have GE, a North American company, and now Envision.
Envision is a very, very, innovative company with R&D hubs all over the world, in Germany and Denmark, Houston, Texas and Boulder, Colorado. They are not only a wind company - they are also a software company. They've developed Energy OS, (operating system), which is a smart grid software able to integrate into and accumulate different devices and use cases which is really interesting for us because we think the software space is the area where we should develop as a company and we think that we have a lot of synergies there and this was the most important criteria for us.
On the other hand it is also attractive to have a partner in Asia because we believe in 2-4 years China will become a more important market for renewable energies. We can also use some synergies of the procurement on the purchase side for technology in China and this may help us to bring costs further down. We have strategic partners from Europe, America and China and this is a good and balanced mix.
We read in various reports that the company is targeting the launch of an IPO over the next couple of years and could enter profitability late next year. Could you elaborate on these two points?
We are relatively relaxed on the timeline (of an IPO), because we think that it would be premature for today, we are still a bit small and there's no need because we're extremely well-funded after this round so we see that in the next two or three years we will start to consider this step more seriously. We have started to prepare ourselves by transferring our bookkeeping into IFS standards according to requirements of SEC, but there are other steps to do and we will see how the company develops in future, what the appetite of the marketplace is and when the right time is. So it's a bit premature to say that but we want to go there and we will work on that but we are pretty relaxed and considering all the pros and cons, internally and externally.
[As for profitability], only last year, 2015, the German market was something like 13,000, 14,000 systems, a tiny market compared to the 1.6 million residential PV systems already installed, there are millions of family homes and 15,000 systems sold a year at most. We see this growing in the future and we are in a market-leading position, we see our market share at something like 40%. If we want to keep and extend market share we need to be prepared for continued significant growth. To do that, profitability is only a second priority. First priority is keeping market share, grow the market. Second is profitability. As long as we are able to finance losses, we can afford ourselves not to be profitable.