Sumitomo’s Infinite acquisition: “first step into distributed energy around the world”

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pv magazine Australia: Just a couple of weeks ago the big news that Sumitomo had acquired Infinite Energy was announced. What is the nature of the deal?

Aidan Jenkins: Infinite has announced that Sumitomo has acquired a 100% stake in Infinite Energy. So, we will become a part of Summit Southern Cross Power Holdings, which is their wholly owned subsidiary in Australia. They also have ownership stakes in two other power businesses in WA, The Bluewaters power plant in Collie and the Newgen power plant in Kwinana.

And what is the significance of Sumitomo acquiring a distributed generation business?

You can look at it on two levels. On a global level, it is a recognition that the old model of a large power plant at one end of the line and consumers at the other is not going to be the model going forward. So, this is their first step into distributed energy around the world. This means having that closer relationship with the customer, having on site generation whether that be PV or wind etcetera and battery storage at the premises, whether that’s residential or commercial, is a real recognition that it will be the model going forward.

From a local perspective, it really represents them moving further downstream. They have stakes in two generation assets here and adding  Infinite’s electricity retailing business, allows them to move downstream.

Of course, electricity retailing in WA doesn’t really mean full access to customers, as there is still a state-monopoly of supply to retail customers. So, you’re only talking about commercial and industrial customers, is that right?

The contestable market here is 50MWh and above. We are hoping at some there will be deregulation, giving us access to the residential market in the long term. That market is really crying out for innovation. That means innovation regarding tariffs, around products, but unfortunately at the moment we’re restricted from competing in that market.

That is a particularly Western Australian feature of the market. Infinite does have a national footprint in some segments, but the core business is still in WA. Is this right?

Yes.

Given this, and also that Sumitomo is a pretty big player, is that a bit unusual that it has decided to go for WA company?

I guess Sumitomo did look everywhere. But it does have a presence in WA and the two generation assets here. So, our retailing business is a good addition to those assets. But we see a lot of growth on the east coast as well.

Also, our model in integrating behind the meter solutions into electricity supply, can be used to transfer learnings in Australia within some of their other power businesses around the world. So, there were a number of boxes that Infinite ticked.

What about the leasing side of the business. Solar leases have been pretty slow to gain momentum in Australia, particularly in the residential market – unlike, say, the United States?

The way that the incentives in Australia work, with STCs [small-scale generation certificates], you get up to 100kW of generation that is fairly heavily subsidized upfront – that has skewed the market to the smaller end, particularly in the commercial market. So that development has been an impediment to leasing or solar PPAs, as it incentivizes the property owner to own the solar  themselves.

We now have quite a mature financing market for solar PV. So that 100kW market, with a price tag of a couple-of-hundred-thousand dollars, that is fairly easy for the customer to own the system via asset finance or lease. As the market evolves and we start to see bigger and bigger systems, we think that the PPA market will be much more suitable for that market. Commercial customers don’t necessarily want to put a few million dollars onto energy infrastructure on their roof and on their balance sheet.

We think the real PPA rollout is yet to come and this acquisition will allow us to have the balance sheet to really growth that portfolio.

You mention battery storage, there has been such wide predictions for the market over the last couple of years, how would you describe the interest in and uptake of residential battery storage?

At the moment we are talking about, in terms of being paired with PV systems and new PV systems, we’re seeing around and about the 4-5% of new PV systems having a battery attached. We are thinking that will grow considerably over the next couple of years, and there will be a retrofit market to existing PV systems. So, it is definitely at the early adopter phase. We are hoping to see some prices come down. We haven’t see that over the last couple of months – with pricing actually coming up a little bit.

But here in Australia, a lot will depend on what the Aussie dollar will do. It is very easy for us to lose any USD battery price reductions in the AUD price. Hopefully that holds up. We are anticipating over the next couple of years that growing to 10% and then maybe 20%.

Well 20% would be something like 250,000 units a year, going on 2018 residential installation rates. That’s a huge opportunity.

It is.

And the standard size is around 10kW?

Anything from around 8kWh to 14kWh. With storage, it is a classic example of our [WA] market and the lack of ability of other players to compete [for residential electricity retail], being limited. We would love to be able to come in and offer clients innovative tariffs that really incentivize clients to use batteries – things like real-time pricing, peak or off peak pricing, things like demand response – you would see the market really take off a lot more. But unfortunately we are restricted from doing that.

The next step being the sonnen community or Senec Cloud, where grid services can potentially be supplied by these distributed batteries also, is that right?

Correct. And the thing is that’s exactly what this grid needs at the moment. We are seeing negative prices during the day. The energy minister is coming out and saying that there are challenges to the grid – and batteries are a big part of the solution there. But the market isn’t in a position to really incentive that to happen.

In conversations with customers, how would you describe the motivation for householders to purchase a battery – because we know that the financials don’t always stack up?

A lot of the time the initial driver for the customer is to go off the grid: to ‘stick it to the man’, be completely independent, and for that feeling of independence. We try to talk people down from that position and to say, ‘you want to be connected to the grid, now and in the future.’ The grid is an opportunity to transact, to sell energy, and to really connect in. And when customers hear that they get quite excited. But, of course, we’re not there yet.

Really there is the driver for more control – but the primary driver is to bring electricity costs down. For control, whether people will be willing to let go of that and to hand over control of their battery, at least in certain circumstances like when a retailer wants to utilize that battery for grid services, is the way it’ll likely go. Retailers are in a position to extract the most value out of a battery and share some of that value with the customer.

For you personally, what does the Sumitomo acquisition mean? Are you off to the Bahamas?

[Laughs] No, I am committed to be around to be a part of this. I am excited, honestly. Our business is quite capital intensive, particularly the PPA side of things. Adding our distributed generation businesses to Sumitomo’s existing generation fleet, and the solar PPA business is really exciting. It also allows us to step in to be a serious competitor with some of the larger electricity retailers.

For me, I’m quite excited about that – after being the little guys for quite some time. Now having a balance sheet behind us will make things really interesting. The existing team, myself, the senior management team and all the staff are still in place and we’re really excited by it.