Why would Oracle (NYSE:ORCL) want to spend $532 million for an energy technology company that's lost $87 million in the last two years?
The answer lies in the future of energy as we know it. Electric energy has been a one-way street since Thomas Edison invented the light bulb and the grid was first built. The vast majority of people and businesses bought energy from the centralized grid, which pushed more and more energy out to customers as demand grew.
Today, it's possible to generate your own energy on your roof, respond dynamically to energy price signals (demand response), and even buy energy directly from a community solar farm. The result is that information about where energy is being created and where it's needed is more important than ever. And that's why Oracle was willing to spend $532 million to buy Opower (UNKNOWN:OPWR.DL).
Information will rule energy in the future
Oracle is really the business that makes business software work behind the scenes. You may not see Oracle as a consumer, but you probably interact with companies it services on a daily basis.
In the utility space, Oracle provides a key back end operational system for utilities that's crucial to keeping business running. Opower, on the other hand, offers front end customer engagement tools and energy efficiency products that utilities incorporate into their businesses. So the combination deepens Oracle's offerings to the industry. And the metrics Opower can offer are pretty impressive.
- Opower stores and analyzes over 600 billion meter reads from 60 million utility end-customers.
- 10 TWh of energy, or enough to power the entire U.S. for more than a day, has been saved by Opower's efficiency products.
- Opower says it reduced Exelon's peak energy usage, which is typically the most expensive for utilities, by 18%.
Together, Opower and Oracle can tell utilities a lot more about where and how energy is consumed, leading to a vast understanding of utilities.
Why is this so important? Because as distributed resources like rooftop solar, energy storage, and demand response gain more market share, the regulatory structure utilities operate under will change. Based on regulatory debates happening in California and New York, it's likely that energy will start being valued based on when and where it's needed, not just the monthly price you probably see on your bill today. Utilities will have to tell customers prices dynamically, and owned or third party energy storage systems when to store and when to deploy energy to keep the grid operating efficiently. And Oracle will be able to provide data that will make the system work.
How disruptive companies are using data
You can look at the Oracle move as a way for utilities to pull more data into their view. But companies like SolarCity (NASDAQ:SCTY.DL), Tesla Motors (NASDAQ:TSLA), and SunPower (NASDAQ:SPWR) are looking at data from a different angle.
These disruptive companies are trying to use data to find ways to add value to the grid and get paid for it. If Tesla Motors can learn where it can save a customer money on demand charges (fees based on a commercial customer's peak energy consumption each month) or demand response, it will help sell more battery systems. The company will also be using vast amounts of data on utility scale energy storage systems to decide when to store and when to deploy energy.
SolarCity and SunPower are constantly adding capability to their solar monitoring systems, including energy storage. With data, they can learn when to save energy produced in a solar system and when to use it. And that decision could change depending on the state, the utility, or even the neighborhood. How a solar+storage system works in California may differ from how one works in New York. Without vast amounts of data, these companies can't build the algorithms that will make their systems profitable for customers.
This may be a different view of data in energy than utilities have, but it's an example of how energy is entering the information age in a big way. Utilities and disruptive forces don't know exactly where data will be needed or how they're going to use it, but it's an arms race to gather as much data as possible to prepare for the next phase of the industry.
Information is the new currency in energy
The future of energy is no longer about one way systems creating electricity as it's demanded and generating regulated returns -- that's the old way of thinking about electric energy.
The future will be much more about many competing forces -- both old and new -- fighting to extract as much value as they can in the energy industry. And knowing when and where to invest in energy will require a new level of information that's never been used in the industry before.
This is the electricity industry's introduction to the information age, and it's just beginning to unfold.