When Waukesha-based Generac Holdings Inc. in late 2019 launched PWRcell and PWRview – a clean energy system that includes batteries, an inverter, power electronic controls, and energy monitoring hardware and software – it was years in the making.
The company long had at least a passing interest in batteries and energy storage technology. While the company’s main product, a home standby generator, relies on an internal combustion engine to provide backup power, Generac chairman, president and chief executive officer Aaron Jagdfeld said it is also important to stay on top of other technologies.
A few years ago, Generac’s interest started to get more serious. The company’s engineers began working with different products in labs and exploring how batteries interacted with different power sources like solar, geothermal and even gas generators.
Jagdfeld said Generac could see that battery technology would be good for storing power, but it didn’t necessarily apply to the company’s main market, backup power.
“If you get a power outage that lasts anything more than four to eight hours … you really can’t, at least cost effectively, you can’t use batteries to protect your home or your business at this stage of the game,” Jagdfeld said.
The company did, however, see a chance to pair batteries with other power sources, like solar, to make clean energy options more cost effective.
“Our look at batteries really turned up another market opportunity,” Jagdfeld said.
Initially, Generac planned to build a new business around that opportunity internally. Jagdfeld said the company had a product in mind, plans on the drawing board and was about a year into its efforts when executives noticed a shift.
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Aaron Jagdfeld[/caption]
“We saw some signs in the marketplace around the acceleration of the adoption of storage systems alongside solar,” Jagfeld said, explaining that as more consumers adopted solar, utilities couldn’t afford to pay for the additional energy at retail rates and began paying wholesale rates instead. The shift took what might have been a 10-year payback and stretched it out to 20 or 30 years.
“It changed the economics almost overnight in some cases because of the decisions utilities made,” Jagdfeld said.
Batteries and energy storage, however, allowed homeowners to swing the economics back in their favor. With the market shifting, Generac executives felt they could accelerate their entry into energy storage through acquisition instead of building an offering organically.
Jagdfeld said the market is still small and is mostly filled with startups, plus a few established companies like Tesla.
“Obviously we’re not going to buy Tesla, so we set out to look for a startup that had the kind of technology we felt was befitting of where the market was going,” he said. “Really, we chose (the M&A path) simply for speed. Especially in a market like that that is quickly developing, the cost of speed or the cost of the lack of speed can be huge one way or the other, so we made a pretty big bet.”
In the spring of 2019, the company spent more than $108 million on two acquisitions. The first was Vancouver-based Neurio Technology Inc., which offered metering technology and analytics to optimize energy use in a home or business. The second was Maine-based Pika Energy Inc., which designed and manufactured battery storage technology along with software and controls for energy storage and management.
“It was a solid system,” Jagdfeld said of the Pika offering. “It was high-cost, but we thought we could help with that with some of our sourcing and manufacturing capabilities.”
It wasn’t just manufacturing capabilities that Generac added to the Pika offering. While the company needed to add capabilities in battery technology, it already had expertise in electrical products, understanding electrical codes and working with a product that ties into a home’s electrical system.
“It’s definitely, I don’t want to say an easy putt, but we’re not trying to sink a 50-footer here,” Jagdfeld said.
Beyond the manufacturing capability and technical familiarity, the more important asset Generac brought to its new business was more than two decades of experience with its home standby generators.
When Generac started with home standbys, there was no market. The company had to not only educate consumers on what the offering was, but also build its brand and establish a distribution network.
“In effect, we had to make a market,” Jagdfeld said. “We saw energy storage as a proxy for the same kind of thing.”
He pointed out that innovation does not need to be restricted to only creating new products.
“Real, pure, new innovation, novel innovation, is rare. People have been working on solving pain points for customers with different products for a long time now and so everything you see is a bit incremental in terms of the product level,” Jagdfeld said.
The go-to-market process Generac used was more than simply having the best home standby offering.
“We weren’t going to be able to sell them if people didn’t understand what they were or how to acquire the system or if it was such a burdensome project that they just would give up,” Jagdfeld said.
In addition to replicating its success in home standby, Jagdfeld said there also are opportunities to bring its existing manufacturing scale to the new energy storage offering.
“When we acquired those companies, the supply chains they had acquired early on, these were small, kind of local suppliers … really not very well developed and so what we’ve had to do in these two instances is essentially re-source much of the component supply for the product those two companies were making as we put it together into the new Generac PWRcell,” Jagdfeld said.
He noted the company has existing suppliers for things like power electronics and printed circuit boards.
“The last thing you want to do is work with a partner and then two or three years into it figure out, boy, this is not the right partner for us,” he said.
Jagdfeld added it is important to have suppliers who lean forward into innovation while also hitting cost targets and delivery metrics.
“You want to make sure that you’re partnered with somebody who is thinking about the future,” he said, adding the best suppliers help companies make improvements to the design or to save money or improve quality. “Those are the kinds of supply relationships we want.”
Jagdfeld said Generac has no designs on converting raw materials into battery cells, but he could see the company eventually moving to make the battery packs itself.
“I think in the next year or two, our attention from a manufacturing standpoint is going to shift,” he said, adding the company has started exploring what production equipment would be needed. “We’re comfortable with that because if you were to look at the way they get manufactured, it’s a lot of the same type of automated manufacturing equipment that we’re used to on our production lines today.”
Incorporating a new and growing product line into an existing business requires a balancing act, Jagdfeld acknowledged. It starts with more reliance on contract manufacturers. While some items, like sheet metal fabrication, are in the company’s wheelhouse, adding battery pack production might take a little longer and require higher product volumes.
“You just kind of grow it and you’ve got to be smart about when you make the decision points,” Jagdfeld said.
Even if the company reaches a point of bringing more production in-house, it will take time to fully integrate it into production.
“We’ll want to make sure we segregate it appropriately from the rest of our operations. It will probably need a lot more care and feeding, as we refer to it, as it ramps,” he said.
