Energy storage leader Fluence preps for old-school IPO, bucking SPAC trend

The grid-scale battery sector is poised for massive growth. Fluence is playing a major role — but it has a lot of competition.

Fluence's projects include the Moss Landing site in Northern California, one of the world’s largest grid battery projects. (Vistra)
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Fluence, a leader in the global grid-scale battery market, has filed plans to hold an initial public offering on the Nasdaq stock exchange. It’s opting to take the more traditional approach to raise public capital in a clean energy sector that’s been dominated by special-purpose acquisition company mergers over the past few years. 

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Tuesday’s filing with the U.S. Securities and Exchange Commission doesn’t offer details on the price or number of shares that Fluence, a joint venture of Siemens and AES Corp., intends to make available to public investors. 

But the filing does offer more details on the finances of a company that’s become an essential player in developing some of the largest battery projects in the world. For the fiscal year ending Sept. 30, 2020, Fluence reported $561.3 million of total revenue, a gross profit of $7.9 million, a net loss of $46.7 million and negative $14 million in cash flow from operations, according to its S-1 filing with the SEC.

Energy storage is a key solution to the challenges facing electricity markets and transmission grids,” the company states in its S-1. “[It] sits at the epicenter of the global clean energy transition and represents the backbone of a massive change in our energy market infrastructure driven by three key trends: Grid modernization, decarbonization, and digitalization.”

Seeking capital to meet the booming demand for energy storage 

Batteries are playing a central role in enabling the increasing levels of variable wind and solar power that will be needed to fully decarbonize power grids. The Energy Storage Association trade group predicts demand for up to 100 gigawatts of new energy storage in the U.S. by 2030, compared to about 1.5 gigawatts at the end of 2020. Wood Mackenzie forecasts that global energy storage capacity will reach 741 gigawatt-hours by 2030

Fluence has a significant head start in this market, with 900 megawatts of energy storage assets deployed and 1.9 GW of contracted backlog in its project pipeline as of June 2021, according to its S-1. The joint venture was created in 2017 by Siemens, one of the world’s biggest energy and grid technology providers, and AES Corp., a U.S.-based utility holding company that was one of the first to go big into utility-scale batteries in 2007 and built one of the world’s largest battery fleets over the next decade.

Rather than owning projects, Fluence engineers and develops them for others, both as stand-alone battery sites and battery systems that are integrated into larger renewable energy projects. It also manages the ongoing operations and maintenance of these systems using a suite of software platforms that can bid the batteries’ capacity into a variety of energy markets and combine multiple batteries into virtual power plants. 

The company’s offerings include its Fluence Cubes — the core lithium-ion battery systems that go into its projects — as well as its Fluence OS software control system for those batteries and its Fluence IQ software system to manage those batteries for a variety of revenue-generating tasks. 

These are similar to the building blocks that other major energy storage vendors have put together, either through in-house development or via acquisitions. European energy companies have been the most prolific acquirers on this front. In the past few years, Wärtsilä acquired Greensmith, Engle bought Green Charge and Enel bought Demand Energy to fill out their respective portfolios. 

The most emphatic growth in the sector has come from utility-scale battery projects, as well as the hybrid renewable energy and battery deployments that make up an increasing share of the solar and wind projects that have been developed in recent years. 

At the same time, smaller behind-the-meter” projects that aggregate batteries installed in homes and businesses have also been growing to serve a significant role. Until recently, Fluence concentrated on utility-scale battery projects, but it bought behind-the-meter battery startup AMS in late 2020, giving it access to that company’s technology for bidding batteries into energy markets. 

A competitive landscape for energy storage

Fluence brought in its first outside investment in late 2020, raising $125 million from the Qatar Investment Authority in exchange for a 12 percent stake in the company. That transaction valued Fluence at more than $1 billion, leaving AES and Siemens each with a 44 percent stake. 

While Fluence is a rare example of an energy storage company seeking to go public via an IPO, it is far from the only one seeking access to public markets to accrue the capital needed to scale up to meet the projected demand in the energy storage space. In the past year or so, several competitors have gone public via mergers with special-purpose acquisition companies (SPACs).

Recent energy storage SPAC mergers have included Stem, a provider of behind-the-meter batteries and software and services to manage them. Stem went public in May via a SPAC that raised more than $600 million in gross proceeds; it had a market capitalization of $3.4 billion as of Tuesday. Pending SPACs include ESS, a maker of iron-salt flow batteries seeking to raise $465 million, and Solid Power, a solid-state battery manufacturer planning to raise $650 million.

None of these companies is profitable at present, and investors will have to bear the risk that the companies won’t be able to successfully compete in meeting the needs of the fast-growing global storage market. Lithium-ion batteries have been rapidly falling in cost, and competition between rival makers of this mainstay of grid energy storage is fierce. 

Energy storage risks: New technologies, business models, supply and safety 

Some industry observers have expressed concern about companies seeking public investment to scale up novel and unproven storage technologies in this heated competitive landscape. Last month, startup Energy Vault announced plans for a SPAC that would value its gravity-based long-duration energy storage company at more than $1 billion, despite the fact that no market structures currently exist to compensate the company for its services. 

Like many of its rivals centered on lithium-ion batteries, Fluence is promoting its digital applications and solutions as a way to offer growth opportunities beyond its core battery project business. As of June 30, 2021, a total of 2.5 gigawatts of renewable energy assets were using the company’s Fluence Bidding Application, and it had 1.3 GW of contracted backlog related to renewable and energy storage assets, according to its S-1

We expect our services and Fluence IQ digital applications, including the Fluence Bidding Application, to expand meaningfully over the next five years and contribute increasingly to our bottom-line growth,” the S-1 reads.

Battery supplies have been tightening this year due to a combination of rapidly growing demand and the broader supply-chain disruptions caused by the Covid-19 pandemic. Fluence’s S-1 reports that it has approximately 20 gigawatt-hours of contracted battery manufacturing orders through 2024, which the company believes will shelter it from longer-term risk exposure resulting from shifts in battery technologies or potential losses or gains in market share among various manufacturers operating in the storage space. 

But Fluence has also experienced several setbacks this year. Early this month, the Moss Landing battery system in Northern California installed by Fluence was taken offline after batteries overheated and a fire-suppression system at the site was activated. The 400-megawatt project is owned by U.S.-based energy project developer Vistra and uses lithium-ion batteries from South Korea’s LG Chem. Also, Fluence’s S-1 notes that an April 2021 emergency on a ship carrying Fluence products caused an estimated $12.8 million in gross inventory losses. The filing does not specify the nature of the accident or the inventory involved.

Jeff St. John is the editor-in-chief of Canary Media. He covers the technology, economic and regulatory issues influencing the global transition to low-carbon energy. He served as managing editor and senior grid edge editor of Greentech Media.