Please ensure Javascript is enabled for purposes of website accessibility

Storage Wars: Tesla Just Got a Major Competitor

By Travis Hoium - Jul 12, 2017 at 5:05PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Siemens and AES are forming an energy storage company that could be a big challenger for Tesla's leading position today.

Elon Musk and Tesla Inc (TSLA 0.78%) may have found their biggest competitor in energy storage today when Siemens (SIEGY -0.01%) and AES Corp (AES -1.45%) joined forces to form Fluence. It's an "energy storage technology and services company that combines the expertise, vision, and financial backing of the two most experienced icons in energy storage," playing off the confluence of technologies upending the energy industry today. 

The fact that these two companies joined forces is a big deal in the energy industry. Siemens is one of the largest electricity suppliers in the world, and AES is a forward-thinking utility company that's building an energy storage arm to go with its wind and solar development. 

Rendering of energy storage and renewable assets.

Image source: Getty Images.

The confluence leading to Fluence

Energy companies are starting to see that energy storage is the wave of the future, and they're trying to figure out which business model will work best. The biggest driver has been the decline of lithium ion battery prices, but that's converged with utilities finding justifications for energy storage to meet peak loads, run microgrids, or offset infrastructure investment. 

In the commercial setting, there are applications that make sense for Fluence as well. Shaving demand charges for industrial and commercial customers, which are based on the peak electricity consumption during a month, has been a way to justify energy storage in the past. And with peak shaving, customers usually layer on smart controls that can shift demand where the time of use rates are applicable, or where solar net metering may not be the full retail rate. 

Tesla has built its energy storage business on these utility and commercial applications and has thus far dominated the market. Fluence is at least making a run at being a player to watch. 

What's next in energy storage? 

The applications for energy storage are just starting to be unlocked, which is why I think the Siemens-AES deal is happening now. I mentioned some utility and commercial applications, and islands are also seeing energy storage as a viable option, paired with wind and solar. 

It's logical that the next step will be to marry smart energy storage with wind and solar projects, which Fluence could do through AES's renewable developments, particularly now that it has acquired half of solar developer sPower

Siemens and AES also said they will "develop new storage solutions and services," which could open Fluence up to energy storage beyond lithium-ion batteries. Flow batteries, mechanical storage, hydro storage, and hydrogen are technologies worth watching in coming years as these companies could exploit them. In that sense, they could be a more complete energy storage solution than Tesla because they could be technology-agnostic. 

The one thing AES is missing

What's missing from AES's growing portfolio of energy assets is a financing arm. I recently mentioned that it should buy a yieldco, and now that makes even more sense. Someone will need to finance the energy storage, wind, and solar developments coming out of AES because the company won't want to house all of them on the balance sheet. A yieldco would allow for nearly unlimited financing, and it could take more risk under AES's control than other buyers might want to take, particularly in energy storage. Look for this to be the company's next move in creating the utility of the future now that it thinks it has an energy storage powerhouse in Fluence. 

Travis Hoium has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Tesla, Inc. Stock Quote
Tesla, Inc.
TSLA
$871.27 (0.78%) $6.76
Siemens Aktiengesellschaft Stock Quote
Siemens Aktiengesellschaft
SIEGY
$55.62 (-0.01%) $0.01
The AES Corporation Stock Quote
The AES Corporation
AES
$23.87 (-1.45%) $0.35

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
377%
 
S&P 500 Returns
123%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/09/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.