Swell Energy has joined forces with AutoGrid to create North America's largest network of residential batteries dispatched for grid benefits.

The Los Angeles-based storage startup has a contract with utility Southern California Edison to install batteries in 3,000 homes, which the utility will be able to control as grid assets. That contract weathered an unexpected regulatory challenge this year, but ultimately won approval by the California Public Utilities Commission this summer.

That means Swell can go ahead signing up customers, but it needed a way to control the operations of all those distributed assets in order to fulfill the contract. That’s where AutoGrid comes in.

AutoGrid’s software platform integrates a range of hardware: demand response tools, electric vehicle chargers, and batteries, among others. It manages more than 3,500 megawatts of distributed energy resources.

“They’ve taken on this bundle of rather challenging software problems related to the aggregation, control and optimization of distributed energy resources broadly speaking,” said Andrew Meyer, Swell co-founder and head of grid services. “We see them as a really strong market participant. They’ve got a lot of strong relationships with utilities and we're excited to build upon the existing offering for those partners.”

Swell has assembled a 35 megawatt-hour pipeline in California, Meyer said, between the 20 megawatt-hour SCE deal, other not-yet-announced utility projects and sales tapping the Self-Generation Incentive Program. The company has begun fulfillment for the SGIP pipeline; installations for SCE will happen in 2019 and 2020.

The AutoGrid partnership saves Swell from having to develop the software in-house, which would have been time-intensive and outside the realm of the startup’s core competencies. Similarly, Swell doesn't make its own battery products, but sells devices from reputable companies like Tesla and sonnen.

The deal also enables Swell to contemplate a new type of business: the turnkey distributed energy resources platform.

If a utility, electricity retailer or community choice aggregator wants to offer its customers a sophisticated program that leverages home batteries for local and system benefits, it has to master several distinct skill sets to build it in-house: determine the product offering, pitch it to customers (not an easy task with a newfangled technology), install it or find trustworthy installers, manage the customer experience, and aggregate the fleet for grid benefits while still helping the host customers with their utility bills.

That’s a lot to ask of a company more accustomed to building poles and wires, or winning retail customers by offering free nights and weekends. Instead of taking the risk, these large companies could outsource the work to Swell, which has already tackled those problems. It can design and execute the full program lifecycle, earning a cut along the way.

“Our mission is to accelerate the adoption of clean energy technology — we’re hunting for the way to make the biggest impact,” Meyer said. “We believe it's faster to go to the existing providers whose customers want it, but they don’t know how to provide it.”

For its part, AutoGrid sees this a validation of its theory of the grid edge.

“If you look at how Swell is building their business, this is exactly the type of company we had envisioned in our business model several years ago,” said CEO Amit Narayan.

It’s hard for a deployment company to also build software to manage its assets, he explained. One company won’t have enough megawatts deployed to learn at scale, the way AutoGrid can by managing fleets of various assets for dozens of different energy companies across multiple geographic regions.

“We can stay focused on what we do best: enacting the capabilities of the platform,” Narayan added. “They can focus on customer experience, origination, financing.”

Swell’s project will differ from previous AutoGrid efforts by optimizing wholesale market revenues, utility contracts and behind-the-meter value simultaneously, Narayan said. It will also aggregate an unprecedented number of storage units — the SCE contract alone will feature roughly 3,000 homes, making it the biggest fleet of residential batteries in North America.

Solar company Sunrun has been installing batteries with its customers, but hasn’t announced specific grid services contracts for its fleet. Vermont’s Green Mountain Power has installed more than 550 Tesla Powerwalls in customer homes, and used that fleet to save half a million dollars on this summer’s system peak. The utility hopes to sign up 2,000 units by the end of the year.

That record-setting scale puts pressure on Swell to deliver, now that the contract is officially approved. That process almost got derailed earlier this year, when an administrative law judge advised against approving cost recovery for the 125 megawatts of cleantech contracts awarded in SCE’s latest Preferred Resources Pilot.

That put many of the state’s leading cleantech startups on the defensive, arguing that the costs of the program were worthy investments in California’s clean energy future. The commissioners agreed in a July vote, green-lighting the programs.

What remains to be seen is how much of a market exists for Swell’s DER-in-a-box offering. With so few data points to support the business case for virtual power plants, convincing a third party to invest in a white-labeled offering will take some work.

These distributed, customer-sited fleets make a lot of sense on paper, and more jurisdictions are looking into them. If that market develops in the coming years, Swell and AutoGrid will be well positioned to compete for it.