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AES Corp, Siemens Set to Create Energy Storage JV — Fluence


Independent power producer, The AES Corp. AES, has recently entered into a joint venture with its long time partner – Siemens AG SIEGY – a German-based engineering conglomerate. The step was taken in order to expand AES Corp.’s operations in the burgeoning market for battery-based energy storage systems. Under the agreement, the two companies will create a new company, Fluence, which will operate as a global energy storage technology and services provider.

Financial terms of the deal were kept under wraps. The transaction is expected to close in the fourth quarter of 2017, subject to regulatory and other approvals.

Details of the Deal

Through formation of the new energy storage corporation, AES Corp aims to combine its competent energy storage platform, Advancion, with Siemens’ Siestorage technology. In particular, the new company will offer customers scalable, flexible and cost-competitive energy storage solutions. This, in turn, will allow them improved access to the fragmented yet rapidly expanding energy storage sector.

Per the terms, Siemens and AES Corp. will have 50-50 ownership in Fluence’s total stake. However, the new company will have the liberty to operate independently of its parent organizations. It will be based in Washington, D.C., with other offices located in Erlangen, Germany and select cities across the world.

Benefits of the Deal

The creation of Fluence will merge Siemens’ expertise in microgrid and islanding applications, renewable hybrid technology, black-start capability and consumer peak shaving with AES Corp’s proven utility-scale battery-based energy storage solutions for flexible peaking capacity and ancillary services. These include frequency regulation, transmission and distribution reliability.

This, along with Siemens’ prevalent presence in over 160 countries, will allow Fluence to offer a wider variety of improved energy storage solutions to both small and big customers worldwide. This, in turn, will enable AES Corp to expand its customer base, which may boost its revenue growth.

In this context, we note that, AES Corp and Siemens are currently working together on 48 battery-based energy storage projects across 13 countries, with a total worth of 463 megawatts (MW). These include the world’s largest lithium-ion battery-based energy storage project located near San Diego, CA.

Both the companies are currently ranked among the leading energy storage integrators worldwide by Navigant Research. Hence, the new company set to be formed by them will surely offer world-class energy storage solutions that will benefit their customers.

Our View

Per Reuters, demand for large-scale energy storage system is rapidly growing as the price of advanced batteries is turning south. Indeed, battery costs have declined 40% since 2014, according to Bloomberg. On top of that, realizing renewable as the future of energy source, the majority of the nations are increasing their renewable energy assets. As a result, the current trend is to connect big batteries and other storage systems with renewable energy, thereby reserving energy without creating climate-damaging emissions.

This kind of connectivity technology is still in its nascent stage and the battery-based energy storage market is still fragmented at large. However, it holds great potential for growth in the near future. Evidently, the grid-connected energy storage sector is expected to expand from a total installed capacity of three gigawatts (GW) at the end of 2016 to 28 GW by 2022, according to IHS Markit. This is equivalent to the power used by 18.6 million households.

Naturally, the birth of Fluence will take place at the inflection point of an emerging battery-base energy storage market, which is expected to reach $6.8 billion by 2022. Moreover, being a combined effort, it will offer world-class energy storage solutions that will benefit customers.

We believe that by joining hands with Siemens, not only will AES Corp be able to cater to more customers with its industry-leading battery based energy storage solutions, but will also play a significant role in accelerating the revolutionary integration of renewables into the energy network of tomorrow.

Price Performance

AES Corp has lagged the performance of the Zacks categorized Utility- Electric Power industry in the last one year. During this period, the company’s shares have lost 13.4% compared with the industry’s loss of 4.2%. This might have been caused by the weak performance delivered by the company’s transmission and distribution businesses that have been facing several operational risks lately including breakdown, failure or damage of equipment or processes, accidents and labor disputes. It also faces stiff competition from its peers like Alliant Energy Corp. LNT and CenterPoint Energy, Inc. CNP.

Zacks Rank

AES Corp currently holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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