Investors are shifting their focus from deployment growth to platforms that can orchestrate and monetize battery farms.
By ESS news
The number of batteries installed (and how quickly that installation occurs) may no longer be the most important metric for investors evaluating residential storage projects. Instead, for some investors, the long-term revenue streams from market participation, virtual power plants (VPP) and aggregation are the focus.
All things considered, the integrated platform wins with both software and hardware.
“The value of a pure-play hardware vendor is limited to the value of the box, while the value of a platform increases with each connected device,” explains Mark Gudiksen, managing partner at Piva Capital, which backs companies including Moon energyPlanted Solar and Malta Inc, a steam-based long-term storage startup. He told it ESS news that the differences between a battery company that only supplies hardware and a company that also works with intelligent software become greater as interactions with the electricity grid become more frequent and complex.
From an investment perspective, Gudiksen says, whoever owns the software layer can do so consistently effectively shipping thousands of assets on demand is suddenly “in a fundamentally different competitive position” than those who only sell individual hardware units. Companies that have closed the physical and digital layers may be more interesting to investors. He expects this trend to continue as advanced control over shippable assets deepens its position as a key value-add for residential batteries. The network effect of a platform like a VPP will only expand the moat further.
While Gudiksen views software-focused companies as safer investment choices than hardware-focused companies, he cautioned against basing everything on one approach, especially if it relies on third parties or outside groups to succeed.
“Vertical integration of hardware and software creates defensibility at multiple layers,” he explained, because it gives utilities and charging services a single counterparty, contract, integration and point of responsibility. In a market where complex procurement processes can hinder implementation, the simplicity of a turnkey, vertically integrated model has ‘real value’.
What’s more is that the proof-of-concept already exists: US-based investors only have to look at the battery markets in the UK, Japan or Australia to see that allowing residential batteries to participate in wholesale markets and provide grid services will deliver attractive returns. Gudiksen noted that “the US is quickly catching up,” as the country’s market structure is already developing in a way that he believes will accelerate aggregation.
The housing market is shifting to a third-party ownership model, he explains, where one company can own tens of thousands of assets and spread them across multiple markets for network services, while sharing revenues with homeowners. Basic power in Texas is an example where it raised $1 billion not only for hardware, but also for the software game for a coordinated battery fleet.
“At that scale, a battery fleet starts to look much more like a dispatchable and clean generation asset than a collection of consumer electronics,” Gudiksen added, because they can serve multiple purposes. “The assets don’t have to be valued as individual consumer electronics or as a monolithic power plant. They can be both at the same time, which makes the model attractive.”
Yet the core of its appeal lies in one key factor: a sustainable income stream.
“I have confidence in the sustainability of the underlying value, because the fundamental tension between supply and demand in the market is structural and not cyclical,” said Gudiksen. “The electricity grid needs flexible, controllable capacity at the edge of distribution.”
“Solar energy in combination with batteries for home use, when properly aggregated and controlled, offers exactly that solution.”
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