Vestas buys US firm for analytics push

Nobody can know the future, but that won’t stop wind farm owners from trying. That’s why turbine giant Vestas last week bought US-headquartered energy analytics firm Utopus Insights for $100m.

This represents a ten-times multiple on annual revenue of $10m, but Vestas clearly believes it is a price worth paying is it seeks to give customers more certainty on the returns they can expect from projects. It expects Utopus to boost sales in its services arm, which were €1.5bn in 2017 out of total sales of just under €10bn. Vestas aims to grow service revenue by at least 50% by 2020.

And, with a fleet as big as Vestas’s – now 76GW under service – any small improvements it can make to the performance of its turbines will have a large impact globally.

If you don’t know Utopus, there’s a good reason for that. It hasn’t been going long under that name. The business grew out of IBM’s Smarter Energy Research Institute, where its data scientists have spent 15 years working on energy analytics products; and, for the last four years, the team was in a joint development agreement with Vermont Electric Power Company and its 17 Vermont distribution utility owners. However, the company was only formed with the Utopus name in February 2017.

It now has five software tools for the renewables industry, which are targeted at helping wind and solar farm owners to predict the energy yield from their projects; to match their production with demand; and to successfully integrate their projects into the grid.

This should fit with Vestas’s ClearSight, which helps owners to monitor the performance of turbines, predict failures, and optimise their performance.

Utopus also has more than 30 patents and other products in development; and, in addition to its head office in New York, operates from offices in Hungary and India. That gives the firm an international reach of which Vestas can take advantage.

And the deal fits with Vestas’s acquisition-based services-focused growth strategy of recent years.

In December 2015, it bought US firm UpWind to help it grow in the services market. It followed this by buying German-headquartered firm Availon in March 2016. This focus on providing services, as well as selling turbines, is showing in Vestas’s results: the firm reported in its annual results yesterday that it has an expected contractual revenue of €12.1bn in its service order backlog.

Therefore, it makes sense for Vestas to see how it can keep expanding its offer. It makes the turbines; manages them through their life; and now, with Utopus, it expects to give customers more accurate predictions about how schemes will perform. This gives a platform for the two firms to launch more products, with the overall goal of helping its customers know where to invest and when.

As for Utopus, its focus is on what it says are energy’s ‘three Ds’ – decarbonisation, decentralisation and digitalisation. Utopus chief executive Chandu Viswesariah said it is looking to “accelerate an era of distributed, reliable, clean and cost-effective energy” and the tie-up is a “quantum leap forward... to accomplish that mission”.

It isn't alone in that mission, of course. Vestas and its rivals are pursuing the same goal. Indeed, they are trying to do it in very similar ways: General Electric and Siemens Gamesa are among those who have been making a play in predictive analytics. This is one of the key new battlegrounds between large turbine makers.

They're all seeking ways to know the future more accurately – and, while we'll never know exactly what's going to happen in the years ahead, we expect there'll be more M&A deals like this in 2018.