Over recent years, it seems that European companies have generally been much more aggressive than the North American actors in investing in or purchasing renewable and smart energy start-ups outright.
I wrote about this phenomenon in a recent monthly newsletter, seeking input and insight from readers as to why the Europeans are so proactive and the Americans so seemingly relaxed to date with respect to these strategic investments and outright acquisitions. (One notable exception has been Itron’s buy-out of Silver Spring Networks.)
One reader and long-time acquaintance put me in touch with Florian Mayr, a Partner at Apricum, a Berlin-based transaction advisory and strategy consulting firm specializing in this area, to help me get some informed insight into the topic.
Apricum plays in the transaction advisory and strategy consultancy arena, among others helping with corporate and project financing on both the sell side and buy side, as well as undertaking fundraising and performing due diligence for companies, with an exclusive focus on clean energy technology. Its clients include energy giants such as Areva, E.ON, LG, RWE, and Exxon Mobil.
In our conversation, Mayr displayed an encyclopedic knowledge of recent transactions, and characterized the types of actors and their motivations, dividing the herd into several different sub-species. They can be broken down into oil and gas companies, energy holding companies/utilities, and a third catch-all category.
Oil and gas companies look to de-risk and diversify in a changing world
First, he noted it’s important to understand the large energy (principally oil and gas) companies, such as Equinor (formerly Statoil), Shell and Total. Their principal motivation in acquisitions of aggregation platforms and enabling technologies, including electric vehicle charging infrastructure, is to de-risk their businesses. They see the disruption happening across the entire energy sector – in particular how renewables are changing the business for European utilities. According to Mayr:
They are saying ‘OK we should de-risk and not focus entirely on oil and gas, but rather invest beyond the core business and according to the new global trends.’ That’s the rationale.
Mayr observed that these entities often prefer to buy into markets and companies rather than organically creating the internal competencies themselves.
He pointed to Total as a good example. For years, they have been invested in cleantech companies, often manufacturers of solar or energy storage technologies. A high-profile example is Total's 2011 $1.3 billion majority investment in Sunpower. And while Total’s relatively small stake in flow battery company Enervault failed to pan out, they also invested $1.1 billion in battery maker Saft in 2016, and Saft recently announced its own plans to invest $233 million in a next generation battery.
Mayr commented that Total is recently looking to de-risk into late stage investments and has shown more interest in aggregation platforms including storage-as-a-service than technology manufacturers. In this context, Total invested in Stem and Sunverge, giving the company access to their aggregation platforms. In addition Mayr noted that Shell led a recent $71 million investment round in sonnen (a German residential storage company), and announced a partnership to examine various value propositions related to grid services.
European electric holding companies faced with existential challenges; U.S. utilities less so
The hydrocarbon companies face one dynamic, he observed, while the European electric holding companies face greater urgency as renewables have changed the industry and they have seen their revenue bases erode.
The basic rationale is the same: to de-risk and adjust to a changing energy world, but the pressure is higher for utilities versus oil and gas, where the traditional business model is still working for now.
He noted that the traditional utility business model, the one-directional supply of centrally generated electricity under a monopoly, had worked successfully for over a century, but then “the liberalized market was the first hit and then a rise of distributed and increasingly competitive renewable energy” came along. Today, he asserted, utilities must reinvent themselves and find ways to compensate for lost or declining revenue streams.
In recent years, many of these larger companies have specifically made investments in storage companies offering solutions for integrating distributed energy storage. Thus, Iberdrola and RWE have invested in storage aggregator Stem. Engie put money into AMS and bought 80% of Green Charge Networks. For its part, Enel picked up Demand Energy.
Engie and Enel also jumped into electric mobility: Engie snapped up EV-Box, Europe’s largest actor in the EV charging arena while Enel acquired EV charging station supplier eMotorWerks.
The demand response sector has also not been immune to overseas interest, with Enel buying DR provider EnerNOC, and in somewhat of a surprise move, Israeli geothermal development company Ormat bought Viridity. E.On also picked up a stake in Autogrid, which offers a variety of services including energy storage and demand response on its suite of energy software applications.
Like the large hydrocarbon companies,
They are buying into start-ups to boost their internal innovative capabilities and to foster a fresh perspective on the changing energy world… it can be really hard to change the DNA of companies with a 100 years of history.
Mayr indicated that from his perspective, it can be very difficult to integrate acquisitions into the larger holding company culture without killing them.
That’s why Enel created EnelX as their ‘e-solution division,’ to include start-ups without destroying what made them attractive as acquisition targets in the first place.
He postulated that utilities in the U.S. have “less perceived urgency,” since they are largely regulated without competition, and do not see it as their job to take the business model in new directions if the key business is still working. He observes that – compared with the oil and gas firms - utilities tend to invest closer to home, with a somewhat narrower view.
Other players in the global consolidation game
Aside from the utilities and oil and gas companies, Mayr observed that there is also a group of large companies from other sectors who sense opportunity. These include entities like Wartsila – the Finnish specialist in power plants and marine technology – who bought battery software company Greensmith, for $170 million and Aggreko – the Scottish power generator rental company that bought into storage with its $52 million acquisition of Younicos.
In that case, their interest is to expand the business portfolio with complementing technologies. More like the oil and gas companies, they don’t have to replace lost revenues yet, but still want to de-risk their current business model by proactively including new competing solutions.
Mayr also mentioned chemical companies investing in energy storage to move into the battery materials space such as binders, membranes and electrolytes. Typical acquisition targets are manufacturers of these materials, but also energy storage system providers to strategically push potential off-taker segments and to learn about their requirements. A good example is BASF with their acquisition of EnerG2, a producer of advanced storage materials and their investment in ESS, a flow battery manufacturer.
Last but not least, companies using storage for mobile applications such as electric cars are investing in state-of-the art battery technologies to improve their products.
In Mayr’s view, the market has irrevocably shifted in the past few years, which has changed the overall investment dynamic. Clean tech is now “not only the right thing to do, but often also the most economic thing to do.” With costs coming down and markets continuing to evolve to accommodate utility scale renewables as well as transactive energy from customer sites - going largely from on-sitesolar, with batteries growing in number as well - the astute companies have for some time realized that this rapid change would create threats and opportunities.
In his view, although the European companies have made most of the strong initial plays in this acquisition and consolidation movement, there are still good companies and solid technologies out there for purchase. Eventually, he asserts, “I would expect non-European companies in this space to do the same thing.”
It would be about time.
Peter Kelly-Detwiler is a principal at NorthBridge Energy Partners, a consulting firm providing expertise and market intelligence to companies navigating today's complex energy landscape.
Date: Jul 26, 2018