Snapshot

The energy storage sector is seeing a remarkable shift, as the need for renewable sources to be integrated seamlessly into power grids across the globe becomes a pressing concern for the future of sustainable energy.

Fluence is a global market leader in energy storage products and services and cloud-based software for renewables and storage. The company is transforming the way we power our world by helping customers create more resilient and sustainable electric grids.

With a presence in over 45 markets globally, Fluence provides an ecosystem to drive the clean energy transition, including modular, scalable energy storage products, along with comprehensive service offerings, and the Fluence IQ Platform, which delivers AI-enabled SaaS products for managing and optimizing renewables and storage from any provider.

Their expertise, technological advancements, and proactive approach to addressing the industry’s challenges have made them a sought-after partner for utility companies, independent power producers, and commercial and industrial customers.

Fluence is in an aggressive growth phase as continuous innovation and a commitment to developing state-of-the-art energy storage technology is supported by an expanding manufacturing footprint across the globe.

Background

Fluence was founded in 2018 as a joint venture between Siemens and The AES Corporation. Initially focusing on grid-scale battery systems, Fluence set out to provide energy storage solutions that would enable the integration of renewable energy sources, such as wind and solar, into power grids. Their first products were aimed at large utilities and renewable energy developers, and they soon became known for their technological innovation in this area.

Propelled by a global shift towards clean energy, within a year, the company deployed projects in 18 countries across six continents. Their product offerings began to expand, encompassing a wide range of energy storage solutions tailored to different applications and markets, including the SunFlex Energy Storage platform specifically designed for solar integration. AI-powered products soon followed, with Fluence IQ, a smart software that optimizes energy storage and generation. While recognizing the potential of localized energy solutions, Fluence began to target commercial and industrial customers, adding products like behind-the-meter storage and demand management systems to their portfolio.

The acquisition of Advanced Microgrid Solutions (AMS) in 2020 enabled Fluence to further broaden its range and reach, integrating AMS’s software into its platform to enhance optimization and efficiency. While the sixth generation of the company’s tech stack, now offers more modular and scalable solutions for a wider array of applications, which is proving critical as they also expand their presence in emerging markets.

Leadership

Julian Nebreda leads the Fluence team as president and chief executive officer in its efforts to accelerate energy storage adoption globally. As a long-term company veteran, previously holding several executive and senior roles with The AES Corporation since 2003, Nebreda brings over 20 years of experience in the energy industry and has been instrumental in leading and developing AES’s strategies and growth initiatives across different countries. Before joining AES, he also held varied positions in the public and private sectors.

Supporting Nebreda as Fluence’s chief strategy and commercial officer, Marek Wolek leads the company’s global strategy, partnerships, and M&A teams and also oversees commercial functions. He is also a long-term veteran of AES, where he played a vital part in the development of key storage projects throughout the world, as well as the transition of the storage business from AES to Fluence. Previously, Wolek has also had extensive strategy and investment experience within private equity and at PricewaterhouseCoopers. He has also founded several start-ups in the technology space.

Customer

Fluence has carved a niche for itself in the global energy sector by pioneering storage products and delivery services, recurring operational services, and digital solutions and applications for energy storage and other power assets. The company’s cutting-edge offerings have helped drive new use cases for grid-scale energy storage including frequency regulation, generation enhancement, capacity peak power, cost control, and renewable integration, among many other critical needs.

Fluence’s products which include integrated hardware, software, and digital intelligence are optimized for common customer use cases, but can be highly configured for specific applications. Its range covers solutions designed for grid-scale, industrial-strength applications, solar-optimized use cases, reducing demand charges, and the unique performance needs of entities that are increasingly relying on energy from lower-cost but variable renewables and low carbon sources, all while taking into account stringent requirements around availability, uptime, and IT security.

These products come with proprietary controls software, Fluence OS, which enables asset owners to operate the storage system with real-time information through multiple systems views, alarm notifications, and dashboards. Ultimately customers can control a multitude of factors that have a direct impact on costs, operational efficiency, safety, and even revenue-generating opportunities, among other things.

In addition to energy storage products, Fluence offerings include delivery services and recurring operational services which provide varying levels of training, maintenance, guarantees, warranties, and support to address a customer’s desired level of active system management. While an innovative Energy Storage-as-a-Service (ESaaS) enables customers to access the benefits of energy storage without upfront investment or technical expertise.

Digital applications and solutions developed internally, as well as through third parties are enabling advanced capabilities. The Fluence Mosaic Application, which was acquired from AMS, is an artificial intelligence-enabled bidding software for utility-scale storage and renewable and conventional generation assets, enabling customers to optimize asset trading in wholesale electricity markets. While the Nispera application which was acquired in 2022 from a Zurich-based provider of AI software targeting the renewable energy sector, helps customers monitor, analyze, forecast, and optimize the performance and value of renewable energy assets.

Major utility companies, tasked with providing power to millions, can use Fluence’s solutions to stabilize their grids, reduce costs, and manage the integration of more renewables. Independent power producers who generate power to sell it into the grid can use Fluence’s storage solutions to store excess energy and sell it when prices are higher. While conversely, commercial and industrial customers can deploy solutions to store cheaper off-peak energy for use during peak times.

In the real world, use cases include everything from ensuring a more reliable supply for a major city, that experiences frequent power outages due to increasing demands on the electrical grid, to regulating hydroelectric facilities, where wind speed changes and power output fluctuations can destabilize the grid. In areas transitioning from coal or gas power plants to renewable energy sources, Fluence can provide rapid response capabilities and maintain grid stability and reliability. While in a region with abundant sunlight, a solar farm can capture and store excess solar energy during the day to be dispatched later in the most efficient manner.

Thematic

The urgency of climate change is demanding a global pivot away from fossil fuels toward sustainable energy systems. However, the intermittent nature of renewable energy remains a key challenge. Since sources like wind and solar are not consistent, the need for energy storage that can act as a buffer and make renewable energy available 24/7, has never been more pronounced. Furthermore, growing capacity constraints on existing power grids that were not designed to support distributed and renewable generation infrastructure or the accelerating electrification of industries, such as transportation, is driving demand for more generation, and positioning energy storage assets as a key solution.

Energy storage can help both serve and smooth additional peak demand, improving grid reliability and managing energy requirements. Beyond that, it is also a flexible tool, allowing grid planners, operators, and providers to navigate the evolving energy landscape. Consequently, grid modernization, decarbonization, and digitalization is redefining energy market infrastructure. It is estimated that this energy transformation will require $134 trillion of investment through to 2050 based on Bloomberg New Energy Finance’s clean electricity and green hydrogen pathway.

Government incentives and regulations are acting as catalysts, as various policies and legislation to support the transition from fossil fuels to low-carbon forms of energy have been announced and implemented around the globe. The U.S., in particular, has been proactive, passing the Inflation Reduction Act (IRA), which includes several incentives that support the adoption of energy storage products and services and are anticipated to benefit Fluence significantly.

A forecasted reduction in battery costs is expected to improve the economics of energy storage and support the development of larger energy storage systems. Moreover, in July, Fluence signed a battery cell supply agreement with AESC, under which the company will procure U.S.-manufactured battery cells. This positions Fluence to be one of the first to provide customers with a storage product that qualifies for a 10% Investment Tax Credit bonus for using domestic content under the IRA.

Fluence intends to further develop its energy products, services, and digital applications into solutions that solve ever-evolving use case challenges. In the last quarter, the company launched a predictive maintenance feature for battery energy storage on the Nispera application. It is also focused on expanding standardized offerings that are optimized for varying sales channels with a more localized, regional operating model to better support customers and improve logistics.

Mass manufacturing is a cornerstone of Fluence’s product delivery approach and a key to driving down product cost and delivering at scale. As a result, the company is also aiming to create an optimized production organization, develop mass manufacturing facilities globally, and continue to secure partnerships with key battery suppliers. It is anticipated that enhancing this product-focused model and supply chain leverage will support global growth objectives and result in superior unit economics.

To this end, in late 2022, Fluence partnered with a contract manufacturer to open a new manufacturing facility in the U.S. to better serve regional delivery and address ongoing supply chain constraints. The addition of this facility expanded the company’s production beyond Asia to meet increasing global demand, allowing it to better serve regional markets. While future plans intend to add more manufacturing sites in Europe.

Financials

Fluence has experienced a remarkable journey in revenue growth, with its most recent quarterly revenue hitting $536.4 million, marking an astounding 124% increase year-over-year. This surge has propelled the trailing 12 months’ revenue close to $2 billion, more than doubling from the previous year. The uptick in total revenue was largely driven by amplified sales of their battery-based energy storage products and solutions, albeit partially offset by a reduction in augmentation services. The robust growth is attributed mainly to the heightened demand for Gen6 solutions across all regions and the achievement of select project milestones ahead of time.

Fluence has also made strides by improving its GAAP gross profit margin to 4.1%, a significant leap from the negative 2.2% during the same quarter of the previous year. This shift was realized after executing legacy low-margin backlog and focusing on newer Gen6 solutions projects that promise higher margins. While the company recorded a net loss of about $35.0 million, this was an improvement from the $60.8 million loss during the same period last year.

Adding to its achievements, Fluence reported a healthy backlog, increasing its pipeline by over $1 billion to approximately $2.9 billion. The company not only executed its projects timely during the quarter, it also fortified its total cash position by more than $30 million to be just short of $300 million.

Looking ahead, management is forecasting to close out FY23 with total revenue of $2.0 billion to $2.1 billion, marginally exceeding consensus expectations at $1.96 billion, which represents still impressive year-over-year growth of 63%. Earnings per share are also forecasted to improve remarkably, going from a loss of $2.69 to a loss of just $0.57 in 2023, marking a 79% improvement.

Risks/Competition

The market for clean energy products and services is heavily reliant on innovation. The entry barriers are high due to the specialized expertise required and the hesitation among customers to adopt untested solutions. As a result, the arena remains a dynamic battleground for companies with the drive and vision to lead energy transformation.

Fluence’s major competitors include giants like Tesla, well-established energy players like Wartsila, and emerging innovators like Powin. The competitive landscape is not uniform; it fluctuates based on geographic regions, the specific grid services offered, and the distinct customer segments targeted.

Fortunately for Fluence its agility in discerning customer needs and swiftly converting that understanding into bespoke products, services, or use-cases resonate with the market.

Conclusion

Fluence is revolutionizing the power landscape by fostering more resilient and sustainable electric grids across markets worldwide. As the energy sector experiences positive market tailwinds, driven by heightened awareness of climate change and a global shift towards sustainable practices that are supported by government incentives and an improved operating model, the company looks set to continue its aggressive growth.

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