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What I Sold: VRB Power (VRBPF.PK, VRB.V)

VRB Power is the only public vendor of a flow battery chemistry, the Vanadium Redox Battery. I bought the company when I first realized that in order to get a large proportion of intermittent wind and solar energy onto the grid, long term electricity storage would be essential.  Of the available technologies, flow batteries are some of most technically elegant.  Since VRB is one of only two publicly traded vendors of large scale batteries, I bought some.  

Lessons Learned

I was not being discriminating.  Even with the belief that large scale storage will soon be needed to integrate intermittent resources onto the grid, buying VRB would still have been a mistake.  Although flow batteries are an extremely elegant solution, they are a solution that is not ready for market.  As Michael DeAngelis, SMUD's Manager of Advanced Renewable and Distributed Generation Technologies, told me, "It's a research project.  It's not price competitive."  SMUD has a share of a 20 kW x 9hr  VRB system [.pdf 1.83 mb, slide 12].

SMUD invests in research projects because they want to help develop future technologies they may need in the future.  Although that may also be a motivation for CleanTech investors, those investors would do better to think of such investments as charitable donations than investments; the results are more likely to be a tax write-offs than a capital gains.

Research projects are the most tempting way for cleantech aficionados to lose money in our investing.  In this case, I was seduced by what a speaker at the same conference aptly described as a "pretty toy."  Venture capitalists and angel investors can make money by finding a new technology and jumping on it at the right time, although they usually have more losers than winners. For investors in public companies, making money on technology projects is mostly limited to finding a bigger fool to sell the company to.  The problem with this is even if you manage to find a bigger fool, you've gained something with the money you made... you gained self-confidence.

Self-confidence arising from knowledge of the asset you're investing in is an asset, but confidence based on your own belief in yourself and your own qualities as an investor is poison.  All investors make mistakes. (This series of entries is a showcase of several of mine. Part of the value of writing this series is in maintaining my own humility.  A tendency to revel in success and dismiss mistakes will make an investor happier in the short term, but poorer in the long term.)  

For the above reasons, I seldom advocate investing in research projects.  In the current context of much dearer money, research projects (which often need to return to the capital markets for more money) are even less attractive.

None of this is to say that VRB's quite interesting technology has no place in the future of our electric grid.  I strongly hope it does, because inexpensive, large scale storage will be key to completely decarbonizing our electric grid.  Nevertheless, at any future date when VRB flow batteries are widely accepted by utilities, the current shareholders of VRB Power are unlikely to retain any significant ownership of the technology.

Other entries in this series:

  1. Held: UQM Technologies
  2. Sold: Carmanah Technologies
  3. Sold: Pacific Ethanol
  4. Sold: Dynamotive Energy Systems
  5. Sold: Nova Biosource Fuels
  6. Ten stocks to buy at the bottom.

DISCLOSURE: None.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.  



was posted on AltEnergyStocks.com.


       

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Comments

I do not and have not owned VRB but I came close. The comment about them not being cost competitive is true but misleading. The reason that they are not very cost competitive isn't due to the lack of maturity of the technology. It has a lot more to do with the price of vanadium going insane because of the demand for steel worldwide (especially in China).

Unfortunately, I don't think that the world demand for vanadium is coming down anytime soon and as such, vanadium redox batteries are going to be expensive.

What about the remote area power supply (RAPS) and telecom market that are two key segments VRB is targeting?

They just released a press release noting that their VRB-ESS battery was approved for use by Safaricom, a Vodafone subsidiary operating in Kenya.

The press release notes that diesel use is reduced by 70% when the VRB-ESS is used at a site. Previously, a diesel generator, when used with a lead acid battery, had to run continuously at poor efficiency, consuming expensive diesel fuel.

Sarfricom found that when the diesel generator is attached to a 5 kW x 20 kWh VRB-ESS, the battery could be used to run the cell tower site for extended periods of time, and the generator only started to run at optimal speed to charge the VRBESS.

Diesel use is dramatically reduced as a result.

How much does this save Safaricom?

At 50% load, a typical 5 kW diesel generator uses 28 liters of fuel per day, or 840 liters per month. Diesel to a remote location costs an effective $2 per liter. Even with a 60% reduction in fuel, the use of a VRB-ESS saves some $12,300 per year.

Given the $33,000 cost of a VRB-ESS, payback is 2.7 years. Over the VRB-ESS project 10 year life.

This market segment doesn’t sound like it’s in the research stage.

Kevin,
It's precisely applications like that which led me to hold the company so long. But competing on the off-grid market is completely different from competing in the on grid market. There are many technologies which have application to the off grid market which will never have on grid application.

The question each shareholder should ask himself is:" Is the off-grid market big enough and growing fast enough for VRB to acheive profitability before they run out of money?"

an email from Kevin Cullen, who posted above

Tom,

I left on comment to your Oct 3rd What I sold article. Unfortunately, I was able to leave the complete message as a post. I assume there's a character limitation. I wanted to send you the full text as the abridged version may come across as me disagreeing.

I don't. At least not in the intermittent wind and solar segment.

I do feel, however, that VRB-ESS is no one trick pony. As such, we may see successful commercialization in the telcom and RAPS sector much faster than VRB-ESS batteries couple to wind or solar.

At any rate, what follows below is the complete message.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

I agree the VRB’s batteries couple to intermittent wind and solar energy may be more in the “research” stage at this time. There are still competing methods for taming wind for example. Denmark has the most penetration of wind in the world and it does so by exporting much of this electricity to Scandinavia and Germany, which essentially acts as a big battery.

The American Wind Energy Association (AWEA), which excited about the progress in storage technologies, maintains this is very much in the future. The often quote and DOE study that say intermittent issues can be handled with modern transmission network. Like Al Gore and T. Boon Pickens, they want to see a robust grid in America.

But what about the remote area power supply (RAPS) and telecom markets? These are two key segments VRB is targeting.

Indeed, the company just released a press release noting that their VRB-ESS battery was approved for use by Safaricom, a Vodafone subsidiary operating in Kenya.

The press release notes that diesel use is reduced by 70% when the VRB-ESS is used at a site. Previously, a diesel generator, when used with a lead acid battery, had to run continuously at poor efficiency, consuming expensive diesel fuel.

Sarfricom found that when the diesel generator is attached to a 5 kW x 20 kWh VRB-ESS, the battery could be used to run the cell tower site for extended periods of time, and the generator only started to run at optimal speed to charge the VRBESS.

Diesel use is dramatically reduced as a result. How much does this save Safaricom?

At 50% load, a typical 5 kW diesel generator uses 28 liters of fuel per day, or 840 liters per month. Diesel to a remote location costs an effective $2 per liter. Even with a 60% reduction in fuel, the use of a VRB-ESS saves some $12,300 per year.

Given the $33,000 cost of a VRB-ESS, payback on the VRB-ESS in 2.7 years. Over the VRB-ESS project 10 year + life. And this doesn’t figure in the savings from reduced maintenance costs from running the generator for fewer hours per day.

I my conversations with VRB management, they've indicated that Safaricom are very "happy" and "excited" with the test results.. I was also told Safaricom's need was "urgent." Their words, not mine.

This market segment doesn’t sound like it’s in the research stage.

And the opportunity in Kenya alone is more than 300 systems, or nearly $10 million. In Africa, the estimate is on the order of 5,000 systems, or $150 million, based on regional network density.

I agree with Kevin's case for VRB posted above... I decided to get out anyway because of the deteriorating financial markets...

This is the type of environment where even good companies fail, which is why I ran.

I hope VRB succeeds... I just don't feel confident that it will.

Another note from Kevin. My policy is to only reply to comments on the blog, not emails asking for advice... which is why I am not responding to him directly.

Tom,

Thanks for posting the full text.

That was written Oct 3rd...a lifetime ago...given what's a happened in the markets since. Again, the odds are that you are right: VRB needs cash in the very immediate term and getting financing in the current climate is like selling snow to the Eskimos.

On the other hand, the credit crunch and temporarily "low" oil prices has already limited oil exploration budgets. Wells are shutting down and rigs are being taken out of service at current prices. Yet a number of observers see oil climbing quickly back over a $100 and much higher further down the road especially after the current shoulder season ends. The credit crunch has not canceled the geological reality of Peak Oil.

A depression would give us the kind "demand destruction" that would prolong this, but given that the Fed is increasing M1 and M2 -- the opposite of a depression -- inflation is what is probably in our future.

A very good energy outlook is here on Jim Puplava's Oct 11th podcast is here: "Part 2, Energy: Just the facts; the picture keeps getting worse" (http://www.financialsense.com).

On the demand side, latest IMF estimates for the BRIC economies are still strong. China's future GDP is projected to be some 9.3%, India over 45%. The BRIC economies along with much of the rest of the third world is now nearly half of World GDP. Oil demand destruction in the OECD is largely offset with strong GDP growth from these countries.

Higher oil prices are the biggest incentive for VRB's technology. Particularly for remote sites that are spending increasingly large amounts just to generate electricity for essential services and communications.

VRB's tech is still an essential part of this market segment. However, even buyers need financing so one has to question if Vodaphone even has the funds to make immediate purchases of VRB-ESSs as they probably cannot get financing in the market at this stage.

The more relevant question is what will happen to the VRB-ESS. The technology and its patents will survive...in some form...and in someone's hands. Any thoughts you have on this would be most appreciated.

Kevin, you clearly are following this company as closely as I ever have. I don't think it's a sure thing that the patents and technology will survive a bankruptcy, but if they do not, it will be because some other large format battery/form of electricty storage fills this market niche. In the short term, this tech is most useful off grid and on islands without access to a larger grid.

A possible bankruptcy of VRB will mean that other techs may do better. This niche might alos be filled by hydrogen storage (at the moment the roundtrip efficiency of hydrogen is too low, but I recently heard Vinod Khosla say that he sees new technology which might dramatically improve roundtrip efficiency. Also, the use of platinum, etc, is less probematic in utility scale operations than in vehicles.)

Thanks Tom.

Good food for thought...as always.

BTW, the reason I sent the first two posts to you via email was only because I could not post the full text in a "post"...at least from my end.

I think our spam filter assumess very long comments are spam.

Too little...too late?

From the ChronicleHerald.ca:

"Wind developers Scotian Windfields announced Monday in Halifax that it is teaming up with VRB Power Systems of Richmond, B.C., in a pilot project to try and store electricity produced by wind turbines.

"This is a first in Canada," said Dan Roscoe, Scotian Windfields’ chief operating officer, after the company received $350,000 in federal funding to purchase two high-tech batteries from VRB Systems.

Full story here: http://thechronicleherald.ca/Business/1085846.html

Kevin:

Two words: "pilot project"

RIP

VRB Power Curtails Operations

RICHMOND, BC, Nov. 18 /CNW/ - VRB Power Systems Inc. (TSX-V: VRB)
announces that it has been unsuccessful in its efforts to date in seeking
offers for the merger, sale, refinancing or other strategic alternative for
the Company. The Company has decided that it will not be proceeding with its
previously announced rights offering. Consequently, the Company has
substantially curtailed its manufacturing, research and development operations
and laid-off or given notice terminating most of its employees. Given its
current financial and operational status, the Company has ceased accepting new orders.

http://www.newswire.ca/en/releases/archive/November2008/18/c9926.html

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