Shell will acquire German startup sonnen, staking a claim on the home energy storage market and further expanding its ever-increasing footprint in the clean energy industry.
Sonnen distinguished itself in the early home-storage market, with thousands of units deployed across Germany, and a notable presence elsewhere in Europe, the U.S. and Australia. Besides storing solar power for homeowners, sonnen aggregates its installations into controllable networks of grid resources.
It would be hard to overstate the opportunities that arise from teaming up with a global energy giant. Shell manages a full stack of energy services, including generation, trading and customer relationships. It could integrate energy storage with a number of other services.
The backing of Shell could propel sonnen to new scale and customer awareness as it competes with Tesla’s Powerwall and LG Chem’s Resu for customers that want to control their home energy.
“Our intention is to position the product so customers love it and buy it a lot,” said Brian Davis, VP of energy solutions at Shell, in an interview. “Whether it’s No. 1 or No. 2, that’s a matter for the market to decide.”
Flurry of investments
The acquisition escalates Shell’s involvement in futuristic grid startups. In just the last month, the company invested in a novel wind power venture called Makani and acquired Greenlots, a major U.S. electric vehicle charging company.
Shell first invested in sonnen in May 2018 as the leader of a $71 million round. That brought the sonnen’s total funding to about $180 million. The companies did not disclose the price paid for full acquisition.
The initial investment came with a “strategic cooperation agreement” with Shell New Energies, to develop “innovative integrated energy propositions, enhanced EV charging solutions and the provision of grid services that are based on sonnen's virtual battery pool.”
Since then, Shell learned more about sonnen, and liked what it saw, Davis said.
“They’ve got a really very good product and a great customer-centric innovation strategy,” Davis said. “What they’re trying to do and what we’re trying to do are very complementary.”
In particular, Davis liked that sonnen’s battery system comes in a single package with the necessary power electronics built in, making it easier to install. Additionally, it uses a lithium-ferrous-phosphate battery chemistry, which is considered safer and longer-lasting than the more energy-dense chemistries designed for car batteries and repackaged in boxes for homes.
The new corporate parent provides financial stability for sonnen as it continues to scale. That’s valuable, because the residential storage business is not an easy one to crack.
The rise of home solar, and intermittent renewables more broadly, spurred industry to find ways to store that power for use on demand. Still, the residential battery market remains minuscule compared to home solar, with few markets where the investment currently makes economic sense. The U.S. installs a few thousand residential batteries per quarter, and that’s after precipitous growth from where it was two years ago.
Tesla seized the popular imagination with its splashy Powerwall launch, but it remains more focused on making cars than proactively dominating the home battery business. LG Chem’s much less splashy Resu has found its way into homes, in part through a partnership with home solar installer Sunrun.
Numerous other storage vendors have run out of money while waiting for the market to arrive. Even well-known and well-capitalized Mercedes-Benz, which once appeared like a viable contender to Tesla, pulled out of the business after reassessing the profit to be made.
Oil and gas supermajors are uniquely disposed to plan on a longer time horizon than many corporations. Home storage may not end up in every home, but it will be a lot bigger in the near future, Davis said.
“It will be a mass-market product in a lot sooner than 10 years,” he said. “The product is moving down a cost curve and will increasingly get more and more affordable for more and more people.”
By working together with sonnen, he added, “We can do a lot more, much faster.”
Now there’s a clear path to delivering the enhanced EV charging and grid services promised with Shell’s first investment in sonnen.
Greenlots, one of the major North American charging network companies, has become a corporate sibling to sonnen’s smart storage operation. Sonnen has remained focused on the residential space, so its product would need some tweaking to fit the needs of an electric vehicle charging station, but the technical expertise is there.
Similarly, sonnen’s efforts to aggregate power from thousands of homes and wield it as a grid resource could likely grow with the expertise of Shell’s trading desk.
The German regulatory regime allowed sonnen to build up its community and trade power on the grid with relative ease, but U.S. regulation has thwarted that approach. Instead, sonnen has partnered with homebuilders to put its battery systems in large new developments, with the intention to figure out grid services once constructed.
Shell could take that idea into deregulated markets, where regulated utilities don’t monopolize the delivery of electricity. Sunrun recently proved that could be done by winning a capacity contract in the New England wholesale market with a network of home solar and and battery systems.
Sonnen also delved into the world of high-end home automation with ecoLinx, which can manage a home's energy consumption in coordination with other appliances. The company promised to bring smart home-enabled battery systems to a more accessible price point, and can pursue that goal with Shell's help.
Taken as a whole, Shell New Energies’ spectrum of services overlaps considerably with what a traditional electric utility would do, besides maintaining the poles and wires.
“We’re not trying to replicate what others have done in the past — we want to offer customers what they want going forward,” Davis said. “In some sense, we’re trying to create the utility of the future.”
So far, that utility includes clean energy, electric vehicles and distributed energy storage, and there’s no reason to expect the drumbeat of investment will stop there.