Fluence Energy Stock: A Global Energy Storage Leader
Some disruptive tech themes generate more interest than others for reasons we can only speculate on. For example, investors have shown a great deal of interest in energy storage. With all these electric cars driving around, makes sense to invest in lithium batteries, right? Well, that’s easier said than done, something we talked about in our piece on The 8 Biggest Lithium Battery Stocks of 2028. Lots of technology startups are working on making lithium-ion batteries better, but they’re largely off limits for retail investors.
Another energy storage theme that brings all the boys to the yard is energy storage for the electrical grid. With all this renewable energy coming online, there’s an increased need for energy storage because sunshine and wind are intermittent. While many promising energy storage technologies remain private, we have seen a number of firms go public using the dreaded special purpose acquisition company (SPAC) – names like EOS, QuantumScape, Stem, and Energy Vault. That’s why when energy storage company Fluence Energy announced a traditional initial public offering (IPO), we decided to take a closer look.
About Fluence Energy Stock
Fluence Energy is a relatively new firm having been established in January 2018 as a joint venture between Siemens and AES – the former being a $130 billion German conglomerate and the latter being a $16 billion global electric power company. Both Siemens and AES worked on battery-based energy storage for about a decade before combining their efforts into what FluenceEnergy has become today. The core product from Fluence Energy is the Fluence Cube, a modular, factory-built, approximately 8’x8’x8’ energy storage building block full of batteries that utilize a variety of different chemistry types, not just lithium-ion.
Controlling these modular energy storage units is a software platform called Fluence OS. In 2020, Fluence acquired Advanced Microgrid Solutions (AMS), “a leading artificial intelligence-enabled optimized bidding software for utility-scale storage and renewable generation assets,” which has now become the Fluence Bidding Application. (More on this in a bit.) Fluence lists their principal competitors as Tesla and Wartsila, a Finnish company that’s moving into energy storage.
As of today, one major contract manufacturer produces the Fluence Cube in Asia, though the company intends to expand manufacturing to sites in North America and Europe. Since their products are shipped directly from the contract manufacturer to job sites or designated warehouses, they’re probably paying a fortune in shipping costs right now, underscoring the importance of getting other contract manufacturers up and running in other geographies. When the global supply chain is shaky, having a single supplier for your core product seems extremely risky.
Fluence Energy may seem like an easy business to understand, but it’s not.
Some Unanswered Questions
The Fluence Energy S-1 makes you work for the tidbits of useful information contained within. Once found, these insights raise more questions than they answer. For example, look at the breakdown of revenues across countries.
The dramatic increase in revenues from 2019 to 2020 is hard to explain without seeing historical revenues, of which there are none aside from the above. The +509% year-over-year increase could be attributed to how Fluence Energy recognizes revenues, which is unique to each customer, and therefore complicated in regards to how contracts are structured and timing. Revenues are also seasonal, with third and fourth fiscal quarter order intake generally accounting for 80% or more of their total intake each year.
In looking at the table above, the first question is around the +28,788% revenue growth in the Philippines, a country where nearly all the renewable energy comes from geothermal and hydropower. Was this sudden appearance of $190 million in revenues the result of an acquisition? Then there’s the U.K. where revenues have fallen off a cliff, yet Fluence Energy says the following:
As of June 30, 2021, we had a gross global pipeline of 13.3 GWs, and customers in the United States composed the largest portion of our gross global pipeline at 6.5 GWs or 49%, with the United Kingdom following at 1.7 GWs or 13%, and Australia at 0.7 GWs or 5%.Credit: Fluence Energy S-1
So they’re growing revenues in the U.K but last year they declined? There might be a simple explanation for this revenue volatility, but we’re not seeing it. There’s also some customer concentration risk. In 2020, Fluence Energy’s top five customers accounted for approximately 90% of their total revenues. While there may be some answered questions, there’s one part of this business that we find interesting – the use of AI-powered software to generate a double-digit increase in revenues for energy asset owners.
The Fluence Bidding Application
We’re not given any sort of revenue breakdown since Fluence lists 99% of 2020 revenues coming from the “sale of battery-based energy storage products.” That’s a shame, because we’d really like to know more about how much money they’re bringing in from the Fluence Bidding Application (FBA), that AI-powered tool they acquired last year which seems incredibly powerful.
The FBA analyzes thousands of variables using proprietary machine learning algorithms to provide price forecasting which helps energy asset owners achieve a higher return on investment. The market-compliant bids coming from the FBA software increase revenue for wind and solar asset owners by up to 10%, and up to 25-30% for energy storage asset owners over a 12-month period compared to manual trading. The Percent of Perfect Foresight (PoP) metric helps asset owners evaluate the performance of an algorithmic trading approach by comparing it with the maximum revenue an asset could have attained if it had perfect knowledge of actual market prices. In Australia where FBA is currently used to optimize approximately 20% of all the utility-scale wind and solar assets, customers realized up to 90% POP. It may not be a perfect crystal ball, but AI is remarkably accurate when it comes to figuring out when to sell energy for the most money.
Anytime an energy asset owner can increase revenue by a double-digit amount simply by adopting a new software solution, it’s an easy decision to make. Within eight months of acquiring FBA, Fluence had fully integrated the team and technology into the company and grown adoption of the software by 1.7 GW. The cloud-based solution is vendor-agnostic (available to optimize non-Fluence storage products) and has the potential for performance-based revenue-sharing structures.
What Fluence Energy lacks is any sort of recurring revenue streams that might help offset some of the revenue volatility we mentioned earlier. While FBA may bring that to the table, we just can’t tell unless they provide more granularity when reporting revenues.
Fluence Energy is off to the right start with a global leadership position in energy storage and the desire to acquire complementary technologies that can help create additional revenue streams. A focus on the U.S. going forward makes sense given the current administration, though they’ll need to solve that sole-supplier problem by bringing some manufacturing into America (perhaps some sizable tax breaks and incentives might accompany that). We’d be interested in taking another look at the company once they can show recurring revenues that constitute a meaningful percentage of total revenues.
Should the Fluence Energy IPO go through as planned, shares will trade under the ticker FLNC.
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