Stem offers energy storage to reduce electricity bills for commercial and industrial customers, solving a fundamental problem in the electricity markets and laying the foundation for a renewable energy economy.
In the absence of storage, electricity must be consumed the moment it is produced, making electricity a very unique product and the task of supplying it a challenging one. If electricity were consumed at a very smooth or flat level at all time, utilities would know exactly what constant level of electricity they needed to buy on the electricity markets from power generators (see Figure 1 below for a simplified structure of the electricity market).
Commercial and Industrial customers, however, often require high power consumption over short, punctuated periods, creating high variability and uncertainty in electricity demand. As a result, utilities charge these business customers additional “demand charges” for peak power consumption because their unpredictable consumption imposes costs on the power generation system. If utilities ever fall short and don’t have enough power to supply demand, then they need to purchase power on the very expensive spot markets on which a relatively small amount of electricity is available for immediate delivery.
Stem has a strong and effective link between its business model and operating model; furthermore, the business helps its customers achieve better alignment between their business and operating models with regard to energy usage.
Stem’s customers need high power consumption over short periods in order to provide consistent service to their customers, so Stem helps these businesses improve their energy operating model so they are charged a more consistent (and lower) rate for their energy use.
The company offers customers (1) on-site installation of batteries integrated with (2) cloud-based predictive software that constantly monitors energy use and costs, making real-time cost-based decisions for the customer on when to draw power from the grid versus batteries .
Stem offers financing for business customers that do not want to pay upfront for the battery and software system but prefer to pay for the benefits over a three-year financing term. Effectively, the monthly cost to finance the system installation is less than half of the energy cost savings created by the Stem system.
Stem remains agnostic to the battery technology used for its system , which positions the company’s operating model around the company’s cloud-based software, the data it collects from its customers, and the financing of energy storage for its customers.
Stem closed on a $100 million fund to finance the energy storage portion of its business in September 2014, raising the largest amount of capital among all players in the distributed storage space . Stem is able to raise this amount of capital because it is a recognized leader in the energy storage space, although this advantage remains contingent upon the development of its software architecture  and salesforce.
Software Development to Automate and Optimize Customers’ Energy Decisions
Stem’s software development team focused on real-time analytics capable of taking day-to-day energy decisions out of the hands of its customers. Before installing Stem’s system, one customer noted that they would constantly try to monitor and make operational changes based upon their energy usage . After installing the system, however, the customer knows that their energy usage is being monitored and managed optimally and only checks the system once per week .
Data-Based Operating Model for the Future
Stem’s software has the ability to change whether its customers draw power from the grid or from the Stem battery systems, and this software can be controlled from a central location (by Stem). As Stem adds customers, it is amassing the capability to offer a massive amount of data on energy usage from its commercial and industrial customers to utilities that would pay for this information, combined with the ability to change the energy usage of those customers from one central location. Eventually, utilities that need a short-term shift in energy usage might avoid the very expensive spot market for immediate delivery of electricity; instead, utilities could pay Stem to have its customers’ systems temporarily draw from battery storage to create a more consistent demand for the utilities.
Ultimately, Stem’s success is derived from helping its customers (currently commercial and industrial customers and eventually utilities) create a better fit between their business and operating models.