Billion dollar baby: Qataris buy into Fluence

Energy storage has come through the Covid-19 pandemic relatively unscathed. Yes, supply chains were disrupted, and social distancing caused some delays to construction. But it was also a year of record deployments and major projects. Just look at the huge stories in today's news round-up below.

The same cannot be said of fossil fuels.

Oil and gas companies have been hit hard by a combination of lower demand, higher price volatility, and growing demands for ‘green recovery’ policies that may hit fossil fuels in the longer term.

The volatility of fossil fuel prices in 2020 has encouraged oil and gas players to look at diversifying their portfolios, and energy storage is proving attractive.

We're going to look at one such deal. In late December, the Qatar Investment Authority sovereign wealth fund invested in battery technology firm Fluence. This could be the start of an investment trend that continues this year.

What happened?

QIA has bought a 12% stake in Fluence, which is a Siemens and AES joint venture, for $125m. This deal values Fluence at over $1bn, making the three-year-old company a ‘unicorn’ – a privately-held start-up worth over $1bn. Siemens and AES are each set to retain a 44% stake.

In football terms, this is a youthful success comparable to when 18-year-old Wayne Rooney joined Manchester United for £23m in 2004 and scored a hat-trick on debut.

Fluence is set to use the capital to “accelerate the development of its product offerings” with a focus on digital products and growth in more countries. But it hasn’t been slow so far. It has 2.4GW deployed or ordered in 24 countries.

These include an 800MW / 2,300GWh pipeline of projects in the US; a 500MW deal in southeast Asia; and a 100MWh order from ESB in Ireland, announced last week. Even yesterday it got onto an AGL Energy framework agreement in Australia.

We can see this as a story of fast-track success for Fluence although, with backing from AES and Siemens, it isn’t exactly an average start-up. The more interesting question is about sovereign wealth entering storage.

Why does this matter?

This investment by QIA is hugely significant.

Qatar has the world’s third-largest proven reserves of natural gas and is 13th in the table for oil reserves too. The impact of Covid-19 on prices means it is forecasting a $9.5bn deficit in its 2021 budget.

On one hand this is no big deal. QIA is worth $328bn, mostly due to liquefied natural gas, so it can afford to absorb the loss.

However, the Fluence deal is of strategic importance.

Middle Eastern states will look at how they can hold onto their status as global energy leaders, and this will include investments in other technologies including renewables and storage. QIA is also under more pressure than some of its neighbours as it has pledged not to expand further in oil and gas.

We're already seeing this demand for renewables and storage come through in other recent QIA deals.

In 2020, it invested in the 800MW Al Kharsaah solar project, and last week it hooked up with Italy's Enel in a 50:50 tie-up to develop renewables projects in Africa. The deal with Fluence shows it sees storage as part of the mix, and a chance to back the technology at an early stage.

And QIA is not the only Middle Eastern investor active in this sector that enjoys some state backing. Saudi Arabia's ACWA Power and Abu Dhabi's Masdar are among the most famous names internationally.

Overall, Frost & Sullivan has reported that countries in the region plan to invest $182bn on developing 57GW of renewables within their borders. Solar is central to those goals – but storage will feature.

The huge wealth of Middle Eastern sovereign wealth investors shows that they can go big on storage if they want to. This prospect will surely excite other companies in the storage world.

But they won’t come in splashing the cash on vanity deals. These players are canny. QIA isn’t putting money into Fluence to take a punt on an interesting technology. No, it will have decided that the technology has reached a stage of commercial maturity that makes it impossible to ignore.

The bottom line

We’ve got excited about Middle Eastern sovereign wealth investors investing in renewables before, and been disappointed. The improving economics of wind, solar and storage make us more positive this time.