The increasing trend towards vertical integration
This week, one of the UK’s largest renewable energy system distributors, CCL, purchased Firefly Solar Generators – a relatively small manufacturer of energy storage systems.
On its own, this may seem unremarkable.
However, acquisitions involving energy storage players – both large and small in size, targeting both residential and C&I segments – are happening up and down the value chain as more and more companies are evolving into vertically integrated energy storage suppliers.
Last week, global energy product manufacturer Wärtsilä announced the acquisition of Greensmith Energy, the US-based system integrator and software company which specialises in developing grid-scale energy storage solutions.
While last year, Tesla’s acquisition of SolarCity also saw it taking steps towards being a ‘one-stop shop’, able to supply Tesla residential storage systems combined with SolarCity’s PV, then offer dynamic control via its SolarCity’s GridLogic software solution.
We see this trend continuing, with the latest research from Delta-ee forecasting more than 80% of new behind-the-meter installations coming from vertically integrated suppliers by 2019.
What does vertical integration mean in terms of the energy storage sector?
Vertical integration within the energy storage sector means being able to do everything along the energy storage value chain. Firstly, it means having the capability to design and build the storage system. Secondly, it means being able to market, sell, install, and maintain that system for customers. Thirdly, it means being able to design and implement the software that controls the asset. Lastly, you must be able to design an effective business model around this with a compelling customer proposition.
All this must be done within the bounds of an increasingly crowded competitive landscape and within a highly complex regulatory environment.
Vertical integration – why bother?
It’s no mean feat to be able to act as a ‘one stop shop’ for energy storage. If you can pull it off, you have complete control over the different steps that take a product from the factory gates to the end-user/customer, with access to all the value that is created along the way. By forging this critical link with the customer and owning the value chain, the opportunity for offering (and earning revenue from) services is also opened up.
To be successful in vertical integration, you must have:
- The engineering and technical knowhow (obviously!)
- The necessary finance and capital to make the expensive ‘vertical integration’ play.
- The ability to recruit, train, and manage an effective installation and sales force.
- The software and control architecture expertise that enables seamless integration within existing systems and with other technologies.
- An understanding of how the rules of the energy system are being bent towards a new paradigm and how this can be harnessed via new business models and new services.
What will the impact of vertical integration be on the energy storage sector?
We expect a number of trends to continue which will mean a rapidly shifting competitive landscape all round. This will mean:
- Further acquisitions up and down the value chain of energy storage companies, specialist software developers, aggregators, installation companies, and other channel players. This will be for both residential and C&I.
- An influx of new players from other sectors and an exodus of existing players who remain interested only in shifting boxes.
- An increasing number of Energy Services offerings, of which storage will be a chief enabler.
The next two years will make an interesting time with lots of opportunities but also threats. To keep up to date and ensure your business is one that has the best chances of succeeding, Delta-ee can offer you its broad and deep knowledge of these enduring trends that spans the distributed energy space.