The IoT sector is seeing a slow-down in acquisition activity, as companies realize that they can no longer, or rather no longer have to, buy a lead. There are plenty of vendors that can provide the necessary devices and services to launch an IoT project, without the risks associated with acquisitions. But sometimes a deal is too good to pass up, and that seems to be the case with Shell’s purchase of Sonnen, an established German provider of battery systems for energy storage.
Centrica also invested in two startups this past week, taking stakes in GreenCom Networks and its IoT platform for demand-response (DR), as well as Mixergy, a University of Oxford spinout that is developing a water tank that will learn a home’s routine in order to optimize its heating cycles. These deals are nowhere near the scale of Shell’s purchase, but they do indicate the direction that the energy firm is moving in – it wants to be able to closely control the demand-side load of its customers, in order to optimize how it purchases or generates energy.
Shell wants to ensure that it is well positioned to brace against the turbulent oil market. Energy is in perpetual demand, but geopolitical concerns mean that the per-barrel price can shift enormously. As a volatile commodity, the likes of Shell want to make sure they have an alternative they can expand into, and battery storage is an excellent choice.
There’s also a PR victory to enjoy, as the oil majors can beat their chests about their eco-credentials when they invest in the likes of Sonnen. Solar and storage about solid candidates for this sort of bragging, and Sonnen was a good choice to snap up given its recent struggles in the marketplace – competing with Tesla’s brand and Powerwall head-start, as well as the looming threat of cheaper Chinese alternatives flooding the market.
“Sonnen is one of the global leaders in smart, distributed energy storage systems and has a track record of customer-focused innovation. Full ownership of Sonnen will allow us to offer more choice to customers seeking reliable, affordable and cleaner energy,” said Mark Gainsborough, EVP New Energies at Shell. “Together, we can accelerate the building of a customer-focused energy system in support of Shell’s strategy to offer more and cleaner energy solutions to customers.”
Sonnen can provide both home-scale and grid-scale opportunities for Shell. With enough of these batteries deployed, Shell can treat the collective battery as a single entity, and use that as a service that it can sell to utilities – either storing surplus electricity or feeding stored energy into the grid when reserves are low.
Storage is crucial to integrating more renewable energy into the grid. Because of the variable output of wind and solar, they can’t always be relied upon to have the required capacity when needed. With storage systems, be they grid-scale or in individual homes, the energy from renewables can be stored when it is at surplus, and then drawn from the batteries if demand exceeds supply.
Sonnen’s ecoLinx is a pretty advanced example of the kind of technology that would facilitate grid-scale demand-response. Essentially, it is a battery that is integrated with a smart home control system, which allows this Home Energy Management System (HEMS) to optimize the usage and scheduling of in-home appliances, as well as respond to utility DR schemes.
Those schemes are opt-in programs that reward customers with rebates and vouchers, in exchange for giving the utility some form of control over the home’s usage. Early examples have involved the connected thermostat, to control the HVAC system, or the EV charging stations in a home. At scale, a utility could avoid having to purchase much more expensive reserve energy from gas peaker plants, if it is able to cut AC demand by a few percent, or delay a vehicle’s charging cycle by an hour or so.
Away from a pure cost-driven business case, this DR model also allows a utility to use less fossil-fuel derived energy, thereby improving its own eco-friendly credentials. In time, regulations are going to start hitting utilities where it hurts, by punishing them for relying heavily on fossil fuels. Carbon taxes or pricing would incentivize utilities to move to less carbon-intense fuel sources, and it is hoped that renewables and storage will have a significantly lower carbon price than the current crop of fossil fuels.
Centrica’s involvement in the DR sector has very similar motives as the Sonnen HEMS approach. Centrica is the owner of Hive, a rather advanced smart home platform that is being heavily pushed by its British Gas subsidiary. Currently, Centrica doesn’t have a storage system to offer customers, but its close partnership with boiler suppliers means that it could use DR techniques in the boilers themselves. Throw in a smart thermostat and some future integrations with EV chargers and white goods appliances, and Centrica’s method makes a lot of sense.
However, Centrica should be very aware that gas could be regulated against or disincentivized in the coming years. There are rumblings of this already in the UK, where a report for the UK government, from the Committee on Climate Change, is recommending that new-build homes should not be connected to the gas grid, and should instead use ground or air source heat pumps, with metropolitan homes warmed by district-heating (something much more common in the rest of Europe than in the UK).
If those recommendations become regulations, then the likes of British Gas need to be able to quickly pivot. We have written about how homes need to move to an electricity-only energy supply, saying that gas needs to die for the smart grid to truly thrive. Electrical consumption offers more digital opportunities than the more akin to analog gas and oil supplies, and it is against this wave that the energy firms are now making their moves.
Expect more investments like Centrica’s, as they collectively put out feelers. Shell set up its New Energies division in 2016 for exactly this reason, focusing on new fuel technologies for transportation fuel, and power generation. Shell has talked about setting aside $1bn to $2bn a year for ‘commercial opportunities’ to this end. It is not saying how much it paid for Sonnen, however, but it had invested some €60mn in the company. Sonnen has deployed around 40,000 battery systems, according to the Financial Times.