By BEN COOK
- $2bn storage software company Stem acquired AlsoEnergy this year
- Stem CTO emphasises need to assess the ‘predicted future value of storage’
- CTO Larsh Johnson says Inflation Reduction Act is opening up markets in different US states
With a market cap of around $2 billion, NYSE-listed Stem Inc is viewed as one of the market leaders in the provision of software for optimising energy storage assets.
Earlier this year, Stem – which has more than 2GWh of storage assets under management – finalised the acquisition of AlsoEnergy, which had the effect of combining AlsoEnergy’s solar asset performance monitoring and control platform, ‘PowerTrack’, with Stem’s AI-driven analytics platform, ‘Athena’.
At the time of the acquisition, Stem emphasised that the acquisition represented a significant milestone for the company and would boost its growth, enhance margins and “accelerate our expansion as a global provider of clean energy intelligent software solutions”.
Energy Storage Report spoke to Stem’s chief technology officer Larsh Johnson (pictured) to get the lowdown on the company’s offering, and also understand why it’s important to accurately model revenue streams and system performance over the long term.
Johnson also highlighted the opportunities that had been created by the introduction of the Inflation Reduction Act earlier this year and identified the biggest challenge Stem faces.
What is the Stem ‘elevator pitch’?
Larsh Johnson: The key is we look at the energy transition in a holistic way and think about how to decarbonise the energy landscape, and decentralisation is a big piece of that. Obviously, the intermittency of renewable resources has to be taken into account and there’s a growing interest – especially in North America – in resiliency, greenhouse gas reduction metrics and so forth. All of this implies the value of storage to help balance intermittent resources, address resiliency and fundamentally take advantage of periods in the grid where carbon content is lower.
The company originally focused on the idea that storage was central to all these themes and that, for storage to address them, it requires software and high degrees of automation. And all of that begets the idea that AI [artificial intelligence] and machine learning are part of helping to automate these processes that involve storage, which has very diverse use cases across different markets with different asset types. It’s also being able to adapt over time as well, because obviously policies are changing, environments are changing, and products are changing. So that was the thesis for our Athena platform that suggests that storage is a centrepiece with software and automation rooted in AI techniques.
At the same time our friends at AlsoEnergy which, by way of acquisition, became an integral part of STEM had been looking at how to provide the monitoring and asset performance management that you need for these renewable assets, in particular around solar. The acquisition led us to merge platforms in a way that says that the combined value of solar asset performance management optimisation and economic dispatch of distributed resources with AI roots becomes this entire platform. So from a competitive standpoint, we think we not only have the largest fleet in operation and we generate the most data, we’ve been operating for the longest period. We use all that to look at the evolution of our software platform and our AI skills.
You mentioned solar – wind energy will become a bigger presence in the US in the coming years, is that a market you’re looking to tackle?
LJ: We think we have a lot we could bring to the wind market. We’re not exactly sure about the approach just yet, but we have been looking at the wind opportunities. If you look into the owners who have larger scale power plants, for example, then they almost certainly have wind as part of that portfolio. So our roots have come from the commercial industrial sector – we moved into the distributed generation sector in terms of power plant scale, and as we move forward, we’re getting a number of opportunities that will pull us into the larger scale.
Stem has said the first step in realising successful energy storage projects is “accurately modelling revenue streams and system performance over time” – could you elaborate on that?
LJ: Storage is a finite resource and if you’re going to use that storage capacity, you need to take into account the limited opportunity you have to use the energy you stored to achieve the best value. And to do that, you need to look ahead to when that value can be best achieved. So it’s that predicted future value that you need to assess in order to say when you are going to use the storage to best outcome. And that’s really what we do with Athena – take a number of different data streams in and project forward a future state, whether it be price, whether it be solar generation, whether it be state of charge or customer demand, all of those things beget the idea of what’s the future value of those electrons you’ve stored in the battery.
Are there still many businesses that need to get up to speed with this idea?
LJ: Yes, I think so. And I think one of the things that I believe we do better than others is to make sure that we actually operate with those same principles. And so all of our systems are receiving the benefit of intense forecasting of those conditions going forward. We update and manage the continuous planning for economic dispatch on an hourly cadence looking forward at least three or four days in order to say ‘what’s the best use of that battery?’ I think others may feel they can programme it to go on and off at these times and take advantage of certain fixed rate arbitrage, or they simply want to shift this solar generation to another time period. And there’s certainly some very simple use cases for that kind of approach, but it certainly will not stay the test of time as the use cases become more complex and certainly the market opportunities are becoming more complex.
In what way are marketing opportunities becoming more complex?
LJ: The concept of virtual power plants isn’t new, but with the orders here [in North America] from the Federal Energy Regulatory Commission (FERC) they are essentially putting in place frameworks for distributed energy resources, both distribution level resources as well as behind the meter resources to be participants in most of the different wholesale markets, including some of the different ancillary services and certainly the energy markets. As you look at those assets that may be installed where you have that simple sort of programme to charge here, discharge there, that’s not going to be a methodology that’s going to work at all for an asset you want to drive into a wholesale market. That’s where I think we see the future proofing that we offer with Athena taking us forward with owners who realize that over the next 10 to 20 years of that asset life, there will be changes.
In what way does Stem’s software decrease risk for project developers, independent power producers, off-takers and investors?
LJ: There’s a future proofing because if you look at the full value of what we offer, while an initial site may only have a couple of those value streams, the idea that we’ve actually demonstrated the others maybe in another market with another asset type with another customer means that we have a proof point that says, if you need those capabilities at this site, we have that as well. If you look at it from a platform standpoint, being able to repeatedly do multiple projects on the same platform, bringing in either the solar or the storage assets from a variety of different suppliers allows us to say ‘we’ve got this heterogeneous portfolio management capability, but you can still monetize that and operate that using the Athena platform services’.
What do you see as the biggest opportunities for Stem in the future?
LJ: Well, the IRA [Inflation Reduction Act] certainly opens up a new market here in the US. I think that is the one that’s most top of mind for us these days. We are obviously looking at global markets as well, but I think if we had to pick one thing that’s probably driving a lot of attention, it’s our planning and execution against the IRA opportunities that are getting formalised. I think you can take the IRA and you can marry that with things like the FERC orders and the combination starts to open the value proposition. With the range of different tax credits that are available to storage, depending on many different factors, that opens up markets in multiple different states and wholesale market jurisdictions. We can start to leverage the Athena value stacking much as we’ve been doing in California for quite some time in other states and in other wholesale markets.
What do you see as the biggest challenges you face as an organisation at present?
LJ: When I get asked that question, the one thing I tend to answer is focus. It’s just amazing how many different things you can be doing with storage and how many opportunities are in the diversity. And I think there’s a lot of them that are quite exciting, many that are science projects, lately hydrogen’s been raised up, and while it may not be the greatest round-trip efficiency for storage, green hydrogen certainly has interesting, exciting opportunities for long duration storage capability. But there’s a focus as a business and we’ve set our goal of reaching an EBITDA positive number next year. So I think that focus is what’s going to be critical for us to get there. At the same time we see all these opportunities, which are just mind blowing and really cool and we need to choose which are going to lead to the best growth and best return for our shareholders.