A bunch of new technologies have all arrived at once and thrown the power industry into complete chaos.
Companies and investors are struggling to picture out how everything’s going to fit together, once things settle down. Each of the technologies on their own would shake things up. But they’re all coming together.
Solar power has been quietly doubling its market share every two years for a while now. It started from way behind. Now it’s cheaper than coal in sunny places. Given a few more doublings, it’ll be cheaper than fossil fuels in most places.
A combination of fracking and aggressive pumping from OPEC countries, has crashed the oil price.
Electric cars are coming soon. Tesla’s an example, but it’s not the only one. The other big carmakers are investing in electric cars. Apple is strongly rumoured to be working on one.
Self-driving cars are nearly here. This technology could make cars much more efficient. And even lead to a world where most people don’t own a car.
Electric cars need big, cheap batteries, so the likes of Tesla, LG, Samsung and Panasonic have started to build big battery factories. That’s driven the price of batteries way down – 70% in the last 18 months, according to one big battery buyer.
Now imagine you’re the CEO of a company in one of those industries. What the hell should you do? How do you figure out what’s coming next, and invest accordingly?
Should a power company buy a battery company? Should a car company buy a solar company? Should a solar panel maker buy a solar panel installer? Should a phone maker start building cars?
Companies have had a tough time working out what the world’s going to look like in a few years’ time, and how to position themselves. So they’ve started making deals.
Four strange deals
Total, the French oil major, is betting on the rise of electric cars and home batteries. It bought the battery maker Saft for $1.1bn earlier this year. It was the largest ever acquisition in the battery industry by a company outside that industry.
For Total, the acquisition is a hedge against electric cars. More electric cars means less demand for fuel – Total’s biggest money spinner. So it’s hoping to offset that by selling batteries to the electric car companies. Saft also has a big business in “installed storage”, i.e. batteries for use in homes or business.
Meanwhile in a giant black hangar somewhere in the Bay Area, Apple is “secretly” working on a car. It’s hired hundreds of auto engineers from Detroit, Tesla, and Google. Apple seems to be betting that electric cars, and the charging stations to support them, are coming soon. And it wants to be ready when that day comes.
Tesla’s planned takeover of SolarCity is the maddest of them all. Tesla (a car company) wants to buy SolarCity (a solar panel installer). Tesla thinks customers will want to buy an end to end renewable energy set-up when they buy a Tesla brand electric car. But the market isn’t too sure about it.
Then there’s Sun Edison – an example of how not to do it. Sun Edison bet big that the real money was to be made in solar panel installation, not solar panel manufacturing.
It might have been right about that… but it bet too aggressively when it sold off its core businesses to pay for panel installation companies. It did one deal too many, and went bankrupt in April of this year.
I have some sympathy for Sun Edison (and Total, Tesla and Apple). It’s not easy figuring out what’s coming next. But remember – when it’s harder for the incumbent companies to figure out what to do, it’s easier to be a small private investor. New technologies shake up the markets. They lead to new business models and new successful companies. And they make money for the investors who back them.