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Distributed Energy Monthly Report | July

 

DGEN Renewable Energy ETF Launching Month – Distributed Energy Can Power a Low Carbon Revolution

  • A shift enabled by 3 Ds: On June 15th DGEN was launched at the LSE. This thematic Renewable Energy ETF captures the profound change in the way electricity is produced and consumed, towards Distributed Energy Resources (DER). Rising investments into distributed generation represents a major shift away from the centralized, one-way electrical grid predicated on large fossil fuel generation that has been the prevailing structure developed since the end of the 19th century. Decentralised renewable based solutions are challenging incumbent grid operating models, promoting a more dynamic and flexible network that can enhance stability and efficiency among diverse resources that are increasingly renewable in nature (notably rooftop solar panels, behind the meter batteries, EVs, and demand response). The companies in DGEN promote the decentralisation of the power sector, the digitalisation of the energy solutions, based on decarbonising energy sources. IoT and 5G wireless technologies support advancements in data analytics and connectivity, leading to greater control, optimisation and energy efficiency promote the convergence of the various solutions represented in DGEN.
  • DER set to grow fast: The European Parliament refers to industry estimates suggesting that by 2024 the global deployment of DER versus centralised energy generation will be 5 to 1. In the same document, it points out to the estimate that by 2050, 83% of the EU households will be “Prosumers” (those that both produce and consume electricity). By 2030, the European Parliament estimates that energy communities (households and businesses) will own 17% of all wind installed capacity and 21% of all solar installed capacity in the EU. In the USA, the Federal Energy Regulatory Commission (FERC) issued in September last year the order 2222 opening up the wholesale market to DER. Grid operators have until August 2021 to comply. As FERC’s Chairman said “DERs can hide in plain sight in our homes, businesses and communities, but their power is mighty”. Wood Mackenzie estimates that cumulative DER capacity in the US is to reach 387 GW by 2025 (from current 65 GW). According to Vibrant Clean Energy, DER has the capacity to reduce peak demand in the US by 16% by 2050.
  • Definitions and DGEN’s focus: Distributed energy is generically defined as electricity produced at or near the point of use, usually below 50 MW in size, may be off grid or on grid and can be based on different technologies (and fuels). DGEN focuses only on distributed energy generated from renewable sources. There are 7 segments in DGEN. The Distributed Power Sources focuses on renewable generation at point of use (often by “Prosumers”), although there are several renewable based technologies (e.g. CHP and small wind) the most relevant companies are in the solar rooftop segment; Distributed Energy Storage represents stationary behind the meter batteries and also fuel cells (that can be used for base load electricity generation, as “direct fuel cells”), for long duration storage and backup power; V2G & Charging Networks represent a virtual distributed “battery farm” using the energy storage capacity in EVs; Virtual Power Plants (VPP) focuses on companies that connect several small distributed energy assets (residential solar panel systems + home battery packs), and use them to provide grid services, like Tesla's South Australia VPP encompassing 50,000 homes; Microgrids & Smartgrids are providers of grid connected or off-grid island solutions as well as the companies that enable a two way digital based communication of decentralised renewable assets and more efficient transmission of electricity; Smart Houses & Building Energy Management represent companies with solution to monitor, control, measure, and optimize energy consumption needs of residential, commercial and industrial buildings (e.g. smart meters and smart thermostats); lastly, Software & Systems represent the companies offering remote monitoring software, advanced analytics, distribution management systems that optimize distributed renewable asset performance.

 

Behind the Meter Battery Storage as Bundled Solution Experiencing Fast Growth

Last April, Tesla announced that it would only sell its solar panels combined with its battery storage, the Powerwall.[1] SunRun, the largest US installer of residential solar, announced [2] that they expect sales of their Brightbox batteries to increase more than 100% in 2021 over previous year. Behind-the-meter (BTM) batteries can help consumers reduce reliance on the grid and cut their electricity bill through demand-side management. When aggregated, they can provide support for system operation, peak capacity investment deferral, and network investment deferral all at the same time. Two of the famous BTM batteries in the market are Tesla’s Powerwall and Powerpack. Mainly produced at Tesla’s Gigafactory in Nevada, each Powerwall and Powerpack can store up to 13.5 kWh and 232 kWh, respectively.

Tesla Powerwall holds a notable 13.5 kilowatt-hours (kWh) of usable capacity, with a maximum power rating of 5.0 kilowatts (kW). Usable capacity is the amount of electricity stored in the battery that can be used, while power is the maximum amount of electricity a battery can discharge at one time. Both Powerwall and Powerpack are made up of cylindrical cells with a diameter of 21 mm and a height of 70 mm. These dimensions are the same as some of the batteries Tesla puts in their electric vehicles (EVs). What differentiates them is the battery chemistry. Currently, Tesla uses nickel-cobalt-aluminum oxide (NCA) batteries for their EVs while nickel-manganese-cobalt (NMC) batteries for their BTM. Moving forward Tesla announced on their “Battery Day” last year that it would produce “tabless” batteries with much larger dimensions, 46 mm in diameter and 80 mm in height, to increase the energy density and power density. In addition, they are going to diversify its cathode chemistry depending on the applications requirements: iron based for long cycle life, nickel-manganese for long range and high nickel for mass sensitive. This step is taken to ensure supply and reduce the cobalt usage, as it is the most expensive battery minerals and sourced from mines in the Democratic Republic of Congo, where unethical mining practices are prominent.

Performance in June – Rotating Back

iClima Global Decarbonisation Enablers Index Performance

June

12 Month*

3.82%

134.55%

Past performance is no guarantee of future performance. Source: Bloomberg, HANetf *TNR Index, in USD. 12 Month figures based on 30.06.20 -30.06.21.

 

The fund tracks the iClima Distributed Renewable Energy Index, currently with 50 constituents originally in equal weight. In back testing the Index was up 134.2% in 2020 and 21.7% YTD. The six top performers in June were BYD (up 30.67%), Sunnova (up 28.97%), Enphase Energy (up 28.37%), Generac Holdings (up 26.29%), Sunpower (up 24.93%) and Sunrun (up 24.73%). The bottom performers in the month were Quanta Services (down 5.01%), Vivint Smarthome (down 5.10%), Cummins (down 5.24%), Alstom (down 8.11%) and FuelCell Energy (down 9.37%).

Source of all data: iClima/ Bloomberg. Past performance is on guarantee of future performance. Data as of 30.06.21

 

iClima Distributed Renewable Energy Performance Table (As of 30.06.21)

 

1M

3M

6M

YTD

12M

SI

DGEN iClima Distributed Renewable Energy Index™

3.82%

4.77%

20.88%

20.88%

134.55%

3.82%

Performance before inception is based on back tested data. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such a strategy would have been. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. Source: Bloomberg / HANetf. Data as of 30/06/21

 

Introducing DGEN Constituents – Relevant Stories for Each of the 7 Segments

1. Distributed Power Sources

Within all distributed energy power sources, iClima is focusing on those from renewable sources (which is a sub-set of all possible distributed energy solutions). Distributed solutions from renewable sources are epitomized by solar rooftop installations. This solution is well represented in DGEN via SunRun (RUN, up 24.73% in June, down 19.6% YTD) the leading US installer of residential solar systems, SunPower (SPWR, up 24.93% in June and up 13.96% YTD) the 35 year old company focusing on both residential and commercial installation that claims to have the world's highest efficiency [3] solar panels based on the Maxeon cell technology, and Sunnova (NOVA, up 28.97% in June and down 16.55% YTD) also a residential solar rooftop provider, based in Texas, that has developed a nano-grid solution based on an adaptative concept. [4]

Source: https://www.sunnova.com/about-sunnova. For illustrative purposes only.

 

2. Distributed Energy Storage

Companies that produce, sell, or service battery and thermal storage (including stationary batteries) and fuel cells. Examples of companies with energy storage technologies that allow electricity to be stored for later use include fuel cell players like Bloom Energy (BE, up 11.17% in June and down 6.25% YTD) the Californian 20 year old company providing solid oxide fuel cells, the Bloom Energy Server, as well as Ballard Power Systems (BLDP, up 7.41% in June and down 24.51% YTD) the Canadian company offering standby power generation for commercial users as well as distributed onsite power generation for off grid commercial and industrial users, and Plug Power (PLUG, up 11.37% in June and up 0.83% YTD) the NY based company offering stationary fuel cell solutions that generate reliability for their backup power customers.

3. V2G & Charging Networks

A Vehicle to Grid (V2G) solution uses the battery bank of an EV as a storage unit for a power grid. The battery capacity of EVs is a form of decentralized energy storage that is expected to become a material source of grid stability. Two notable players in the space are Blink Charging (BLNK, up 21.09% in June and down 3.7% YTD) the Florida based owner and operator of EV charging stations that is enabling the adoption of EVs by developing the charging infrastructure needed, having deployed over 30,000 charging ports in 13 different countries, [5] while Alfen Beheer (ALFEN.AS, up 11.07% in June, down 4.66% YTD) provides the equipment and systems needed to build the charging networks (e.g., Alfen was chosen by Shell to supply ultra fast charging systems for a pilot site. [6]

4. Virtual Power Plants (VPPs)

Companies that aggregate diverse DER resources (e.g. solar rooftops and behind the meter batteries) as a cloud based distributed power plant for the purposes of enhancing power generation, as well as trading or selling power on the electricity market. Tesla (TSLA, up 8.71% in June, down 3.68% YTD) Obviously known for leading the EV development, Tesla is also in the green energy space providing solar rooftop solutions and batteries. The company also prominent in the development of VPPs virtual power plant, having learned how to aggregate and directly control thousands of BTM home batteries in near real-time. [7] Two leading engineers at Tesla described their solution: “We use software to deliver an integrated product experience across solar generation, energy storage, backup power, transportation, and vehicle charging, as well as create unique products like Storm Watch, where we will charge your Power Wall to full when alerted to an approaching storm so that you have full backup power if the power goes out. Part of the customer experience is viewing the real-time performance of this system in the mobile app, and customers can control some behaviours such as prioritizing charging during low-cost times”. Enphase (ENPH, up 28.37% in June, up 4.65% YTD) The Californian company designs and manufactures software-driven home energy solutions that span home solar energy & storage and web-based monitoring and control. Enphase is more well known as the leading producer of micro-inverters, having installed over 34 million [8] micro inverters, but via the Enphase Grid Services the company enables utilities and DER aggregators to meet peak power demand in real-time and enhance reliability.

5. Microgrids & Smartgrids

A microgrid is a localized, controllable energy system that can operate in isolation from the electrical grid within a specifically defined area. A smart grid is an electrical supply network that uses digital communication technology to detect and react to local changes in usage. MYR Group (MYRG, up 4.46% in June, up 51.28 % YTD) offers power line constructions in the US and is well positioned to benefit from the $2 trillion infrastructure plan (the American Jobs Plan [9]) that addresses the aging electric grid and the pressure to connect distributed renewable energy. Valmont Industries (VMI, down 4.82% in June, up 34.94% YTD) focuses on engineering and data for transmission, distribution as well as smart city solutions. [10]

6. Software & Systems

Companies that provide blockchain as a service (which may enable DER peer-to-peer power trading), demand response, remote monitoring software, advanced analytics, advanced distribution management systems, asset performance management, and distributed energy resource management systems. CleanSpark (CLSK, down 0.72% in June, down 42.72% YTD) provides software and controls that enable microgrids to be built. The company has doubled revenue for last three consecutive years, [11] with software as a service, system installations, and hardware being the key energy businesses. Trimble (TRMB, up 5.19% in June, up 22.56% YTD) went from silicon valley start up to S&P500 name, has solutions that connect the digital and physical worlds. [12] Trimble’s Electric Utilities solutions aim to maximize operational resilience and grid reliability. [13] Veritone (VERI, up 2.82% in June, down 30.72% YTD) is a Californian AI tech company with energy solutions that offers predictive AI models to optimise and control smartgrids in real time. [14]

7. Smart Houses & Building Energy Management

Smart buildings integrate high-performance, energy-efficient systems and appliances, connecting devices, and often a microgrid. While in the past standalone solutions [15] delivered either energy-efficiency to homes, or renewable energy assets, or smart technology and home automation, the solutions in DGEN create future-ready, energy-efficient properties promoting the convergence of all the solutions. DER solutions have started to combine all these components, incorporating into one. Resideo Technologies (REZI, up 0.33% in June, up 41.11 % YTD) focuses on the next wave in consumer technology: the smart, connected home. Leveraging the Honeywell brand, its products are present in over 150 million homes. [16] Vivint Smart Home (VVNT, down 5.10% in June, down 36.39% YTD) started operations in 1999, the company is betting on the convergence of all control needs. Its Vivint App can turn on the lights, unlock the door, control temperature, and give access to security cameras all from a smartphone.

Past performance is no guarantee of future performance. Source of all data: Bloomberg. Data as of 30.06.21

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