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Wärtsilä sees ‘favourable demand environment’ for energy storage as strategic review continues

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Wärtsilä’s energy storage division saw a 20% year-on-year increase in sales and a 31% increase in order intake from 2022 to 2023, with the company board in mid-consideration of the business unit’s future.

The Finnish marine propulsion and engine power plant company reported €926 million (US$998.92 million) in net sales and a €1.056 billion order intake on a rolling 12-month basis for the period ending 31 December 2023, as it reported its Q4 2023 results at the end of January.

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Company leadership said the Energy Storage and Optimisation (ES&O) division has turned the corner into profitability with net sales jumping from €775 million over the 12 months ending Q4 2022. Q4 also marked a period in which ES&O launched the latest iteration of its GridSolv Quantum modular turnkey battery energy storage system (BESS) solution.

CEO Håkan Agnevall said the unit has become profitable off the back of “continued growth and operational improvements”, and company presentations highlighted its ranking as the third top system integrator in the energy storage space by S&P Global last year.

Wärtsilä also noted that there is a “favourable demand environment” for energy storage.

However, as regular readers will know, ES&O represents a relatively small wedge of the Finnish group’s overall business, having been created in 2018 with the acquisition of California-based Greensmith Energy, an early leader of the US market.

For the January-December 2023 period, total net sales were €6.015 billion and order intake €7.07 billion across all the business segments, which include engine power plants, marine propulsion systems, and others. ES&O therefore accounts for about 17% of the business.

Back in late October, Wärtsilä announced that it was considering all available options for the future of its energy storage arm, initiating a strategic review and ruling nothing out including total divestment and continuing to hold a stake with new investors or co-owners.  

In response to an analyst’s question on how that strategic review is progressing, Wärtsilä said in presenting its latest financial results that the review is aimed at accelerating the ES&O division’s “profitable growth in a way that benefits its customers, employees, and the value creation for Wärtsilä shareholders,” and that it “is still ongoing, during which all potential alternatives will be considered”.

ES&O could dilute margins, fresh investment could free up division

Shortly after the strategic review was announced last year, Panu Laitinmäki, analyst and head of equity research at Danske Bank, said the Wärtsilä board might be thinking of moving on the ES&O unit due to the potentially dilutive impact it might have on margins, given the much thinner profit margins to be had from energy storage versus some of its other activities and investments.

“My thinking is that they want to maximise the growth of the business and could potentially get to €2 billion or €3 billion in the next few years. But, they have a 12% EBIT target and the energy storage business only just recently reached breakeven and I forecast has a long-term EBIT margin of around 5%. So if energy storage grows that much it will become a really big chunk of Wärtsilä and will dilute their margins quite a lot,” Laitinmäki told Energy-Storage.news Premium in mid-November, a short while after the review was announced.

It would allow the company to seek a different profile of investor that might be more comfortable with the thinner margins of energy storage versus more traditional power markets, the analyst commented.

A source close to the company that the site has since spoken to said that the review is aimed at “only value creation” and is not certainly not an attempt by Wärtsilä to offload a business it no longer wants. Nonetheles, with ES&O representing roughly a sixth of the total business but primed to grow to perhaps a third of revenues within the next few years, the board will likely want to focus more attention and investment on its legacy business areas such as engine power plants.

It appears to make sense as a strategy. Opening up to new investors, owners or co-owners could allow the company to focus its efforts on the core businesses while giving the energy storage business the funding and freedom to grow.

Indeed, while the Wärtsilä Q4 2023 results disclosure discussed how the global shift to renewable energy is accelerating and becoming ever-more concrete as a political objective, for the most part it did so in the context of how this could benefit Wärtsilä’s current efforts to develop renewable or cleaner fuels for its engine power plants, implying that it sees this rather than batteries as its main avenue for participating in the energy transition away from fossil fuels.

Following Wärtsilä’s Q3 2023 announcement that it had surpassed a billion dollars in sales for the 12-month rolling period that preceded, the company proclaimed the ES&O division to have become profitable. At the time it was thought to be the first pureplay BESS integrator to have done so, closely followed by rival Fluence which made a similar announcement shortly afterward for the same quarterly period.

Energy-Storage.news’ publisher Solar Media will host the 9th annual Energy Storage Summit EU in London, 20-21 February 2024. This year it is moving to a larger venue, bringing together Europe’s leading investors, policymakers, developers, utilities, energy buyers and service providers all in one place. Visit the official site for more info.

Energy-Storage.news’ publisher Solar Media will host the 6th Energy Storage Summit USA, 19-20 March 2024 in Austin, Texas. Featuring a packed programme of panels, presentations and fireside chats from industry leaders focusing on accelerating the market for energy storage across the country. For more information, go to the website.

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