Dr. Paul-Josef Patt, PhD serves as the Managing Partner and Chief Executive Officer of eCAPITAL entrepreneurial Partners AG. He co-founded the eCAPITAL entrepreneurial Partners AG. As an investor in the renewable energy sector, Dr Paul-Josef has shared his thoughts in our ‘Talking Points Interview’.
1. How to make energy storage projects bankable?
As an active cleantech investor we continue to see a broad variety of energy storage system (ESS) concepts and technologies from high-tech start-up companies, aiming to commercialize them.
Renewable energies and digitization drive a decentralized energy landscape, in which energy storage concepts play a major role. From a technical point of view, there is a bandwidth of applications and benefits for energy storage systems: ranging from increased self-sufficiency, backup power, arbitrage, grid stabilization services to grid congestion relief and many more.
The key to success on the one hand is using a smart business model, which combines several of those applications and revenue streams, but on the other hand also using the ESS hardware as a platform and enhance it with services and digital business models.
Current business models aim especially at combining different sources of revenue streams to increase investment profitability of the energy storage systems. However, combining revenue streams necessitates a thorough consideration of capacity usage, incompatibilities and joint risk profiles (e.g., frequency regulation may conflict with arbitrage strategies).
As of now, the single largest application (more than 50%) of newly commissioned ESS is short term balancing and frequency regulation,(1) showing that this is currently one of the most important building blocks to make ESS bankable.
2. How to define energy storage within regulatory frameworks?
There is a strong dependency of business models on country specific regulatory frameworks. This means, start-ups need to have a very deep understanding of and closely monitor the regulation and any upcoming changes.
Even though the prices of energy storage systems are falling, it has to be noted that large portions of the markets are still reliant on supportive policies and subsidies.
3. How to enable revenue stacking?
Especially for start-ups, focus is very important due to the inherent limitations in resources. Thus, we suggest to start with the revenue streams which show the best characteristics in terms of profitability, value-add, market size and growth, USP, sales cycle times etc.
There should be a roadmap, regarding other revenue streams and business models that can be addressed in the future. Also, a smart and flexible storage solution should be designed from the start, in order to technically enable all of the potentially interesting (future) applications.
Adding to the technical use cases of energy storage solutions, which are in some ways conflicting each other, we see another trend of how energy storage companies can add more revenue streams to their business models via digitization and data driven business models. In most cases, these are not conflicting the technical capabilities of the storage system itself.
On the regulatory side, multiple-use applications of ESS will be further clarified, as can be seen by recent developments in the US,(2) where multiple-use regulations are being implemented. These regulatory developments will catalyze and support companies on how to harness multiple revenue streams.
4. How to best reduce costs of energy storage?
Take the example of Lithium-Ion Batteries: Significant cost reduction took place because of a high degree of modularity and standardization, strong demand from consumer markets, large scale production and economies of scale, complemented by technological advancements in both material usage and system design.
This strong decline in battery prices, as well as technological optimization and improvements led to Li-Ion becoming the dominant technology, even in utility scale projects. Today, more than 90% of utility scale ESS are based on Li-Ion technology (excl. pumped hydro power plants).(3)
5. How to unlock new geographic markets for energy storage?
Market conditions, prices, competition, regulation as well as the energy production and transmission system as a whole can be quite different between two markets. From our experience, it is key to calculate and carefully adjust the proposed business case according to every new market to offer a convincing value proposition to the customer.
Companies also need to closely monitor the differences in regulation and the landscape of supportive policies, subsidies etc.
6. How to create more standardization and clearer specifications?
In standardization, both public and private actors play and important role. While groups such as the IEC, MESA are working on creating more and better standardization, there is still room to improve. For companies it can be very important to take part in one of these working groups.
A good example on how to create clearer specifications from the regulatory side is the implementation of a framework for multiple use applications for electric storage resources, which has recently been implemented in California.
7. How to bring alternative energy storage technologies (other than Li-ion batteries) to market?
As a market entrance strategy, we think it is a good way to address concrete market segments. Many technologies have different characteristics, e.g. duration of storage, energy density, loss characteristics, performance etc. and therefore each technology should find the segment where it fits best and has the biggest competitive advantage.
Most importantly, to bring new technologies to the market, they must have a tangible value add if compared to existing technologies and must be market-ready.
8. Can you please share your most recent interesting and challenging project that you have worked on?
We have been the first institutional investor in Sonnen (Link 2013), who have gone through very interesting developments and transitions and are now on the way to become the energy provider of the future.
Sonnen has started by selling Li-Ion battery hardware and gradually developed further services. Comparing its 2013 business model with today, sonnen has shifted to a much broader value proposition for their customers and partners called sonnenCommunity.
The sonnenCommunity is an online network for sharing self-generated power, allowing to offer electricity cheaper than traditional players. sonnenCommunity started in Germany and DACH, then expanded to Italy and Australia and is now starting to expand in the US.
An important next step is the sonnenCharger, to integrate electric vehicles in the sonnenCommunity and enable clean and intelligent charging. Customers who have opted for sonnenFlat can even recharge free of charge from the sonnenCommunity within the booked tariff.
Today, Sonnen is one of the top producers of energy storage systems and offers the world’s largest platform for power sharing.
If you want to know more about these and other topics directly from end users of energy storage technologies join us at one of these events: 11th Energy Storage World Forum (Grid Scale Applications), 16-18 May 2018 Berlin, or 5th Residential Energy Storage Forum, 14-15 May 2018, Berlin.