“There’s going to be a bloodbath”
“Not just the small players, plenty of companies are going to die, it won’t be pretty.”
Not exactly the type of comments I was expecting to hear. Nor was: “I wouldn’t want to be out there with a stack of VC funding behind me right now.”
All from different sources.
That was the premise really, we’ve all seen the articles and reports from the likes of BNEF, Navigant, IHS, GTM and others. There is little doubt that the energy storage sector is going to be a game-changer in how energy systems and supply evolves, and that economically the market will be enormous. But how big and when?
The energy storage sector is as broad as it is long. Drivers, economics and applications vary according to scale and territory (political and geographical). With this in mind I spoke with CEOs and leaders in global businesses and regional players, established global manufacturers, and pre-market start-ups. I spoke to people focussed on the developing world, and those more comfortable in traditional energy markets.
The general consensus was that 2016 was a disappointing year globally and that the threat of oversupply would lead to lithium battery prices “falling through the floor” according to one well-placed source. Another senior executive with a non-lithium company predicted “price killing fields” in the lithium space. A conversation with a global manufacturer of lithium batteries confirmed he saw the price of cells reducing way quicker than any of the most optimistic scenarios of the consultancies.
In conversation with Younicos CEO Steven Prince, we agreed that perhaps some market forecasts were a little optimistic, and also that there was a great deal of poetic license used when companies quoted their sales pipelines - “there is a big difference between deals that are ‘good to go’ and those that you are going to get.”
Many projects will appear on multiple pipelines, I think both the UK EFR and Californian Aliso Canyon tenders were good examples of that. Stephen felt the global market for this year was about US$500 million, with probably half of that in Korea and everyone else fighting for the rest.
Residential market: Beyond the hype machines
The residential market has had no shortage of press and social media attention, not all of it emanating from Mr Musk and the Tesla PR machine. There have been no shortage of companies moving into, or starting in the sector.
I spoke first to Andreas Piepenbrinck, CEO of German company E3/DC. Germany as we know is the world leader in residential storage, and has an incentive scheme in place. The company presently has 60 employees and considerable plans for growth, interestingly in the off-grid sector as well as for the traditional home owner. Andreas was another that predicted a number of companies would not survive. I won’t name names but saw logic to his reasoning. Andreas saw moderate growth in the German market, with potentially 100,000 units installed by 2025, with a fairly equal split between new installs and retrofit to existing PV systems. Other European markets would evolve, including the UK, Italy, and of course the US. As an aside, as an ex-automotive man he saw the large scale electrification of transport being before 2025.
Over the pond to the US, I spoke with CEO of Adara Power, Neil Maguire, and CEO of start-up player ElecrIQ, Chad Manning. Chad was fresh from winning the Tomas Edison ‘Tommy’ Award at the World Entrepreneur Forum in Victoria. The company had also just announced 4,000 units of pre-orders.
Adara Power (formerly Juicebox) have been a few years in the market, and see the move from early adopters to more established market where aggregation and intelligent utility services were just an important factor in growth as demand charge reduction. This has also seen the company make a successful play into the commercial and industrial (C&I) space. Smart systems are also the key message from ElectrIQ’s Chad Manning. He is now convinced the growth of residential storage, in the US at least, was a case of “no longer if but when”, and with 12 US states looking at passing supportive legislation in the next six months, the when is becoming much clearer. It seems from discussions with another global player that the US, Germany and Australia will remain hot markets, with Italy and Holland growing, and the UK some way behind.
Commercial and industrial: Developed and developing world applications alike
“Not as sexy or PR friendly” as residential or utility according to (flow battery maker) VIZn's CEO Ron Van Dell, “but behind the meter commercial is happening now, primarily as it is based on simple private sector decision making. Does it stack up - if so, let’s go.”
VIZn see substantial opportunities in C&I, utility and off-grid applications in both the developed and developing world. Ron has a strong belief that their offering can provide both power and longer duration solutions and services with the one solution, no need to go hybrid. The need for rugged and safe solutions for microgrids and energy islands in the developing world is a big opportunity. Like Stephen Prince at Younicos though, they see big opportunities for corporate or commercial microgrids and islands, particularly in the US to avoid demand charges. Ron was however highly sceptical of the long term viability of the residential market.
Another that leads in the area of micro-grids and off-grid solutions is Fluidic. The company particularly focus in developing countries where they provide both turnkey solutions and ‘energy as a service’ offerings, but also great social as well as economic rates of return. The challenges can be in unlocking the funding available for projects. CMO Dennis Thomsen too predicted a bloodbath in lithium battery pricing.
Funding also came up in conversation with Andrew Oliver, CTO and Head of ESS at RES (Renewable Energy Systems). Andrew saw RES focussed on the C&I market as well as larger scale for the next few years, but more focussed in a select number of countries.
“One of the big challenges, even in established energy markets, is getting projects replicable, to make the funding process smoother and make the economics better.”
Andrew saw the market at lithium lead for the next 2-3 years even for projects with up to six hour duration.
VIZn flow batteries. Image: VIZn.
Utility scale: Growth from market-specific drivers until revenue stacking takes off
One of the major players across all scales, but particularly utility scale, is LG Chem. Santiago Senn, EMEA Director for ESS at the company, sees a market driven at present by frequency response (FR) and enhanced frequency response (EFR) projects, such as the recent 200MW tender in the UK from National Grid. But these markets can only offer moderate growth unless the opportunity arises to stack more revenue streams. Another executive from a global battery manufacturer shared his thoughts on the utility scale market, considering that the US would be flat until 2018 and Korea and China becoming the other big markets for storage at scale.
In China in particular this is likely to be to address curtailment of renewables. LG Chem's Santiago Senn also saw this becoming more of a driver in the European market, and to balance the system. The consensus generally was that utility scale needs legislation to support the stacking of revenues, to really take off. There was also the thought that many tenders and opportunities at utility scale were written to the advantage of incumbent energy and utility companies. They also have the advantage of scale and balance sheets to enter some exceptional pricing which again could kill off legitimate independent players.
In conclusion: Pathways to ramping up
Speaking to such a cross section of the industry it was always going to provide differing thoughts and insights. That in large part was the aim. Whilst I can only scratch the surface of the conversations here, it was a very useful and insightful process. We at Hyperion have been close to this market for two years now, and are at a point where over 50% of our assignments are in the energy storage sector, across the EMEA region. A consensus across these conversations was that we were some months from the market really gaining momentum and that for some it will be a long year to eighteen months before the market really starts to ramp up. Some won’t survive. Clearly, many factors are going to dictate who the winners and losers will be in this most dynamic of industries. I’d bet on those with a great business model, sufficient funding, innovative products and solutions, strong leadership, and of course the best talent available!
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