‘Developers don’t want geopolitical risks’: Fluence talks up US domestic content strategy

“We’ve been at this a while, we’ve gone through many generations of product. We’re very excited about this one. It’s doing a few things that we think make life a lot better for our customers,” Zahurancik says.

“It’s a converter integrated within the battery system, so you don’t have to do field installation of that. It’s a much denser system, so less needs to be deployed to hit the same level of targets for the customer. Better for land usage, better for installation costs, because you don’t have to do as many pads, as much wiring and all that stuff, [it’s] easy to service. All the installation work is done from ground level, so people don’t have to be on top of anything.”

The product is also “highly tested” for safety and designed to limit propagation of fire from one unit to another, Zahurancik says.

“We think this is the next version of what the industry should be doing,” he says, adding that SmartStack’s design allows for easy swapping in and out of battery modules.

Meanwhile, stacking the Battery Pod on top of the Smart Skid to create a taller enclosure that is nonetheless easy to ship, helps combat a concern that customers might have that the increasing energy density of 20-foot enclosures is adding weight that will make them more and more difficult to handle logistically.

That said, SmartStack launched towards the beginning of this year at a company investor day, and mass production has only just begun at the site in Vietnam.

Current customer orders are being fulfilled with Fluence’s existing and earlier product ranges, including GridStack and GridStack Pro. Zahurancik says that SmartStack units ordered now will be starting to come online within six to twelve months, although it will be a while before it is expected to become Fluence’s dominant product.

The ‘Made in America’ challenge

As regular readers of Energy-Storage.news will be aware, Fluence, which has about half of its customer base in the US, has long been focused on onshoring or nearshoring production to North America for those projects.

Through a combination of its own facilities for making modules (Utah), thermal management and HVAC (Texas), BESS enclosures with locally sourced steel (Arizona) and purchasing cells from AESC’s factory in Tennessee, Fluence has already shipped domestic content systems within the country.

The new gigafactory in Vietnam, which has 35GWh annual production capacity, will, however, be primarily making systems for the rest of the world markets, not the US.   

While it could deliver some products to the US, the US market is becoming more domestically driven, and Fluence could make enclosures in the US at relatively close cost to making and shipping from Vietnam, once transport and tariffs are taken into account, he says.

In the meantime, the North American assembly location for SmartStack is still to be determined, Zahurancik says, with options on the table including using its multiple existing US sites in combination or narrowing it down to one site.

“What we’ve been doing in the US is gradually trying to bring every piece of the solution into a US manufacturing facility so that we have the highest potential for qualification under domestic content,” Zahurancik says.

The hard part, as we have often heard before, is sourcing cells domestically. Currently, cells used in Fluence’s US projects are approximately half purchased within the US, specifically from AESC’s factory in Tennessee, and the other half from providers in Asia.

“We don’t have that many battery factories in the US today. The ones we do have still have ties to China, either for materials or in some other way. How do we continue to onshore cell supply and onshore some of the electrode and cathode formation and materials formation?

“The rest, I think, we can already do in the United States, and we can get to similar cost zones. We already have those capabilities in the US, and it takes all the political risk out of it.”

How ‘safe’ are safe harbour projects?

The new atmosphere of frostiness toward Chinese technology and production scale marks a sharp contrast to the previous 15 years or so in the US solar PV and energy storage markets.

Outsourcing manufacturing and selling IP to Chinese R&D teams, everyone seemed happy that a factory for the world was meeting demand for clean energy at low cost.

That has now all changed. In the longer term, projects utilising assistance from Chinese foreign entity of concern (FEOC) companies over a certain threshold will be ineligible for investment tax credit (ITC) incentives.

In the near- and medium-term, safe harbour projects and projects where sufficient Capex is invested or construction begins before the end of this year represent sizeable opportunities for Chinese companies.

Zahurancik says the market shift to domestic content is now inevitable, but it remains to be seen how quickly the transition will occur. He claims that even safe harbour projects might represent a bigger risk than people realise.

“Even folks that have safe harboured and feel good about bringing in mostly foreign-manufactured systems are starting to get nervous about still being exposed to tariffs, exposed to additional trade actions on anti-dumping, UFLPA enforcement, or some next thing that comes tomorrow,” Zahurancik says.

“These are all uncertainties around the foreign supply chain. The further we go forward, the financing community and the boards of these companies will want to be very ‘clean’ on a lot of these dimensions. I wouldn’t be surprised if we see this transition to domestic content happen more quickly…Folks are very focused on the supply chain and how to get it to a point where they don’t take these big geopolitical risks. Most developers don’t want to take them at all.”

Competition from Chinese battery OEMs that turned their attention to also providing complete or partial BESS solutions is widely thought to have been among the factors that squeezed Fluence’s US rival Powin out of business recently.

The scale and ability to ramp up quickly by China’s big manufacturers is also what has precipitated most of the cost reduction seen in lithium-ion batteries over the past decade or so.

So much so, in fact, that some Chinese BESS companies believe there is a chance that even without the ITC, their products could be cost-competitive in the US market for some gigawatt-scale applications that require rapid capacity buildout, such as data centres.  

In an ESN Premium interview in the wake of Powin’s bankruptcy, BESS industry expert Drew Lebowitz of Powerswitch Advisory said that non-Chinese system integrators’ competitive advantages could include non-financial metrics such as an established local presence or long-term market trust.

John Zahurancik agrees, arguing that Fluence’s track record and proximity to its customer base are strengths that overseas providers might not be able to match.

“We have a very strong record of delivering projects on time. Our projects come out of the gate and perform at a high degree of availability. Typically, people bring a project online, and it goes through six to nine to 12 months of stabilising around some level of availability,” Zahurancik says.

“We’ve added to that a lead position in domestic content, and then we have the ability to adapt as the market adapts around the controls and what the market rules are. Those are all places where we fit already, even apart from the geopolitical portion. People know where we are, where to find us, and which court of law they can take recourse to if they need to. It’s a different situation than some of the foreign suppliers, and I think that appeals to a lot of the customers that we work with.”