What Swell’s latest acquisition means for the Southeast’s grid

Distributed energy storage company Swell has signaled its intent to bring virtual power plants to the Southeast energy market with its recent acquisition of regional solar and storage installer Renu Energy Solutions.

• The top line: With the acquisition and subsequent restructuring, Swell is targeting a region that, despite an uptick in solar and storage installations, has the lowest VPP market integration in the country. Swell has positioned itself to be a major player in the nascent market, entering the region with several thousand solar and storage customers already in hand.
• The market grounding: Though most of the country is managed by RTOs, energy provision in the Southeast is primarily dominated by a handful of large utility companies; more than 60% of demand in the region is served by Duke Energy and Dominion Energy. That dynamic has contributed to expanding frustration with the relatively limited market options, including from tech giants operating there, and criticism that the setup fails to incentivize a transition to clean power. However, several utilities have started experimenting with their own VPP research initiatives.
• The current take: Latitude Intelligence analyst Daisy Dunlap described the Southeast as a “Wild West” when it comes to the VPP market. “There has been more pressure for the Southeast market to become a more hospitable landscape for DERs despite individual state and policy relations lagging,” she added. “Acquiring Renu is essentially moving in with a ‘local guide’ in the region.”

The acquisition comes at a time when the Southeast market is oversaturated with solar deployment, leading to pared down net metering in parts of the region. As of 2023, the Southeast has more than 18 gigawatts of solar, a number forecasted to reach 29 GW in 2024. Like in the rest of the country, though, figuring out exactly what to do with all that energy has been a challenge.

The Energy Exchange Market, the region’s first competitive market, launched in November 2022 amid expectations that it would bring customers more renewable energy more cheaply. But in its first year, the regional market (owned by a block of investor-owned utilities) failed to even come close to the $46 million utilities hoped it would yield.

One key issue is its relative exclusivity in terms of participation and resource type. Dunlap said this can pose a barrier to renewables growth and dampen DER value by, for example, blocking production by players in neighboring regions. All generation must be sited within SEEM’s geographic boundaries and thus far, she added, participation has been composed solely of IOUs without independent power providers. The market program is currently undergoing a review to investigate claims of non-compliance with competitive market standards and resource denials. 

Against that backdrop, rooftop solar customers may be looking to battery systems to help them regain their lost returns, Dunlap said. (It doesn’t hurt that the Southeast, thanks to the Inflation Reduction Act, is emerging as a new battery belt.)

According to the Department of Energy Liftoff Report, VPP market integration has been significantly less documented in the Southeast than in other regions to date, meaning there’s an immense amount of potential still to be mined in the region. 

Swell, which has its own development, and customer integration arms, hasn’t yet deployed VPPs in the Southeast. Rather than starting from scratch, it can now turn to the more than 5,000 systems Renu has installed in the region, providing connections to would-be VPP participants.

Essentially, said Latitude Intelligence managing director Matt Casey, Swell is getting a “shortcut to market with an existing customer base and a sales channel to leverage.” 

Leveraging this type of “springboard” into a new market is something that VPP companies will likely continue to integrate into their customer acquisition strategies, Casey said.

“Not that we’re going to see this massive wave of consolidation in the space,” he added, “but I think we’ll continue to see VPP system providers looking for acquisition targets and potential partners with established installed bases and go-to-market channels to grow their footprints, especially in markets as complex as the Southeast.”