Energy

Chris Bryant is a Bloomberg Gadfly columnist covering industrial companies. He previously worked for the Financial Times.

Stefan Quandt, the billionaire behind BMW, has quietly put some of his money into a small company that lets customers store electricity they generate from their solar panels in a battery.

Out of Juice
RWE shares have slumped over the past five years

Solarwatt and its peers have big ambitions. Sonnenbatterie, a rival staffed by a group of ex-Tesla employees, wants to have more customers than German utility Eon within 10 years. Revenue last year was 15 million euros, double that the previous year, but still somewhat short of Eon's 112 billion euros.

Though the companies are tiny, battery storage is another long-term threat for Germany's utilities, which are reeling from a slump in wholesale power prices caused by the growth of renewable energy. As this week's Paris climate talks show, the shift to renewables is only set to accelerate.

Battery systems let customers store electricity generated during the day for when they need it. That allows homes and businesses to cut their dependence on the grid or one day disconnect from it. Morgan Stanley analysts point out that as more do that, prices may go up for the remaining customers, encouraging them to follow.

That hasn't happened yet because energy storage costs have been high, until recently. Regulations are unfavorable, with many U.S. states providing no incentive for customers to store energy rather than return it to the grid. So Germany may lead the charge: it has more installed solar panels than any other country, subsidies for returning unused solar power to the grid are dropping, and the country's domestic electricity bills are relatively high.

Helped by government subsidies, 4,500 residential battery storage systems were sold in Germany in the third quarter, more than double the year earlier period, according to Bloomberg New Energy Finance. BNEF estimates end-user energy storage will increase in Europe to 2,320MW by 2020, with half of the increase coming from Germany. Worldwide, about 1.1GW of energy-storage projects were announced in the first nine months of 2015, the most ever.

Residential Energy Storage Systems in Germany
Sources: GTAI, KfW, BNEF

That's still a tiny amount -- Germany can generate as much as 193GW of electricity -- but look what happened with renewable energy sources. On one windy, sunny weekend last summer, renewables accounted for 78 percent of German's entire power production.

It's possible the technology may play to the advantage of the incumbent utilities: it may not make sense for millions of consumers to have batteries in their homes when large-scale storage projects could prove more economical. Tesla is trying to integrate its stationary storage systems with Enel Green Power's solar and wind plants, for example. Storage may also help the incumbents balance the grid, which is increasingly subject to big fluctuations in supply due to those unpredictable winds.

Even so, the old-fashioned business of generating and transporting electricity from a central hub will shrink in time. The dwindling valuation investors apply to some some utilities -- RWE was valued at 27 times earnings a decade ago, compared with 8 times today -- suggests they will have to adapt if they are to thrive as battery storage becomes more commonplace. Paradoxically, their future lies in helping customers use less electricity.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Chris Bryant in Frankfurt at cbryant32@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net