Software, More than New Batteries, Unlocks Energy Storage on Grid
It’s tempting to believe a battery breakthrough is just around the corner, enabling electric cars that drive hundreds of miles on a charge and `round-the-clock solar power. But some of the most tangible advances in energy storage on the grid are coming from digital technologies, rather than material science.
Greensmith, an Emeryville, CA-based company that typifies the trend toward smarter batteries, is in the process of raising additional money to fulfill its pipeline of energy storage projects, CEO John Jung told me. Since starting six years ago, it’s commissioned 35 projects and plans to install four more this year, which will add another 24 megawatts to the grid, he said.
Some of Greensmith’s competitors are seeing more money come their way as well. San Francisco-based Stem lined up $100 million earlier this month to fund installation of its refrigerator-size lithium ion batteries in New York, expanding from its base in California. Santa Clara, CA-based Green Charge Networks, which also installs and operates batteries in buildings, raised a $56 million equity round this summer.
A few years ago, venture investors were enamored with batteries. But developing a new type of battery tends to take several years to develop and manufacture. By contrast, building a smart battery with on-board computation, controls, and connections to the Internet makes today’s off-the-shelf batteries far more valuable.
“We think of them as distributed computers that just happen to have batteries and inverters in them,” Jung says. “Our focus has been about software optimization.”
Greensmith’s software acts as a sort of conductor, deciding when to charge batteries or push power into the grid. A wind farm, for instance, could store energy at night and push it into the grid during peak hours when prices are highest. AES Energy Storage has developed a number of battery projects that earn money on the wholesale energy markets. They provide quick bursts of power to help grid operators maintain a steady frequency, replacing a job now done by natural gas plants.
Another emerging business model is installing batteries in buildings to reduce the fees commercial customers pay during peak hours, called demand charges. Because these systems can be financed, customers can lower their electric bills without having to pay the up-front cost of the batteries. Stem, Green Charge Networks, and Coda Energy, a company which started out as an electric car maker, all offer this service. Other companies, including Solar Grid Storage, SolarCity, and Sunverge, combine on-site energy storage with solar.
Greensmith, by contrast, is targeting energy project developers and utilities, as is Seattle-based competitor 1Energy Systems, which was founded by former Microsoft executive David Kaplan. Selling to companies with big balance sheets means Greensmith doesn’t need to raise money from third parties to finance installation of its battery systems, as Stem or Green Charge Networks does, Jung says.
What’s notable about Greensmith’s software is that it works with eight types of batteries and different inverters, making it almost like an operating system that multiple devices plug into. As new battery types evolve, Greensmith can take advantage of them. Flow batteries, for instance, are very different from lithium ion batteries because they can store multiple hours of energy more economically.
After working at a string of venture-backed e-commerce-related startups, Jung joined Greensmith in 2009, attracted to the idea of working in the smart grid. At the time, few companies were developing digital technology for managing how a battery connects to the grid.
“People thought in 2008 that a killer app was actually a battery. If a professor in some university came out with a better cathode, it was ‘Away we go!’ But every time they thought that, they were wrong,” he says.
Greensmith has raised $10 million over the past six years and could equal that total in its next round, Jung says. By contrast, battery companies can take hundreds of millions of dollars to develop their technology and start manufacturing. MIT spin-out A123 Systems, for instance, raised about $1 billion before it was acquired out of bankruptcy by a Chinese manufacturer for about a quarter of that.
Although it’s still early, analysts project energy storage for the grid to grow to more than a billion-dollar market in the years ahead from almost nothing a few years ago. California now mandates utilities to consider energy storage as alternative to other grid equipment, such as upgrading power lines and substations. New York state also is become a testing ground for new batteries and utility business models.
In parallel, investors and entrepreneurs are still pursuing better lithium ion battery electrodes and completely new types of batteries. According to a regulatory filing, Pittsburgh-based Aquion Energy, for instance, has raised an additional $24.6 million for its novel battery chemistry, after raising $55 million in venture capital earlier this year.
For its part, Greensmith expects that software, not the actual hardware, will make up more of its revenue over time. “The market is starting to not just procure products but also choose business models,” Jung says. “I think it will be a turbulent time in the market and there will be a lot of consolidation over the next few years.”