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Smart Energy is Digital, Decentralized and Decarbonizing: Top Companies Leading the Shift

July 21, 2022

Gabriela Herculano


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Smart Energy is Digital, Decentralized and Decarbonizing: Top Companies Leading the Shift

Contradictory views of renewable energy are dominating the news. On one side, some analysts are pointing out that Europe has re-started several coal-fired power plants and must enter into long term contracts for U.S. LNG from shale gas sources to avoid Russian supply, They argue, therefore, that climate change mitigation is no longer a priority. This narrative is, however, misleading, as many other commentators point out. Crucially, coal, crude and natural gas did not become any more investible, cleaner, cheaper or less volatile since the invasion of Ukraine. We must make a distinction between the need to avert a recession, to deal with inflation and manage this energy crisis, with the mid- to long-term commitment of moving away from fossil fuels, which has only been strengthened. Security of supply is a top priority for all countries, the EU member states in particular, but the acceleration of the energy transition is also undeniable.

Coexistence of green growth and brown value will persist

U.S. shale gas is a short-term winner of the European energy crisis, but so are the green short-term solutions like energy efficiency, heat pumps, solar rooftops and local batteries. Consumers of electricity want security of supply and are embracing alternatives at a fast pace, finding in the solutions a way to reduce electricity and heating costs. But make no mistake, fossil fuels are no longer viable in the long run, and long-term decarbonizing technologies, like offshore wind, long duration energy storage and green hydrogen, are the true winners of the energy crisis. Having said that, “green growth” and “brown value” will coexist for a while, as we observed in the last two months when equity indices that represent companies in these opposing sectors both performed well. This coexistence is inevitable because we are in a transition.

The solutions are local, very local

Our global power industry was built around large, centralized power stations, mostly coal and natural gas fired. But all of that is changing. The two key short-term solutions in the hands of consumers are to embrace energy efficiency and, whenever possible, to produce electricity at the point of consumption. Generating electricity “behind the meter” has been challenging for technical and economic reasons until recently, when substantial declines in the cost of solar panels and batteries have made these solutions price competitive.

Distributed renewable based electricity is reshaping the grid in a profound way. We call this new clean energy trend "Smart Energy." Propelled by the convergence of powerful forces, these local energy assets decarbonize, are digital, decentralized, and deflationary. The aggregation, optimization and monetization of these distributed clean energy assets is reshaping our grid and profoundly changing the way we consume and produce electricity.

Top companies leading the shift towards Smart Energy

Producing electricity at the point of consumption makes economic sense, and it also provides security of supply and predictability of costs. In the U.S., the penetration of solar rooftops is at 3.5%, while in Australia over 8% of all electricity demand in their largest grid was already produced by solar rooftops. Players in this space have a lot of potential to grow from an already solid base of users. We believe distributed energy based on renewable sources is one of the most disruptive themes within green energy and the following companies are poised to benefit from this trend:

SunRun (RUN), Sunpower (SPWR) and Sunnova (NOVA) are the top names in the installation of solar rooftops in the U.S. market. A surge in oil & gas prices globally enhances the competitiveness of alternative clean energy solutions. Some investors expect a powerful rally, as producing electricity behind the meter from solar installations is one of the few short term solutions that consumers of electricity have in their hands to achieve security of supply and savings.

An additional boost to these companies would come from a positive conclusion to the Build Back Better (BBB) legislation; its original text extended tax credits for “local solar” to 10 years and increased the rate to 30%. The climate part of the bill always received bipartisan support, so it is possible that some form of additional fiscal stimulus for solar investment could be approved before the U.S. mid-term elections.

Maxeon Solar (MAXN) and Meyer Burger are producers of solar rooftop panels, Maxeon with sales in over 100 countries while Meyer Burger sells higher-end panels to the European market. The REPower EU plan aims for solar rooftops to front load around 15 TWh within a year, which would require 7 GW of behind the meter solar panels to be added to the system. As a reference, according to PV Tech, in 2021 almost 26 GW of solar was added to the grids across the 27 EU Member States, bringing the total installed capacity (that is predominantly comprised of utility scale solar) to near 165 GW.

Stem (STEM) and Fluence (FLNC) are U.S.-based companies with clean energy storage solutions, combining hardware, software and applying AI for storage asset optimization. The clean energy storage market in the U.S. alone is likely to growth over 120 times until 2035, and both companies are already growing significantly.

Enphase Energy (ENPH) is a 16-year-old company and a world leader in microinverters, having sold over 13 GW since inception. The company is a global player that has evolved its offering beyond this innovative equipment, now building all-in-one solar, battery and software solutions. In FY 2021 revenue reached $1.38 billion, almost double the FY 2020 $774.4 million in sales. Enphase is a solid player in the distributed renewable energy space.

Ameresco (AMRC) provides energy efficiency solutions, one of the few short-term solutions to the current energy crisis. Revenues in FY 2021 reached $1.2 billion and the company reiterated guidance for what they expect to be “another year of strong growth in 2022” with revenues in the range of $1.83 billion to $1.87 billion and adjusted EBITDA between $200 million to $210 million. Energy conservation to generate cost savings is top of mind globally and Ameresco offers key solutions.

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