This article was written by Daphne Tomlinson of Tomlinson Business Research.
Utilities are continuing to strengthen their decentralized energy capabilities as part of their ambition to expand their business models beyond the meter and become complete solution providers for energy management.
In a previous article on Memoori titled "Utilities Invest in Energy Software & Services for Commercial Buildings", we estimated that one can expect to see further partnerships and alliances in 2016 as utilities seek to transform their businesses.
This was certainly the case in the smart building to smart grid interface software sector, where we observed several interesting trends:
- Energy Service Companies (ESCOs) are also investing in solutions for their large energy users in the commercial and industrial sector.
- In the last two years, utilities have become important strategic investors in startups addressing smart grid & decentralized energy solutions through venture capital funding, enabling them to stay ahead of innovative technologies and new business models.
- Demand management software technology has been particularly sought after by large players.
- European utilities are acquiring startups and established companies at a rapid rate in the North American market.
- We can expect to see advanced software incorporating machine learning and AI techniques beginning to play a larger role in the development and optimization of intelligent buildings.
Smart building to smart grid interface software is defined in our report on The Market for Building Performance Software 2016 to 2020 as software used to facilitate the connection between building energy control systems and the electrical grid, used specifically for: Automated Demand Response (ADR) to the building / Management of inbound Distributed Energy Resources (DERM) from smart buildings into the Smart Grid / Management of the Storage of Distributed Energy Resources.
We predicted that revenues in this market will experience a healthy growth of 11% CAGR between now and 2020, driven by the growing proliferation of distributed energy solutions in global markets as well as increased adoption of Demand Response approaches beyond the USA which currently leads the way. By 2020, the overall annual sales revenue for this interface software market is expected to hit $3.2 billion.
In the Demand Response segment, investments in the last 12 months included:
- In January 2017, Israeli geothermal company, Ormat Technologies announced it would diversify into energy storage and demand response with the $35 million acquisition of Viridity Energy, based in Philadelphia, PA. Since its inception in 2009, Viridity Energy has been providing VPower demand response and demand management software technology and services, along with battery storage solutions. The company has attracted over $42 million in total investments from AltEnergy, Intel Capital, Braemer Energy Ventures and Mitsui.
- While most ESCOs, such as Siemens, Schneider Electric, and Honeywell have consolidated their market position across the energy value chain, Johnson Controls (JCI) appears to be focusing on battery storage products. Having acquired EnergyConnect and the GridConnect demand response platform and program in 2011 for $32.3 million, JCI divested their integrated demand resources business in May 2016 to CPower, one of the largest demand response companies in North America, formed from the respective business units of Comverge and Constellation in 2014.
- Customized Energy Solutions, a Philadelphia-based ESCO offering hosted software solutions and services, acquired Powerit in Jan 2016. By acquiring Powerit and its Spara demand management technology, CES enhances its Demand Response services for suppliers, aggregators and engineering customers.
- Tarsier, a New York City based ESCO, acquired patented energy management software formerly known as Grid Daemon, (now T-Flow) from Demansys in Jan 2016.
In the Distributed Energy Resource Management (DERM) segment, Autogrid, the software provider of applications that manage networked distributed energy resources in real time and at scale, attracted investment in May 2016 from both European and US utilities. E.ON continued its strategic co-investment in Autogrid, which first began in 2014. The German utility was the first company to deploy the latest version of AutoGrid’s Energy Data Platform (EDP) in Europe. Energy Impact Partners, a utility group that includes Southern Company, Xcel Energy, Oncor and National Grid, and Envision Ventures, led the latest round of investment.
In the Energy Storage segment, acquisitions and investments in the last 12 months included:
- Demand Energy, an intelligent control software provider, project developer and operator specialising in battery storage optimisation was acquired by the Italian utility, Enel in January 2017 to help strengthen the utility’s position in the growing distributed energy storage market.
- Green Charge, a battery storage company based in California utilizing its advanced patented software algorithms and analytics, was 80% acquired by Engie, the French energy group, in May 2016.
- PowerSecure, a microgrid developer with a 1,500-MW portfolio, was acquired for $431 million in Feb 2016 by Southern Company, the Atlanta-based utility serving the Southeast through subsidiaries Georgia Power, Alabama Power, Mississippi Power and Florida’s Gulf Power.
- Constellation Technology Ventures, the venture capital arm of Exelon Corp. and RWE Supply & Trading, the energy trading arm of Germany-based RWE Group, one of Europe’s largest electricity and gas companies were among a consortium of investors in Stem, a leader in advanced energy storage and data analytics for both businesses and utilities.
While consolidation is likely to continue, we can also expect to see more co-innovation, partnerships and strategic investments by the energy sector.
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