The US behind-the-meter energy storage market is still in its infancy, and although it is growing explosively — by more than 400% last year — everything is left to play for. Yet by any standard Stem Inc has emerged as an early sector leader.
Based near San Francisco, privately owned Stem’s business model shares similarities with rooftop solar companies such as SolarCity.
It buys lithium-ion batteries from a range of suppliers like Tesla and Samsung and installs them for commercial and industrial (C&I) clients — from hotels to factories to grocery stores — at no upfront cost.
Stem then uses its complex software to operate the storage systems and help clients save money on their electricity bills. It charges a recurring subscription fee for its efforts, locking in what it hopes will be decades-long revenue streams.
Stem has 68MWh of storage capacity on line or under development, which it claims is 40% more than its closest rival.
Its distributed battery systems can help clients reduce their so-called demand charges, which utilities in many parts of the US levy based on a customer’s peak power consumption in a given month, and which can account for more than half of a C&I facility’s power bill.
Stem can also aggregate the power stored in its growing fleet of batteries and sell it back to grid operators. Over time, as the grid becomes “smarter”, Stem expects to be able to unlock new ways of making money with its batteries, sharing the value with its customers.
The company's commercial relationships underscore the growing overlap between storage and renewables. It has a partnership with SunPower targeting C&I customers interested in pairing solar and storage.
And Stem’s investors include many of the world’s most important renewables companies, among them General Electric, Spain’s Iberdrola, Japan’s Mitsui and France’s Total (which owns SunPower and recently agreed to buy French battery maker Saft).
Recharge spoke to Gabe Schwartz, Stem’s marketing director.
There’s been an explosion in recent years of companies offering behind-the-meter storage. What sets Stem apart?
The storage business is all about software. Unlike a solar panel that’s generally going to be valuable as long as the sun keeps shining, battery systems can be worth a lot or they can be worth nothing. They have to have a smart controller — what Stem provides — that tells the system exactly what to do at every given moment, second by second, 365 days a year.
It’s about being able to predict and learn from the energy patterns at each commercial facility where we install. It’s also about being able to interact with price signals and other types of signals from the grid. And then it’s about being able to balance those competing objectives so the system knows which application it should be pursuing at any given point in time to maximise the total value for our customers.
Stem has a commercial relationship with SunPower. How important is the cross-over between distributed storage and solar today, and how important will it be in the future?
Today there isn’t necessarily a particularly strong reason to have solar and storage co-located at the same facility. But as rate structures change going forward, that will more and more be the case. We work with a lot of customers today who want to combine the two for the sole purpose that they want to “right-size” their system. If you evaluate them both at the same time, you can maybe justify a larger storage system, or vice versa. Also, doing two projects at the same time, evaluating them together, means there’s a little less friction and effort for the companies.
But in the future, I think the [solar plus storage] market will grow significantly as it becomes more valuable for customers to consume their own solar energy on site, and not export it back onto the grid. If you look at Germany today, [their policies] have driven a lot of customers to adopt solar plus storage.
SolarCity is in the business of installing storage systems as well as rooftop solar. Tesla is one of your equipment suppliers. What do you make of Tesla’s offer to buy SolarCity?
I wouldn’t say it was particularly surprising. Those two companies obviously have a lot in common in terms of leadership. Even before that announcement, you could look around and see other energy companies that had started consolidating different solutions and trying to present a comprehensive offering to C&I customers: look at Edison Energy, or look at GE Current.
Tesla is one of our suppliers today. Many of our customers out there today have Tesla energy storage hardware that’s controlled by Stem’s software. We expect that to continue.
There are quite a few major international energy and utility companies among your investors. What do they see in Stem? Are they intending to bring your technology back home with them?
Intelligent distributed storage is going to be a game-changing factor on the grid in the coming years. There’s a lot of agreement on that; it’s really just a question of what rate that rolls out at. That’s why you see interest from large utilities like RWE or Constellation, but also large companies that sell to the utilities, like GE.
They know this technology is going to provide a lot of value to the electric system. These companies are the backbone of that system today, and they’re looking to bring this kind of technology into their fold. And in terms of international expansion, there’s a lot of interest in our investor base, both in Europe and Asia, to bring our solution into those markets when the time is right.
The US distributed storage market is evolving and growing rapidly. Where are the biggest near-term opportunities?
We’re seeing a big uptick in interest from large organisations. We’re currently in active evaluations with 25% of the Fortune 500: Wells Fargo, Safeway, Whole Foods, Reliance Steel, companies across a range of different industries. We’re rapidly expanding in our core geographies today, where commercial storage is most economically viable — California, Hawaii, parts of the northeast — and looking to bring that to additional parts of the country.
We also have partnerships with a growing number of utilities and grid operators. We aggregate and bid our systems into wholesale energy markets like California ISO... and that really opens up new opportunities for our customers. We’re working with all the major utilities in California, plus Hawaiian Electric. I think that really speaks to the fact that we’ve gone past the stage of proving the business model.
What needs to happen for behind-the-meter storage to take off in new parts of the country?
Demand charges are only one part of the equation as to what makes it economically viable for us to be in a particular market. The other piece has to do with policies that allow demand-side resources — the resources at customers’ facilities — to aggregate and participate directly in electricity markets or grid-support programmes.
The more those opportunities exist, the more we can take a storage system installed at a commercial facility and make it valuable both to that facility directly, but also to the larger grid. When we have value being produced for both of those stakeholders, it makes the economics much more compelling because the costs and benefits are being shared.
