Fluence’s I.P.O. is adding to a growing body of public disclosures which are shedding light on to the digital disruption of the 21st Century power grid, leading to fresh recognition of the diverse strategies and technologies underlying the companies leading the trend.
Today’s announcement that Fluence is targeting a $4 billion market capitalization upon finalizing its I.P.O. signals broad investor recognition that the 21st Century power grid is now imminent. The expectation is that the I.P.O. will add a whopping $744 million to the company’s coffers. Fluence’s October 2020 acquisition of Advanced Microgrid Solutions, financed by a concurrent $125 million investment from a Qatari sovereign wealth fund, features prominently in Fluence’s equity story. In Fluence’s draft S-1, the words “software” and “digital” appear 107 and 131 times, respectively.
This is in the context of $534,000 in “revenue from digital applications and solutions” for the nine months ended June 30, 2021. The market has clearly accepted that the power grid is on the verge of a historic inflection point. The grid is finally ready to assimilate the innovations which have disrupted other sectors: optimizations, AI, machine learning, big data, IoT, algorithms, blockchain.
Those buzzwords have, for now, captured the attention and imagination of investors, including those who just last week also poured $120 million of venture capital into two related companies. With Fluence’s disclosures added to those of previous SPAC listings, there is finally a critical mass of public information to help both emerging companies and investors sift through all these buzzwords and assess the sector with greater clarity. This includes a growing recognition of the necessity to look beyond buzzwords — “software” and “digital” — to uncover the strategic and technological differentiation which lies beneath the obvious initial similarities.
Looking at the Needs of the Grid as a Whole
Acelerex, founded in 2017 at the Cambridge Innovation Center, took a different approach to most companies who were looking at disrupting the power grid at the time. Its strategy was not to focus on any particular segment or sector, such as residential or C&I or EVs or grid scale. The strategic vision was to think first and foremost about the grid itself. The company looked at the needs of the grid as a whole, and then designed its products around how it saw those needs evolving.
It was clear that a renewables-driven distributed grid — the so-called “democratized” grid that many were anticipating — was moving away from a utility-centric architecture and towards an end user-centric architecture. However, Acelerex’s view was that this shift was not going to be limited to any single segment or sub-sector. It was going to be much broader and even potentially total, simultaneously affecting several seemingly disparate segments.
The Grid of the Future is Multilateral
“Bilateral” has been a popular buzzword in today’s markets; Acelerex’s vision was that the future power grid was going to be “multilateral.” What this meant was that delivery in-and-out of the grid was going to get much complicated: utilities and developers needed to place solar or wind onto the most appropriate nodes, industrial customers suddenly needed to understand which of their sites were most suitable for renewables and, of course, more and more individuals were placing solar panels on their rooftops and parking an EV in their garages. All of these different actors would need to communicate with each other, trade with each other and, ultimately, balance each other so that the grid would be able to continue to function reliably. It would all be a far cry from the 1920s era centralized, or unilateral, power grid.
The Centrality of Data and Analytics in Managing Complexity
For Acelerex, this resulted in taking a “bottoms-up” approach to thinking about product development. In the first instance, this new multilateral power grid was going to generate and require far more data than ever before. That data would need to be properly collected, monitored, analyzed and fed back to the participants to empower their ability to respond to fluctuations. More and more, this was going to be happening in real time. The power sector has always been data intensive, but that old mode of data — centered around optimizing coal and gas supply chains — was going to become increasingly marginalized.
The core issue with renewables, which are replacing coal- and gas- fired generation, is intermittency; the sun doesn’t always shine and the wind doesn’t always blow. All of a sudden, the power sector would need to become a lot better at the weather forecasting business. This requires highly sophisticated — not generic — AI and machine learning software. Likewise, on the demand side, the coming wave of EVs — even if, realistically, it might need to wait until sufficient charging infrastructure is built — is introducing an entirely new and volatile source of demand. As sources of both supply and demand increasingly fragment, participants need to look outside of their own organizations to collate and make sense of these new data streams in real time. No one player holds all the cards anymore: that’s the nature of the multilateral grid. Acelerex’s foundation in terms of both products we provide to the end user — as well as how we look at the world internally — is thus heavily reliant on first generating the most comprehensive data and analytics possible.
Flexible, Real Time, 360 Degree Interaction
The critical implication for Acelerex was that this informed its vision around product design, which had two pillars. First, the platform was designed to be seamless and comprehensive. This means that the solutions to customers must be ready to meet the demands of any market segment from day one. There is little doubt that, eventually, storage will drive a convergence of all of these end markets: renewables and storage, C&I and residential and EVs. However, that convergence will happen in stages, and the sequence of that staging is not yet clear, at least as concerns anything resembling a market consensus. For example, right now there is a lot of excitement around EVs, and rightfully so. Still, the catalysts for large-scale EV adoption — charging infrastructure, public sector fleet transformation — are likely a couple of years away. In the medium term, there is a lot of debate as to who will be the first major wave of adopters of energy storage: will it be developers commissioning utility scale batteries or large industrial consumers moving to decarbonize operations or the residential solar market, which has attracted a lot of attention in the last five years. This is as of yet uncertain. Therefore, the key for Acelerex has been to be relevant to all of these market segments from day one, which is made feasible by our customer- and data- centric design.
Second, for that future convergence to become a reality, the grid needs to be run by software that has in-built flexibility to provide real-time, 360-degree feedback in order for a truly responsive, multilateral grid to emerge. Acelerex has developed a three-layered platform to effect this flexible, responsible and multilateral future: Analytics, Data Services and Automation. We collect and analyze data in real time, then have the technology to automate the charge or discharge response. The same underlying Acelerex technology is simultaneously accessible to utilities, developers, office buildings, factories, homes and EVs. The software thus becomes the “glue” for the multilateral grid to hold all the various segments together, ensuring resiliency and reliability through the peaks and troughs which will inevitably be a core feature of the Energy Transition.
The era of options has arrived and Acelerex is a platform to make the 21st century power grid run.