AES and Siemens launch Fluence joint venture in energy storage

Energy firm AES and German engineering conglomerate Siemens have announced they are forming a joint venture, called Fluence, to hopefully seize a dominant share in the rapidly growing energy storage market. The two firms hope Fluence will bring down costs of operation and increase total sales footprint, in a market that is poised to surge.

Both companies have an equal 50% stake in Fluence, and the deal will be finalized after regulatory approval. The new company will sell a battery storage system, combining the current AES and Siemens product lines under one badge.

The market for energy storage is fragmented, this venture brings together two market leaders. Prior to this, Siemens has focused more on projects for individual companies and enterprises, such as universities and hospitals, while AES targets larger arrays at grid-scale. The two companies have been enjoying success in different segments of the market, making a joint venture look well positioned – as neither is treading on the other’s toes.

Until recently, a debate about which battery technology to adopt has persisted, and with the notable implosion of A123 Systems, the market appeared to be a risky investment. However, since 2014, Lithium Ion battery costs have declined by some 40%, accompanied by regulatory driven mandates for utilities to grow their storage assets.

Since then, the outlook for companies involved in battery storage has improved substantially. Bloomberg New Energy Finance is valuing the opportunity in battery storage for 2017 alone at $2.5bn.

Fluence will apparently operate independently of the two parent companies, and will merge AES Energy Storage and Siemens’ battery based energy storage solutions. The new operation will use the same battery suppliers in America, Korea and Japan that AES had been using.

Battery storage enables intermittent electricity resources like solar and wind to be effectively networked on to an electricity grid – ensuring that their variable generation outputs can be put to use without causing blackouts. Adding battery storage to the grid also enables a mixture of other applications, from demand response and grid ancillary services like frequency regulation.

Siemens will add global reach to the highly successful storage business of AES. Siemens has a sales presence in some 160 countries, whereas AES has only deployed battery storage in 7 countries. AES is in competition with the likes of GE and Schneider Electric, and this new global sales presence should improve AES’s ability to compete. Siemens is also very well connected with major utilities around the globe, having built grid infrastructure like generators for decades.

AES began in the energy storage world by deploying its own projects in the regional transmission operator PJM’s frequency regulation market – a market where any trader that can offer storage to the network operator for the purposes of frequency regulation receives compensation. Gradually, AES began to offer its own battery storage to other parties in the PJM market.

Siemens has experience in a range of battery storage technologies outside of the of the common Lithium Ion battery type. Siemens has worked on three flow battery projects, and worked on a large-scale lithium sodium sulfur battery system. Currently, in most circumstances, these technologies are not as cost effective as Lithium-Ion.

Improvements in one of the alternative battery technologies, could make it more cost viable in future. Energy storage providers must remain flexible to such potentially disruptive developments. AES, supported by the larger research footprint of Siemens, should be better placed if such a development in the storage market does occur – and the company needs to offer a new line of storage products to keep pace with competitors.

The venture will allow for the upscaling of operations, allowing Fluence to exploit a greater range of global opportunities. Fluence’s main rival looks like Tesla, which is well placed in terms of the cost of its storage devices – thanks to its Gigafactory strategy. However, it is heavily wedded to one battery technology, which it uses in its vehicles, Powerwall and Powerpack products. It also heavily reliant on battery partner Panasonic.

In new Tesla news, the company announced that it had beat out Lyon Group, working with AES amongst others, to win the contract to build a 100 MW/ 129MWh grid-scale battery storage facility in Australia. The storage facility will be the largest of its kind to date globally.

However, speculation exists around the economics of the deal. Analysts have suggested that Tesla is likely to be offering a thin margin on the deal, to shift the battery cells that it has already agreed to purchase from Panasonic.

Even still, South Australia utilizes a significant amount of wind generation in its energy mix, which has led to outages in the region in the past – combined with its extreme weather and storms. This new Tesla storage facility should help to address this issue.

The demand for large scale energy storage is growing, driven by the falling cost of advanced batteries, and the increased proliferation of renewable energy. Pairing large-scale energy storage with renewable energy improves reliability, with fewer climate-changing emissions than fossil fuel generation.

Policy makers have also added momentum to the energy storage business. At the end of June 2017, the state of Massachusetts mandated that each electricity utility should install 200 MWh of storage by 2020. California has a similar ruling, which orders the state’s utilities to install 1.3 GWh of storage by 2020.