Summary

  • AutoGrid introduces comprehensive flexibility management for demand response, distributed power and Virtual Power Plants.
  • Virtual Power Plant (VPP) to involve 1000 South Australian homes, each with a 5kW/7.7kWh battery; total power stored 7MWh to support renewable energy integration (mostly wind).
  • World’s largest VPP a $A20 million project run by Australian energy company AGL, with $5 million provided by ARENA (Australian Renewable Energy Agency).
  • Big end of town investment in big data management in the renewable energy space.
  • Is peaking gas heading to become a stranded asset class?

Revolutions happen at the intersection of ideas and technical developments. Much of the commentary about where the world’s energy systems are headed is quite superficial and can be classified in terms of old “base load” and “distributed, intermittent” energy models.

The “baseload” model involves big centralized facilities (e.g. coal, nuclear) that in theory provide the bulk of power needs continuously, with peaking power provided by a subsidiary source such as gas peaking plant or hydropower. Clearly this concept is a simplification as utilities need to match constantly changing demand with supply.

With distributed-intermittent energy, the need to match supply with demand is more explicit because the core source of power (mostly solar or wind) is intermittent. Because the power sources are geographically distributed, this provides some balancing of power supply. A crucial issue is the use of weather forecasting to provide increasingly accurate predictions of actual power supply. This gives the utility precious time to organise the power supply. Some form of energy storage is needed.

Discussion about distributed energy systems is often narrowly focused on the cost of solar panels and wind turbines, with batteries starting to be talked about in terms of storage. Clearly the hardware used to capture the energy is critical, but there are additional layers being defined in providing reliable power.

To a significant extent these additional layers are information-based. Only recently has it become possible to collect and manipulate (in the cloud) huge datasets generated by many small power generators, and to manage what to do with the power (e.g. store it in batteries). At the demand end of the equation it is also possible to estimate when power is needed and how to manage critical power needs by deferring consumption to smooth out use. The obvious household issues involve things like deciding when to run a pool pump or when to heat or cool. Until recently this all had to be done manually. Now it is possible for a utility to control power provision and consumption. Hooking up thousands of homes to form a Virtual Power Plant (VPP) has arrived as a means of deferring (eliminating?) major infrastructure investment.

We live in the information age. It impacts everything we do. The smart phone is not just a phone but a way of being up to date with worldwide developments in real time, a camera, electronic calendar etc. This data driven world is now dramatically impacting the new energy order in a way that is often overlooked by traditionalists.

Here I consider the scope of the changes based on a recent release by Californian energy company AutoGrid and news about Virtual Power Plants in Australia and the US.

AutoGrid

There is a lot of disruption going on and this is being led by nimble young companies whose business model involves information management. A good example of this emerging area is Californian company AutoGrid Systems.

Navigant Research has positioned AutoGrid as a Leader in its 2016 Demand Response Management Systems Leaderboard report. AutoGrid is an unusual player as it is a pure software provider. Being hardware agnostic it has focused on quality data acquisition, manipulation and providing solutions for large scale distributed applications.

The scale of what AutoGrid takes on is interesting. An example is a project with Eneco, a major Dutch sustainable energy company with 53 municipalities as shareholders. The project with Eneco involves managing 100 MW of flexible capacity for Dutch greenhouse farmers. By smart management of power generation and usage, this project has avoided the need for a gas peaker plant.

Another AutoGrid project involving delay/avoidance of investment in gas peaker plant is a successful 18MW demand response demonstration projectwith Energy Northwest and Bonneville Power Administration.

AutoGrid has just announced an integrated optimization system, AutoGrid Flex 3.0. This suite of software involves three elements : i) demand response management, ii) managing distributed energy resources and iii) organizing VPPs.

The pitch to customers (utilities, electricity retailers, renewable energy project developers) is that AutoGrid provides an additional value layer on top of the renewable energy resources. The AutoGrid software enables prediction, optimization and control of distributed energy resources in real time. The focus is technology agnostic, so there are substantial projects in wind, solar, batteries and well as CHP plants.

Key features are :

Local site optimization : This results in reduced site-based demand, lower peak system charges, energy cost saving and local balancing; these all enhance renewable energy project ROI.

Storage integration with other distributed energy resources : AutoGrid provides integration of various hardware sources making customer management easier and more efficient.

Portfolio optimization : This enables optimized aggregation/disaggregation and planning of dispatch for various energy generation and storage devices. This is particularly relevant to VPP applications. AutoGrid has massive scalability.

The outcomes are increased revenues, customer engagement and enhanced grid reliability. With 2 GW of distributed energy resources under contract in 2016, AutoGrid is growing rapidly, as resources under contract in 2015 were 0.5 GW. AutoGrid argues that bottom line outcomes are winning business.

Currently most of AutoGrid’s business is in the US (especially California, New York, Texas) and Europe, but the company has significant business development activities in China, India and SE Asia.

Key investors include Envision Ventures (substantial interest in big data); Total Energy Ventures, (NYSE:VC) arm of Total (NYSE:TOT) which is a major oil & gas company; German company E.ON (OTCQX:EONGY), one of the world’s largest energy companies; ClearSky Power & Technology, an energy/clean power/technology VC investor; Foundation Capital, VC investor in IT and clean tech; Stanford University.

While this company is unavailable to most investors, it is interesting as it has some powerful key investors and its products are being adopted by many large corporations in the distributed energy space. If it doesn’t get acquired by a major corporation, this company should be on your IPO watch list.

Gas a stranded asset?

Considering major projects that AutoGrid is involved with have avoided capital investment in gas peaker plants, one wonders if the technology will become asignificant threat to gas.

This isn’t just an issue in the US. The Australian Energy market regulator has questioned what role gas will have in Australia’s future energy mix. The Australian Government and the fossil fuel industry has sought to position gas as a bridge solution pending the rise of renewable energy and storage. Recent results with batteries, solar PV and wind power indicate that the large scale energy solutions could mean that gas assets become stranded within 15 years, while small scale solar PV and batteries might make gas uncompetitive by 2020.

Residential solar PV means lots of distributed power generation in Australia

When a small country like Australia with a grid demand of ~35GW recently passed 5GW rooftop solar PV capacity, it became clear that homeowners are already a significant presence in the national power generation system. Of 1.577 million installations the vast majority are less than 10kW, with only 124 systems above 100kW. 5GW is a lot of power, but it is truly distributed (over almost 1.6 million premises).

The recently released (January 2016) National Renewable Energy Laboratory (NREL) report concerning rooftop solar photovoltaic potential in the US, which suggests that rooftop solar could provide 39% of US electricity needs, is forcing utilities to think about their role in energy provision.

Virtual Power Plants are about adding battery storage and smart energy flux management

So what does it take to access this self-produced power for the benefit of the homeowner (who is prosumer i.e. both producer and consumer) and the utility, which runs the grid?

The companies driving the VPP revolution are information integrators (like AutoGrid), who operate in the cloud with massive data sets that allow near instantaneous energy management. When hooked up with many small systems you have the basis for a VPP.

World’s largest VPP, an AGL/Sunverge project

Major Australian energy provider AGL ((ASX:AGL)) is building what it claims to be the world’s largest solar VPP battery demonstration facility (7 MWh stored energy) to support the high penetration of renewable energy in South Australia. The plan is to connect up 1000 residential batteries in South Australia to provide 5MW of peaking capacity, while at the same time saving customers on their energy bills. In effect AGL plans to use householders to store power which it can manage in distributed residential batteries instead of building centralized peaking capacity (e.g using gas, which is controversial at the moment in South Australia due to spikes in the price of gas).

A similar story concerning VPPs is playing out in the US and Europe.

The South Australian VPP is supported by ARENA (Australian Renewable Energy Agency) which will provide $A5 million of the estimated $A20 million establishment cost.

The VPP will be implemented by US energy storage and energy management company Sunverge, with roll out over 18 months. The initial phase, which involves 150 homes being offered heavily discounted 5kW/7.7kWh Kokam batteries and the energy storage system from Sunverge, is now sold out . Customers without solar will purchase a solar PV system integrated with the battery. The VPP involves AGL having control of the batteries through a cloud-connected intelligent Sunverge control system. The next group of 350 homes is now available.

AGL is an interesting company. It was an early entrant into renewable energy space, but a previous CEO saw an opportunity to acquire substantial old coal-based power stations at a huge discount at a time when a coal loving new Government dismantled carbon pricing and support for renewable energy. This was a very profitable move for the company in the short term, but left it with a legacy of highly emitting fossil fuel power generation. The appointment of Andrew Vesey (ex EVP and COO of AES Corporation (NYSE:AES)) in late 2014 has led to a more strategic and modern view of the company, with steady share price improvement from below $A13 to current price above $A21.

Who owns Sunverge?

While not a public company, investors in Sunverge reveal some strategic players. These include :

Total : through Total Energy Ventures International. Total has a number of investments involved in this space, notably SunPower (NASDAQ:SPWR) in which they have a major shareholding and AutoGrid (see above)

Siemens (OTCPK:SIEGY) : through Siemens Venture Capital

AGL ((ASX:AGL)) : leading Australian energy company (see above) which sells the Sunverge system in Australia

Kokam : a leading South Korean lithium battery company whose batteries powered the round world flight by Solar Impulse 2 and deep sea exploration by James Cameron’s Deep Sea Challenger. Kokam is the battery supplier for the Sunverge Solar Integration System.

Mitsui and Co : Mitsui (JP:8031) is a major Japanese company that invested $10 million in Sunverge and is collaborating on select market development initiatives in Japan and elsewhere.

Southern Cross Venture Partners : an Australian capital provider to entrepreneurial companies. Southern Cross manages investments in Sunverge by SBCVC (Softbank China Venture Capital) and ARENA

Not just about Australia, it’s about global distributed power management

Sunverge has commissioned a research report from Navigant “Making Sense of New Public Power DER Business Models”. The report makes clear that new business models are needed by energy utilities to accommodate massive increases in distributed power generation, especially from solar PV.

The Navigant research suggests that between 2014 and 2023 different forms of distributed power generation will displace the need for more than 320 GW of new large scale power plants globally. Those who dismiss residential solar PV and battery energy storage might reflect on these numbers. This is no niche activity and it has big implications across the energy industry.

An example of this is a Consolidated Edison (NYSE:ED) project in New York which involves a $200 million project with turnkey energy storage developer Demand Energy involving solar + battery storage (40ft container of lithium ion batteries) distributed grid initiative which allows delay of building a $1.2 billion conventional power substation.

COzero cloud based energy management platform

COzero has announced a deal with Japanese company ENNET Corp to provide its EnergyLink energy management platform. This deal covers ENNET’s 24,000 customers, who will use the cloud based platform to identify their energy needs and identify energy reduction measures that will save from 5-30% energy costs. Major Australian corporations have adopted COzero’s EnergyLink platform, which is deployed at thousands of Australian sites.

ENNET is a JV between NTT Facilities, Tokyo Gas and Osaka Gas, is the largest new entrant to the Japanese electricity market, which is a 7.5 trillion yen market that has recently been deregulated.

Ideology won’t stop this revolution

There is hope in some quarters that the post-truth Trump approach to restoring the old energy order will succeed in reversing the adoption of renewable energy and bring fossil fuels, and coal in particular, back.

Australia is a good place to see the futility of trying to stop the inevitable. For more than three years (and for prolonged periods before that) a small but powerful group of ideologues has sought to destroy the emerging renewable energy industry and prevent the demise of the coal industry. They have had some successes, but they are losing the battle , simply because denying reality only gets you so far. The latest arguments raised about renewable energy leading to increased energy prices have been shown to be untrue and instead continuation of trying to keep coal alive will lead to substantially increased prices.

If you want a sign of how profound the change is, look no further than US Senator Bill Seitz, who has been the face of opposition to renewable energy in Ohio. He announced last week that he is putting a substantial solar system on his own rooftop. Go figure.

Conclusion

When the world is changing dramatically, sometimes it is hard to discern what is going on. For an investor, defining new investment areas, finding out who the players are and what their prospects are for survival and growth, helps clarify companies of interest.

I don’t claim to have a very good handle on this as it is very fast moving, but I do try to provide a high level view to help position your favorite company in the picture (or exclude it). Some companies are showing signs of strategic play and might become the leaders in organizing the technology for utilities to add VPP capacity to their toolkit.

Technology providers like Sunverge and Kokam are clearly significant players in this space as is AutoGrid as an information integrator, but they aren’t accessible to US investors. AGL is a major Australian energy provider, but it is listed on the ASX. The US listed company that keeps popping up in the emerging renewable energy space is oil and gas major Total, which is a majority shareholder in SunPower and also has a stake in Sunverge and AutoGrid. Siemens is also in the picture.

Perhaps this is more about peeling back who is who, but I’m thinking that Total is showing signs of finding a future beyond oil and gas.

I don’t do financial analysis but I do look for disruptive technologies. In the energy space there are many revolutions converging and I seek to identify and position them. If my analysis is helpful in informing your investment decisions, please consider following me.

Disclosure: I am/we are long SPWR.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Link to full article