One of the biggest problems I’ve encountered over the last year has been a dearth of reliable third party information that can help investors understand the breadth and depth of the business opportunity, and sift through the frequently contradictory claims of energy storage device manufacturers that plan to target the smart grid as a principal market. Since energy storage investors are generally well-informed and frequently opinionated, most of my articles have lengthy comment streams that round out my perspective and are usually more interesting than the articles themselves.
Two weeks ago I ran across a story on greentechgrid that said NanoMarkets LLC, a leading market research firm from Glenn Allen, Virginia, was predicting that the global market for storage batteries and ultracapacitors on the smart grid would grow from its current level of $326 million to $8.3 billion by 2016. Since the market size and growth rate estimates were very impressive and I track many of the companies identified in the greentechgrid story, I contacted NanoMarkets to see if they would send me a complimentary copy of their report.
A little over a week ago I received a copy of NanoMarkets 102 page report titled “Batteries and Ultra-Capacitors for the Smart Power Grid: Market Opportunities 2009-2016.” I’ve been like a kid in a candy store ever since. While the $2,995 report is a little pricey for individual investors, it’s a must read for institutions and other large investors that are analyzing opportunities in the energy storage sector. It’s also a wonderful planning tool for companies that are developing go to market strategies for manufactured energy storage devices. Individuals who want to better understand how the smart-grid market is likely to develop and grow over the next several years can gain important insight from a free June 2009 NanoMarkets white paper titled “Plug In to Materials Trends for Smart Grid Applications.” NanoMarkets has agreed to offer a $500 discount on the full report to my readers who contact Robert Nolan (firstname.lastname@example.org) and mention this article.
Unlike forecasts from storage device manufacturers and stock market analysts who tend to focus on how a particular product, technology or company might fit in an emerging market, NanoMarkets approached the issue of smart grid storage from the end-user’s perspective; meaning that they identified the customer’s needs first and then focused on the companies that had cost-effective solutions for those needs. The principal near-term applications identified by NanoMarkets are:
- Load leveling and power quality systems to protect commercial and industrial users from brief power interruptions that cost an estimated $75 to $200 billion per year in lost time, lost commerce and damage to equipment;
- Peak shaving systems to help commercial and industrial users manage their electricity costs under variable utility tariffs and help utilities manage generating assets to minimize waste;
- Transmission and distribution support systems to help utilities reduce grid congestion, defer upgrades and minimize waste; and
- Renewables integration systems to help power producers, utilities and end users cope with the inherent variability of wind and solar power and better match peak wind and solar output with peak demand.
In evaluating the likely development path for energy storage devices on the smart grid, NanoMarkets considered a variety of competing technologies including pumped hydro, compressed air, flywheels, chemical storage batteries, ultracapacitors and superconducting magnets. They ultimately concluded that:
- Pumped hydro and compressed air had limited growth potential because of geographical and geologic constraints;
- Flywheels and superconducting magnets were not likely to be widely used beyond niche applications because of their cost and complexity; and
- Absent a revolutionary breakthrough in cycle life and cost, lithium-ion batteries will have limited application in the smart grid.
From my perspective one of the most refreshing aspects of the NanoMarkets report was their belief that storage systems for the smart grid will be chosen based on fundamental cost-benefit analysis. Equally important was their conclusion that emerging technologies would increase the overall demand for storage and result in rapidly increasing revenue for all product classes. So instead of facing a situation where an emerging technology takes sales away from an established technology, each class of technology can expect rapid sustained growth over the entire forecast period. When the forecasts for individual product classes are stacked on top of each other, it’s easy to see why I believe the smart grid storage market will reach explosive growth rates by 2016. The following graph provides a consolidated summary of NanoMarkets’ forecast for each of the principal battery classes over the next eight years.
I can’t begin to do the NanoMarkets report justice in the limited confines of a financial blog. They thoroughly discuss the economic drivers and development path for each of the principal smart grid markets; carefully review each of the energy storage technologies that have significant potential in the smart grid market; identify the leading developers of energy storage devices for the smart grid; and break their sales forecasts down by both specific applications and geography. If NanoMarkets’ forecast is even close to being right, the next decade will be a period of explosive growth for:
- Sodium battery manufacturers like NGK Insulators (NGKIF.PK) and General Electric (GE) that can look for annual revenue in their sub-sector to grow by $1.3 billion over the next eight years;
- Supercapacitor manufacturers like Maxwell Technologies (MXWL) that can look for annual revenue in their sub-sector to grow by $1 billion over the next eight years;
- Lead-acid battery manufacturers like Enersys (ENS), Exide (XIDE) and C&D Technologies (CHP) that can look for annual revenue in their sub-sector to grow by $2.4 billion over the next eight years;
- Lead-carbon battery manufacturers like Furukawa Battery (FBB.F), Axion Power (AXPW.OB) and Firefly that can look for annual revenue in their sub-sector to grow by $2.75 billion over the next eight years; and
- Flow battery manufacturers like ZBB Energy (ZBB) that can look for annual revenue in their sub-sector to grow by $499 million over the next eight years;
For energy storage investors who truly want to understand where the smart grid energy storage device market is today and how it is likely to develop through 2016, the NanoMarkets report could well prove to be the soundest investment of all.
DISCLOSURE: Author is a former director Axion Power International (AXPW.OB) and holds a large long position in its stock. He also holds a small long positions in Enersys (ENS), Exide (XIDE) and ZBB Energy (ZBB).
John L. Petersen, Esq. is a U.S. lawyer based in Switzerland who works as a partner in the law firm of Fefer Petersen & Cie and represents North American, European and Asian clients, principally in the energy and alternative energy sectors. His international practice is limited to corporate securities and small company finance, where he focuses on guiding small growth-oriented companies through the corporate finance process, beginning with seed stage private placements, continuing through growth stage private financing and concluding with a reverse merger or public offering. Mr. Petersen is a 1979 graduate of the Notre Dame Law School and a 1976 graduate of Arizona State University. He was admitted to the Texas Bar Association in 1980 and licensed to practice as a CPA in 1981.