Sonnen looks to expand internationally after raising $85m in venture capital
German start-up Sonnen has gained $85m in its latest round of funding from previous investors as well as new partners, including GE Ventures and Envision Energy. The Series D round is anticipated to be the last one before an initial public offering, according to Sonnen CEO Christoph Ostermann. The company will use the funds to expand internationally, broadening its bases in the UK, US and Italy, maintaining growth and expanding on its energy services technology and business.

Sonnen, the German startup that’s taking on Tesla in the business of behind-the-meter batteries for solar-equipped homes, has just raised $85 million in venture capital to boost its international ambitions and turn its fleets of batteries into grid assets.

Monday’s Series D round represents the biggest venture round by far for Sonnen, which previously raised around $25 million since its 2008 founding. It raised about $3 million from Münster-based VC firm eCapital in 2013, added $9.4 million and new investors Munich Venture Partners and Chrysalix SET in December 2014, and raised about $12 million in a 2015 Series C round that brought in Inven Capital, the VC arm of Czech utility CEZ.

All of these previous investors participated in the new round, along with new investor GE Ventures, which announced its stake in the company in June, and two other new investors -- Thomas Putter, former CEO of Allianz Capital Partners and current renewable energy investor, and Envision Energy, the Chinese wind turbine-maker and renewable energy developer.

Envision is Sonnen’s third strategic partner behind GE Ventures and CEZ, and each is working with the startup in different ways, said CEO Christoph Ostermann. In the Czech Republic, Sonnen has deployed about 250 of its battery units as part of a project with CEZ. It’s working with GE as well, “but I can’t give you any more details about that at the moment,” said Ostermann.

As for Envision, ”They are extremely strong in software, building something like an energy operating system [that] can literally aggregate thousands of different appliances, which from our point is very interesting,” he said. Sonnen has also built partnerships with startups that provide distributed energy resource aggregation and control capabilities, including Enbala and AutoGrid.

Sonnen’s new round is likely the last the company will seek prior to an initial pubic offering, Ostermann added. “This round will carry us to a point where we could do that. That will not be before the end of this year, obviously. But we will certainly start to think seriously about this by the middle of next year.”

Sonnen has three main goals for its newly raised $85 million, Ostermann said. First, “We are continuously growing, and pretty fast -- this year we will double our revenues -- and this requires capital, particularly on the working capital side.”

Sonnen has shipped more than 15,000 storage systems as of this month, up from 10,000 in February. It’s closing in on 1,000 units sold per month, said Ostermann. The units use Sony’s Fortelion lithium-ion batteries and control systems built by the startup.

The second goal is to boost the company’s growth in international markets, he said. About two-thirds of its business is still in Germany, a country where the economics of storing on-site solar power to replace grid energy actually makes sense for homeowners, given the country’s low feed-in tariff rates and rising retail electricity rates.

“We are still very much focused on Germany, because it’s a big market and we’re still clearly in a market-leading position,” with about 40 percent market share, he said.

But it’s also tapping new markets, starting with Italy, where it launched in October 2015, and has seen sales grow to account for about two-fifths of its German revenues today.

In the United States, a market Sonnen launched into in early 2016, “We’re doing well, although as you know the residential market is still at its beginning,” he said. The economics of solar self-storage don’t pencil out in almost every U.S. state market, although new rate designs may change that. Just this month, Sonnen started to make its systems available in the U.K. and Australia, with the latter market in particular providing strong economic incentives for self-storage of residential solar power.

The third key focus for Sonnen is its energy services technology and business, Ostermann said. Early this year, the company launched SonnenCommunity, a program that allows its German customers to trade their solar and battery power with one another to reduce grid consumption and lower their energy costs.

“We buy excess power from our customers, and we sell it in real time, peer-to-peer,” at prices of about 23 cents per kilowatt-hour -- 20 to 25 cents less than current retail market prices. This is an attractive offering for Germany, where there's a big difference between solar power costs and retail electricity costs. It doesn’t pencil out in most other markets, however. It also relies on Sonnen customers’ preference for using solar-generated power over grid power.

Last month’s launch of SonnenFlat adds a new revenue stream -- frequency regulation services provided to grid operators from its customers’ fleet of batteries -- to improve the economics of sharing solar and battery power, he said.

Power grids have been using utility-scale batteries as rapid-responding energy assets to help keep grid frequencies stable for some years now. Plenty of pilot projects have demonstrated that the same task can be accomplished by lots of smaller, aggregated assets like behind-the-meter batteries, as long as they can react quickly and consistently enough to meet the second-by-second requests of grid operators for this fast-responding service.

But SonnenFlat is one of the earliest such projects to target real-world commercial markets for this service, with about 1,500 customers signed up so far. Sonnen is partnering with telecommunications company SwissCom’s energy services arm, which already has thousands of energy assets under management and linkages to German transmission system operators’ frequency response markets.

Most Sonnen customers in Germany can provide about 80 percent of their own electricity needs from their solar panels and batteries, Ostermann said. In the case of SonnenFlat, adding frequency regulation revenues can allow a typical customer to earn about 500 euros per year, which is enough money to pay for the remaining 20 percent of grid-purchased energy.

In other countries that lack Germany’s positive solar self-consumption economics, frequency regulation could help bring in additional revenues to lower the cost of batteries bought to provide emergency backup power. It can also help utilities reduce load on local distribution circuits, or serve as a resource to lower energy demand during system-wide peaks.

Tesla and partner SolarCity have targeted similar grid services to help make the economic case for linking Tesla’s Powerwall batteries to SolarCity PV systems for U.S. homeowners. So far, U.S. efforts on this front have been limited to pilot projects, however. Tesla has a project with Vermont utility Green Mountain Power, for example, where the utility is paying customers to use their stored solar power to reduce load on the grid. Startup Sunverge is conducting a 300-home virtual power plant project with Con Ed in New York and smaller projects in California and Kentucky.