Virtual Power Plants Become A Reality

|
Includes: AES, SIEGY, SPWR, TOT
by: Keith Williams

Summary

A new virtual power plant will involve 1,000 South Australian homes, each with a 5kW/7.7kWh battery; the total power stored is 7MWh to support renewable energy integration (mostly wind).

The world’s largest VPP is a $A20 million project run by Australian energy company AGL, with $5 million provided by ARENA (Australian Renewable Energy Agency).

Sunverge Solar Implementation System is the hardware and software implemented by Sunverge in the AGL VPP.

Sunverge investors include Total, Siemens, Kokam, Mitsui & Co, AGL.

Traditionalists often require a concrete example of a new way before they accept it. VPP's (Virtual Power Plants) have been thrown around for some time now, but I've noticed that those grounded in centralized power generation and delivery tend to put them in the "treehugger" category.

Residential solar PV means lots of distributed power generation in Australia

When a small country like Australia with a grid demand of ~35GW recently passed 5GW rooftop solar PV capacity, it became clear that homeowners are already a significant presence in the national power generation system. Of 1.577 million installations, the vast majority are less than 10kW, with only 124 systems above 100kW. 5GW is a lot of power, but it is truly distributed (over almost 1.6 million premises).

The recently released (January 2016) National Renewable Energy Laboratory (NREL) report concerning rooftop solar photovoltaic potential in the US, which suggests that rooftop solar could provide 39% of US electricity needs, is forcing utilities to think about their role in energy provision.

Virtual Power Plants are about adding battery storage and smart energy flux management

So what does it take to access this self-produced power for the benefit of the homeowner (who is prosumer -- i.e., both producer and consumer) and the utility, which runs the grid?

The companies driving the VPP revolution are information integrators, who operate in the cloud with massive data sets that allow near instantaneous energy management. When hooked up with many small systems you have the basis for a VPP.

World's largest VPP an AGL/Sunverge project

Last week a major Australian energy provider AGL (ASX:AGL) announced the launch of the world's largest solar VPP battery demonstration facility (7 MWh stored energy) to support the high penetration of renewable energy in South Australia.

The plan is to connect up 1000 residential batteries in South Australia to provide 5MW of peaking capacity, while at the same time saving customers on their energy bills. In effect AGL plans to use householders to store power, which it can manage in distributed residential batteries, instead of building centralized peaking capacity (e.g., using gas, which is controversial at the moment in South Australia due to spikes in the price of gas).

A similar story concerning VPP is playing out in the U.S. and Europe. The South Australian VPP is supported by ARENA (Australian Renewable Energy Agency) which will provide $A5 million of the estimated $A20 million establishment cost.

The VPP will be implemented by U.S. energy storage and energy management company Sunverge, with roll out over 18 months. The initial phase involves 150 homes being offered heavily discounted 5kW/7.7kWh Kokam batteries and the energy storage system management from Sunverge. Customers without solar will purchase a solar PV system integrated with the battery. The VPP involves AGL having control of the batteries through a cloud-connected intelligent Sunverge control system.

AGL is an interesting company. It was an early entrant into renewable energy space, but a previous CEO saw an opportunity to acquire substantial old coal-based power stations at a huge discount at a time when a coal loving new Government dismantled carbon pricing and support for renewable energy. This was a very profitable move for the company in the short term, but left it with a legacy of highly emitting fossil fuel power generation. The appointment of Andrew Vesey (ex- EVP and COO of AES Corporation (NYSE:AES)) in late 2014 has led to a more strategic and modern view of the company, with steady share price improvement from below $A13 to current price above $A20.

Not just about Australia, it's about global distributed power management

Sunverge has commissioned a research report from Navigant "Making Sense of New Public Power DER Business Models," which has just been released. The report makes clear that new business models are needed by energy utilities to accommodate massive increases in distributed power generation, especially from solar PV.

The Navigant research suggests that between 2014 and 2023 different forms of distributed power generation will displace the need for more than 320 GW of new large scale power plants globally. Those who dismiss residential solar PV and battery energy storage might reflect on these numbers. This is no niche activity and it has big implications across the energy industry.

Who owns Sunverge?

While not a public company, investors in Sunverge reveal some strategic players. These include:

  • Total (NYSE:TOT), through Total Energy Ventures International. Total has a number of investments involved in this space, notably SunPower (NASDAQ:SPWR), in which they have a major shareholding.
  • Siemens (OTCPK:SIEGY) through Siemens Venture Capital.
  • AGL, a leading Australian energy company (see above) which sells the Sunverge system in Australia.
  • Kokam, a leading South Korean lithium battery company whose batteries powered the round world flight by Solar Impulse 2 and deep sea exploration by James Cameron's Deep Sea Challenger. Kokam is the battery supplier for the Sunverge Solar Integration System.
  • Mitsui and Co., a major Japanese company that invested $10 million in Sunverge and is collaborating on select market development initiatives in Japan and elsewhere.
  • Southern Cross Venture Partners, an Australian capital provider to entrepreneurial companies. Southern Cross manages investments in Sunverge by SBCVC (Softbank China Venture Capital) and ARENA.

Conclusion

When the world is changing dramatically, sometimes it is hard to discern what is going on. For an investor, finding out who the players are and what their prospects are for survival and growth, helps clarify companies of interest.

I don't claim to have a very good handle on this, but I do try to provide a high level view to help position your favorite company in the picture (or exclude it). Some companies are showing signs of strategic play and might become the leaders in organizing the technology for utilities to add VPP capacity to their toolkit.

Technology providers like Sunverge and Kokam are clearly significant players in this space, but they aren't accessible to U.S. investors. AGL is a major Australian energy provider, but it is listed on the ASX. The U.S. listed company that keeps popping up in the emerging renewable energy space is Total, which is a major shareholder in SunPower and also has a stake in Sunverge. Siemens is also in the picture.

Perhaps this is more about peeling back who is who, but I'm thinking that Total is showing signs of finding a future beyond oil and gas. At this stage keep an eye on Sunverge as it grows.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.