While software has been described by many as the single most important aspect of how an energy network integrates, manages and then uses energy storage, two industry heavyweights have said that selling software licensing alone was not a viable business model for them.
Rolling out the controls and management software by itself is a perilous business proposition, according to Karim Wazni, MD of Aggreko Microgrids and Storage (formerly Younicos until it was bought out and became part of rental energy solutions group Aggreko).
Having deployed 220MW of battery storage projects worldwide to date across nearly 50 projects, many of which it worked on as a full system integrator including hardware and software provision, Aggreko M&SS-Younicos had found that the value of the software alone could not be divorced from the overall aims of the project.
“It’s [software is] only valuable if you can package it in a system that delivers benefits that the customer can measure. I think it’s been challenging to prove a profitable business model based on software licensing,” Wazni said.
“So, it’s through the realisation of these benefits in a service model that we actually leverage the value of this software, so we’ve ported, we’ve included the software coming from Younicos and we’ve integrated [it] into our overall power management system, so we can then realise the benefits of the combination of thermal, storage and solar.”
Karim Wazni's comments are taken from the video feature interview, below.
Value is in the integrated offering
Andy Tang of the executive team at Greensmith Energy, also the target of a recent successful takeover bid by Wärtsilä, told Energy-Storage.news that he and his team also did not believe “that in this industry, there’s a strong case for a software-only business model”.
“As Greensmith we’ve tried that multiple times and I think the biggest challenge you run into as a software-only business is that the solution the customer is looking at is a system: it’s the total thing that’s working.”
A software problem, that’s on the software vendor. A hardware problem shouldn’t be, but because it’s viewed as a [total] system, the hardware problem becomes the responsibility of the software vendor. You don’t really have control over having specified the equipment and if you don’t have control over having the commercial relationship with the hardware equipment provider, you have no leverage to help fix the situation."
In other words, it is not that the margins for selling software are too low, at least for these two companies. Andy Tang said it is “very much” a technical and practical decision to have dropped standalone software suite sales and licensing from its business model. Others in the space, such as the UK’s Moixa, have sought export opportunities for their behind-the-meter residential aggregation platforms to Japan, for example, with Moixa CTO Chris Wright recently claiming that the company’s Japanese hardware and system installation partners are delivering 10MWh of systems into the market every month.
That ‘virtual power plant’ effort uses Moixa’s GridShare software platform. Nonetheless, Greensmith’s customers which Andy Tang said include utilities and independent power producers (IPPs) in the US, demand not just reliability, but also “the so-called one throat to choke” if something goes wrong.
That makes it “really hard to separate out the software and just sell the software”.
Certainly, there is high value attached to the software, even if it’s not easy to convert that into standalone sales. Both Wärtsilä and Aggreko have said that their acquisition targets software was central to their value proposition. Similarly, Enel bought out US project developer - and crucially, software specialist, Demand Energy at the beginning of 2017 through its Enel Green Power North America subsidiary. Also that year, Navigant Research analyst Alex Eller blogged for this site about the role energy storage system software will play in building the “grid of the future”. Navigant had found that in 2016, cumulative ESS software vendor revenues were at US$202.2 million but predicted a rise to as much as US$3.4 billion by 2025.
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