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Siemens and AES are forming an energy storage company that could be a big challenger for Tesla's leading position today.
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Elon Musk and Tesla Inc (TSLA 0.01%) may have found their biggest competitor in energy storage today when Siemens (SIEGY +0.02%) and AES Corp (AES +0.01%) 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.
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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.
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.
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.
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