Ray Blanco is flogging his entry-level newsletter, Technology Profits Confidential ($79/yr), by pitching a theme he calls BESS, which he says is “The #1 Ground Floor Opportunity in the World” — the acronym stands for “Battery Energy Storage Systems,” and that’s certainly an area of great interest, so let’s dig in and see what he’s talking about.
The big picture argument is that energy storage is the “holy grail” for clean energy, which you’ve probably heard before — and it makes sense, the way to use more solar and wind energy and keep the electrical grid reliable (or even upgrade the electric grid) is to provide real utility-scale energy storage. That’s been true for a long time on a basic scale, there have been energy storage systems for generations now (we have one near us, a little hydroelectric dam that uses cheap power to pump the water into the reservoir, then when power is more expensive it releases that water to run its turbines and generate electricity), but they haven’t generally been big enough or smart enough to replace baseload power sources like natural gas or coal burning plants or nuclear power plants.
Battery technology is certainly part of the solution so far, whether that’s home batteries like Tesla’s Power Wall that can store the electricity from your solar panels, or the huge banks of batteries that Tesla and others are building for grid storage in some areas. And while the building block of basic lithium ion batteries is the cheap go-to for a lot of these projects, new battery technologies are probably going to remain part of that story, too, including large flow batteries that might be safer, cheaper, or longer-lived than lithium cells.
But what is Blanco pitching specifically? Well, it’s a little bit of a bait and switch — he says he’ll give away his “#1 idea” in this space, and he does give you an idea for free for listening through his presentation… but most of the talk in the pitch is about how much better and higher-potential his secret idea is.
So what does he give away for free? He suggests buying into Fluence, which is not yet public but has now filed for an IPO… and the “free” way to buy in is by buying the shares of Fluence’s part owners, both of whom are very large companies… here’s a little snippet from Blanco:
“Guide House ultimately discovered a little-known company called “Fluence” is hands down the #1 leader of BESS battery storage in the world (even beating out Tesla!).
“After all, Fluence:
“Acquired a BESS company which not only had a master supplier agreement with Tesla, but also engineered one of the most advanced battery software systems in the industry…
“Installed and operated battery storage projects for the past 13 years (establishing a market presence in over 24 countries)…and…
“Deployed more energy storage battery projects than anyone else on the planet…
“It’s a promising company…
“They’re only 1/600th the market cap of Tesla…”
And then Fluence’s part owner:
“Buy AES Corp. (NYSE: AES).
“Pay no more than $28 per share.
“You’ll not only own one of the most dominant power companies on the planet…
“But you’ll also get a ground-floor stake in Fluence…
“Which is currently valued at over $1 billion…”
That IPO of Fluence is more imminent than it was when Blanco wrote those words, I expect, they filed their S-1 with the SEC just a few weeks ago (Reuters story here), but we don’t yet know exactly when that offering might happen or how it will be priced. The other big backer, in case you’re curious, is Siemens, so it’s certainly true that Fluence’s results will matter more to AES than to SI, if only because electrical systems giant Siemens is 10X the size of AES.
Here’s how Fluence describes its business in that S-1, in case you’re curious (scroll to p. 111), it’s a good place to start in understanding the basics about energy storage and management:
“We are enabling the global clean energy transition with market-leading energy storage products and services and digital applications for renewables and storage. We believe battery energy storage technology (“energy storage”) is at the center of this transition and is becoming even more important as more renewables are added to the grid and the transportation sector moves towards electrification. We are driving change by delivering configurable energy storage product, service, and digital application packages, as well as our AI-enabled Fluence IQ Platform to optimize renewable and third-party storage assets. Our offerings help major utilities, developers, and commercial and industrial (“C&I”) customers around the world deliver a more sustainable, reliable, and resilient electric grid in a repeatable, scalable way.
“Energy storage is a key solution to the challenges facing electricity markets and transmission grids, including: electricity load variability and quality issues from increased participation of renewable energy generation; growing consumer and industrial demand for smart grid services; and localized capacity constraints on transmission networks, particularly around periods of peak demand. Energy storage is a uniquely flexible, asset that can provide multiple critical grid services, including energy shifting, peaking capacity, ancillary services, and transmission and distribution infrastructure functions. Our team has helped the industry move from a few deployments of single-function systems under 10 megawatts (“MW”), to multiple deployments of systems over 100 MW with broad functionality optimized by advanced software and digital intelligence.
Are you getting our free Daily Update
"reveal" emails? If not,
just click here...“Fluence is a leading pure-play provider of energy storage technology globally, and our AI-enabled Fluence IQ helps customers maximize the value and performance of single assets or entire portfolios of clean energy assets. Although we were established in January 2018 as a joint venture between Siemens and AES, members of our board of directors and leadership team were part of the founding team at AES Energy Storage that conceived and tested the world’s first lithium-ion energy storage system on an electric grid starting in 2007. Fluence has built on AES’ industry-defining work in clean energy and storage operations and Siemens’ energy technology leadership and global sales presence. The result is an agile company with a global presence solely focused on enabling the clean energy transition.”
It’s an interesting company, maybe I’ll be interested once I get an idea of the valuation — they have solid revenues, over $560 million last fiscal year and presumably something like $800 million in the fiscal year they just completed at the end of September (through three quarters they were growing at about a 50% pace). They have a negative gross margin, meaning they sell their goods and services at a loss even before you account for their overhead, R&D and selling costs, so I’d want to understand how the business can scale to profitability, but I’ll give it a look once it’s public.
That’s not really the point of Blanco’s pitch, though, he’s selling us on his “secret” idea — here’s how he gets into that:
“I’d like to share my second investment idea with you.
“The Perfect BESS Investment: Tesla’s Biggest Competitor….
“Over the coming years, as the $140 trillion wave of investment capital floods into the clean tech space…
“My research leads me to believe there’s one “superstar” BESS company that will attract the lion’s share of attention from Wall Street and the general investing public…
“Sending its stock substantially higher for years to come.”
And then he cites a source with some details about how they’re beating Tesla:
“… according to one well-respected Wall Street Hedge Fund…
“This under-the-radar firm is absolutely CRUSHING Tesla in the BESS battery boom…
“They’re out-installing Tesla’s BESS projects by over 165% in the largest renewable energy market in the United States (giving them nearly 80% market share)…
“They already have a backlog of 10-to-20-year contracts with a portfolio of Fortune 500 companies, virtually guaranteeing profitability for years to come, and…
“Swiss investment bank Credit Suisse recently initiated coverage on this company, issuing an enthusiastic ‘buy’ rating…”
And the part that interests me: They’re not really a battery company, but are in the potentially much easier to scale software business…
“They don’t even make their own batteries.
“Believe it or not, they actually buy them from competitors, including Tesla!
“So how do they make money?
“Simple: they manage and optimize energy for clients using their proprietary BESS battery software…
“I’m not exaggerating when I say it’s the most advanced BESS technology on the planet.
“It’s protected by 24 patents…
“It already operates the energy supply for over 850 BESS batteries around the world.”
Fluence and Tesla and plenty of others also have AI management systems to optimize energy storage, including bidding systems that balance the grid with buying for the batteries and selling from the batteries as prices fluctuate, so I’m sure that the claim it’s the “most advanced” is subjective… but this is a somewhat familiar name here, and one I’ve been watching for a while but don’t currently own — this is Stem (STEM), which came public through a SPAC merger in the SPAC mania last winter.
I’ve mentioned STEM once or twice when covering other energy storage ideas, though I haven’t seen it actively teased by anyone else. As with many tech stocks these days, I love the idea but don’t love the valuation, and it will be interesting to see how investors compare Fluence and Stem in the weeks ahead as Fluence moves toward becoming publicly traded. Here’s how they describe themselves:
“Stem delivers and operates smart battery storage solutions that maximize renewable energy generation and help build a cleaner, more resilient grid. Our customers include Fortune 500 corporate energy users, project developers and installers, and utilities and independent power producers.
“Stem’s market-leading Athena™ software uses advanced artificial intelligence and machine learning to automatically switch between battery power, onsite generation and grid power. Athena™ helps lower energy costs, stabilize the grid, reduce carbon emissions, and solve renewable intermittency across the world’s largest network of distributed energy storage systems.”
The argument in favor of Stem is, no surprise, rapid growth — analysts have them penciled in with $146 million in revenue this year, which would mean that at a $3 billion valuation they’re trading at about 20X sales, a nosebleed valuation for most of history but on the cheap side for recurring-revenue growth stories right now. And while there are only two analysts following the story, and everyone is learning to be a little bit cautious of the rosy prognostications that SPAC merger companies have been making over the past year or so, it is true that the estimates are for very strong revenue growth — more than 100% in 2022 and 80% in 2023. If I had a good amount of faith in those numbers, I’d be fairly quick to buy that kind of growth at 6X 2023 sales, particularly because 2023 is also when those analysts see STEM becoming profitable.
I have been watching for a few months and remain tempted to take a bite of STEM, primarily because of the growing base of installed battery systems that come with long-term software contracts (10-20 years) and some market participation share from those installed systems (a small piece of the energy trading business, basically). They have a contracted backlog of $250 million, according to their second quarter update, and a “pipeline” of $1.7 billion.
It’s quite likely that revenue will fluctuate a fair amount, even with that recurring revenue SaaS base from their Athena software, because something like 60% of their sales come from hardware — they sell the battery system, at fairly low gross margin (10%ish), effectively losing money on that once you account for overhead, and make that up with the ~40% of their revenues that they think, at maturity, will come from their software subscriptions (and, to a lesser degree, the variable share of the energy trading revenue). That might create some opportunities from a weak quarter on the revenue side at some point, but it’s also true that the basic model for the business is very appealing if it works — essentially, it’s not so different than the razor-and-blade model or the printer-and-ink model, selling big heavy stuff at breakeven and making your money from the long relationship you have with that customer for refills or blades or, in Stem’s case, the contracted software subscription that comes with the installation.
STEM probably own’t report its next quarter until mid-November, so we’re not likely to have meaningful updates in the next few weeks. After reading through their materials again today for this piece, I ended up deciding to begin to nibble… I’m not delighted with the valuation, particularly if the space is competitive enough that their forecasted growth rates might be challenging to hit, or more expensive to reach than expected, and I surely wouldn’t take the 12,000% gains promise from Blanco at all seriously, but I like the business model and the growth right now is certainly fantastic as they install systems quickly from a low base. You can see their latest investor presentation here if you’d like to begin researching the company, and if you want to got to the source that Ray Blanco cites most heavily in his ad, that’s a report from Citron Research — I don’t know how Andrew Left at Citron feels about STEM today, and he has, of course, been loudly wrong about some ideas both long and short in the past, but as the SPAC merger was in the works back in January, he was effusive in his praise and put a $100 price target on the shares.
If you’ve got thoughts on Stem, Fluence or any of the other battery storage companies out there that you like, please do feel free to share those thoughts in our friendly little comment box below. Thanks for reading!
STEM was given away as a freebie at the end of MF’s Energy Insider portfolio video pitch.
Thanks… I’ve definitely been seeing it mentioned in many places for a few months.
Lango also has it as one of his top buys in Innovation Investor.
Which one did you buy, AES or STEM, or both?
STEM
Great stuff!
But you have included one confusion that is almost universal among smart confident people who aren’t really familiar with how an electrical grid works. And that confusion is around the word, and the concept, “baseload”. And by getting that wrong, you also get wrong the relationship between nuclear power and the intermittent renewables, and storage.
For example, far from complementing or backing up renewables, nuclear power has very similar problems keeping the lights on by itself, and might benefit from powerful, efficient, and affordable electricity storage just as much as wind and solar do. One would never guess that from your only mention of nuclear.
The most important characteristics of any generator are these:
1) How much does it cost per unit (kwh, mwh, gwh, twh)?
2) How reliable is it (ACF = annual capacity factor, or availability factor in many cases)?
3) How flexible is it? Insiders use the term “dispatchable” to describe generators that can sit idle when not needed and spring into action when needed. Dispatchable really combines flexibility and reliability.
4) These days, How much fossil CO2 does it emit per unit of electricity?
A typical electrical grid has daily, weekly, and seasonal fluctuations in demand AKA “load”. The annual peak load is typically around twice the annual “valley”. And customers in rich countries like ours are used to fabulously reliable electricity. Our local utility and its regulator aim for 10 minutes maximum outage per year! In order to be that reliable, most grids maintain around 20% “reserve capacity” – generation capacity equal to 20% of the peak annual load, that NEVER GENERATES ELECTRICITY. The 20% is a rule of thumb average that varies with the % of intermittent renewables, the size of the biggest single unit or single transmission line, the availability of backup power from neighboring utilities, and the demands of the regional network.
Obviously, electric utilities are like ducks, looking relaxed above the water but paddling madly out of sight.
The term “baseload” or “base load” originally applied to the annual LOAD that was less than the “valley” – i.e., the load that was always there 24/7. But as cheap power became available from inflexible generators like run-of-the-river hydroelectric turbines, the term was extended to those inflexible generators. When nuclear power came along, it was supposed to be cheap but wasn’t, and it was supposed to be reliable and sometimes was, and it was supposed to be inflexible (“baseload”) and almost always was, and is.
In order for a grid to supply the “top half” of the load curve, the part that comes and goes, it generally relies on generators that are reliable and flexible, AKA dispatchable. That used to be a mixture of “peaking hydroelectric” dams and coal-fired stations, and now includes a lot of gas-fired stations. Those same dispatchable stations are the ones that are needed for reserve AKA backup. If the wind stops or the sun sets, if a large station “trips” offline, if demand exceeds forecasts, or if several of those things happen at once, the grid has to take some reliable players off the bench, sometimes in a hurry. If you have charged batteries or a filled pump-storage plant, that comes first.
NONE of those backup plants that will save the day in a pinch are “BASELOAD”! The baseload plants are already running if they are available, and they have been running all year, so they can’t add any power in a pinch. That includes all the nuclear plants.
The more “capricious” capacity like wind and solar a grid has, the more dispatchable capacity it needs to avoid the kind of blackouts and brownouts that plague third-world grids.
There are three basic reasons why nuclear plants, big and small, present and future, can’t back up intermittent generators.
1) They are expensive, and specifically capital-intensive. Like wind and solar and hydro, the fuel costs are low, so the incremental cost of running them when they’re available is compellingly low, and the incremental cost of shutting them down when they are available is cripplingly high.
2) They are technically inflexible. For both safety-related reasons and other reasons, they don’t “like” to go from shut down to full power in a hurry, or vice versa. For one small example, a nuclear-physics phenom called “Xenon poison-out” ensures that any uranium reactor that goes from full power to shut down in a hurry and isn’t restarted almost immediately, will be IMPOSSIBLE to restart for approximately 36 hours! (And the 36h is a minimum, achieved only by the inclusion of a number of heroic design features, several of which have caused nuclear accidents or near misses.)
3) Forcing a nuclear reactor to be more flexible almost always has safety implications.
I’m sure some advocates would dispute #3 and maybe #2, but #1 is pretty immutable, and it’s right in your wheelhouse. Here in Ontario, we have overbuilt baseload capacity to a ridiculous extent, forcing us to sell lots of power to our competitors at less than zero cost. One of our nuclear stations has incorporated some capacity to throttle down, but the others have the luxury of running at full power while we are spilling free water over our hydro dams and refusing to buy and use “free” wind power. That shows how strong 2 & 3 are in the real world.
It is already pretty crazy to invest money in a new nuclear generating station, on the assumption that it will be dispatched whenever it is available. Take that assumption away, and it is hilariously crazy.
Without weeks worth of electricity storage, we will either be unable to get close to a net zero grid, or we will have to say goodbye to our reliable grids. I think North America has minutes worth now.
Thanks for the detail, glad to hear from someone who knows the sector much better than I do.
As someone who quite literally grew up in a hydro town ( N.F., ON) and had family in and around the power or natural resource industry for her entire life, I can not help but agree with the statements made above. There is so much buzz lately about new stocks and IPO’s etc relating to being the next Great thing in energy storage or distribution or just general..furure saving the planets problems and making you very rich at the same time. Most of these seem to show very little detail or understanding as to how power storage/repository dynamics work. My suggestion is that until people figure out How to actually make money and useful stored energy off of many of these idealistic propositions and new tech, you either buy when it’s a new hot idea, and get out early..or take the risk of having something like 8million or billion dollars of investment into wind power in a provenance that did not fully research how to manifest or collect and distribute this power…let alone where to best locate the windmills…
I do think we can find our way to reliable grids again..generally Niagara power. Is often only operating at half or so capacity..certainly with covid…And many large downtown sources of power are no longer sucking off the grid..its a matter of changing the grid to exert more power to the suburban home….while making a push for the average home to become more “smart” energy efficient, which I actually think is more achievable, even in the lowest income areas with the use of coupons or rebate programs on energy smart products etc. It seems far more likely to change the mind of the average home to cut down energy and save their costs in a high market, than it does to argue this concept with multi-million and billion or trillion dollar business
Ok I have rambled enough..my 2cents on the stock..get in while it’s low with a little, enjoy the ride if it starts to climb..then get out, lol! I don’t trust it to be the one and only, forever stock.
Thanks for this educative piece, I was arguing that nuclear was the most reliable source of Power, but #2 and #3, means I may have to reconsider my views, I will definitely do more research on this. Once again thanks for this useful information
I paid the $79.00. And brought both AES and STEM. They are down today and last week. So we will see. They are small positions.
STEM is also a PM pick.
I would not touch that basically software company with a ten foot pole.
Yes, PM has been hot on Stem since before it became publicly traded and was under a SPAC. He advised to buy in at $27.19 and now it’s @$22. Not much happening there now, but after doing some due diligence, I would not be surprised to see it take off. It’s in a hot sector with massive growth potential, but the volatility does try one’s patience.
That was quick — Fluence completed its S-1 yesterday and is now planning to price the IPO and begin trading late next week.
The updated S-1 really emphasizes what a strange ownership structure they have in place, thanks to the legacy partnership that founded the company, but it sounds like they are selling about 5% of the company that itself owns about 30% of the operating LLC. The numbers for this past quarter were also meaningfully worse than expected, mostly, they say, because of supply chain problems and COVID restrictions slowing installation of systems at customer sites. They’re hoping to raise close to $800 million, and I haven’t really gotten fully clear on the share structure yet but it looks like they’d then have a valuation approaching $10 billion. Revenues for last year should be in the $650-700 million range, with growth slowing down markedly in that fourth quarter, so that’s growth of about 20% from the prior year. They were growing at a roughly 50% pace before the fourth quarter came in with a 20%+ DROP in revenue from the previous year’s fourth quarter, so that lends some credence to the “it’s a one-time disruption” assessment, but that does reinforce how volatile these companies can be as the lion’s share of revenues right now comes from the installation of systems, not from the predictable and higher-margin technology, software and service contracts.
Should be interesting to see how Fluence trades and how they explain the share structure and their growth expectations.
Fluence, I think he means Flatulence.
Doug Casey’s pitching a special report that shows an investment 100x more valuable than Gold. Any ideas on what Doug is talking about?
Probably a Royalty play, RGLD, SAND and many more
I’ve been familiar with STEM / John Carrington for a number of years; STEM software and load management offerings just needed the other technologies’ “bits and pieces” to catch up. I’ve used STEM in a number of “behind the meter” applications, such as “peak shaving” and UPS applications; it’s more than a “one trick pony”. Their leadership Team is pretty solid as is their tech support. But this is a very competitive field with lots of players, old and new. STEM could very well end up being the Top Dog or a very attractive acquisition.
As a side note, “normofthenorth” comments are spot on, from a grid and macro perspective; the grid is very light on “spinning reserve”. That either needs to be small, quick response assets or very large, grid scale storage; probably in the form of hydro or gravity. Those assets will have to be capable of doing billions of charges / discharges per year and with the capability of providing hours / days / weeks of energy supply. Batteries not there yet and the work load on the electronics is immense; talk about a heat sink!
But I’m not sure that is STEM’s target market, i.e., grid management. Microgrids, yes, “the grid”, no.
I’ve been familiar with STEM / John Carrington for a number of years; STEM software and load management offerings just needed the other technologies’ “bits and pieces” to catch up. I’ve used STEM in a number of “behind the meter” applications, such as “peak shaving” and UPS applications; it’s more than a “one trick pony”. Their leadership Team is pretty solid as is their tech support. But this is a very competitive field with lots of players, old and new. STEM could very well end up being the Top Dog or a very attractive acquisition.
As a side note, “normofthenorth” comments are spot on, from a grid and macro perspective; the grid is very light on “spinning reserve”. That either needs to be small, quick response assets or very large, grid scale storage; probably in the form of hydro or gravity. Those assets will have to be capable of doing billions of charges / discharges per year and with the capability of providing hours / days / weeks of energy supply. Batteries not there yet and the work load on the electronics is immense; talk about a heat sink!
But I’m not sure that is STEM’s target market, i.e., grid management. Microgrids, yes, “the grid”, not so much.
I bought Stem not too long ago, and I’m way upside down. I like what their potential is, but I’m
discouraged, and tempted to bail out. Maybe I’ll wait until the November earnings come out.
As always, great discussion! Thanks, Travis, for all you do.
Ray pushed STEM along with EOSE and MAXR almost 3 months ago. None are doing well. AES is not in his portfolio.
Thi really is not a comment, but a request as to your unbiased opinion on 3 subscription services.
Bill Poulos, Wendy Kirkland and Chuck Hughes. . Thank You
I am a retired nurse and am not /have never been an energy investor. That said I keep hearing my deceased mechanical engineer husband going back to the most basic rule of energy. “Energy can neither be created nor destroyed but only changed from one form to another. Changing the energy of the wind into electrical energy, when it is prevalent enough, will change the weather patterns.”
Well, I see the weather patterns changing. —-Could there be any relation?
This is from our friends at stockinvest … https://stockinvest.us/stock/STEM :
The Stem, Inc. stock price gained 3.54% on the last trading day (Tuesday, 2nd Nov 2021), rising from $24.30 to $25.16. , and has now gained 4 days in a row. It will be exciting to see whether it manages to continue gaining or take a minor break for the next few days. During the day the stock fluctuated 7.33% from a day low at $23.75 to a day high of $25.49. The price has risen in 7 of the last 10 days and is up by 13.18% over the past 2 weeks. Volume has increased on the last day along with the price, which is a positive technical sign, and, in total, 526 thousand more shares were traded than the day before. In total, 4 million shares were bought and sold for approximately $89.54 million.
The stock lies the upper part of a very wide and falling trend in the short term, and this may normally pose a very good selling opportunity for the short-term trader as reaction back towards the lower part of the trend can be expected. A break up at the top trend line at $26.48 will firstly indicate a slower falling rate, but may be the first sign of a trend shift. Given the current short-term trend, the stock is expected to fall -9.53% during the next 3 months and, with a 90% probability hold a price between $17.26 and $23.95 at the end of this 3-month period. Do note, that if the stock price manages to stay at current levels or higher, our prediction target will start to change positively over the next few days as the conditions for the current predictions will be broken.”
I’m going to wait on this one, but I may bite at $23ish.
There is a stock listed for Fluence Inc. EMFGF. Is this the same Fluence?
FLNC is the energy storage one.