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October 01, 2012

Energy Storage: Q4 2012 Winners and Losers

John Petersen

In late June I wrote a forward looking article that identified several companies in my energy storage and vehicle electrification group that I expected to perform well or perform poorly during the third quarter. Since short-term market changes are notoriously hard to predict, it’s worthwhile to look back and see where I got things right and where I got them wrong. So I’ll start today with a quick summary table and assess the relative accuracy of my Q3 calls, and then turn my attention to Q4, which is shaping up as a time of bright opportunity for some companies and continuing risk for others.

9.30.12 Q3 Performance.png

My list of expected Q3 winners included Exide Technologies (XIDE), Active Power (ACPW) and Axion Power International (AXPW.OB). I was wrong on all three counts because Active Power lost 1.2%, Exide Technologies lost 7.7% and Axion Power lost 20.6%

My list of expected Q3 losers included Valence Technologies (VLNCQ.PK), which lost 98.4% when it filed a voluntary petition under Chapter 11 of the Bankruptcy Code, and Tesla Motors (TSLA), which lost 6.4%. While I was right on both counts, Tesla didn’t perform as poorly as I expected and just last week it completed a $195 million secondary offering that should keep it out of the ditch for a couple more quarters. While I rarely have glowing praise for Tesla’s business model or product line, its management team deserves double kudos for pulling off a critical eleventh hour financing transaction on better terms than I would have thought possible.

Q-4 Winners

Exide Technologies was on my list of likely Q3 winners and it remains on my list of likely Q4 winners. Over the last five years, Exide has reported total earnings of roughly $35 million after restructuring and impairment charges of almost $210 million. Since its earnings were so bad for so long, Exide trades at a 10% discount to book value and 8% of sales while its peers trade at an average of 1.6 times book and 44% to 70% of sales.

I maintain long-term price tracking charts on all the companies I follow and believe Exide's chart is signaling a turn to the upside in the fourth quarter. If you look at the chart you'll see that the 10-, 20- 50- and 200-day weighted moving average prices are clustered in a $0.13 range and during the third quarter the 10-, 20- and 50-day averages all moved up through the 200-day average, signaling the beginning of a new trend. Similar chart patterns existed in the summer of 2009 and the fall of 2010. While I'd be reluctant to estimate the next peak, Exide's past performance is enough to convince me that a double is likely and a good deal more is possible.

9.30.12 XIDE.png

Active Power was on my list of likely Q3 winners and it remains on my list of likely Q4 winners. Since the end of June the 10-, 20-, 50- and 200-day averages have all drifted down a couple cents and are currently clustered in a two-cent range. Active Power's historical stock price behavior is enough to convince me that a double is likely, if not a triple.

9.30.12 ACPW.png

Axion Power International was on my list of likely Q3 winners and it remains on my list of likely Q4 winners. The last couple years have been very difficult for Axion as one legacy holder after another decided to liquidate for reasons that had little or nothing to do with Axion’s business and technical progress. As near as I can tell the legacy holders, as a group, are down to something less than a million shares. Since much of the buying over the last couple years has come from readers of my blog, I expect the market dynamic to quickly reverse from a supply driven downtrend to a demand driven uptrend. In addition to price data like I provided for Exide and Active Power, my Axion chart includes a fifth line that tracks 50-day average trading volume to highlight periods of intense selling pressure since January 2010.

9.30.12 AXPW.png">

Last week I had the pleasure of delivering a keynote presentation for the 13th European Lead Battery Conference in Paris. For readers who are interested, an online version of my ELBC presentation with voiceover is available here.

While other lead battery manufacturers who presented at the ELBC talked about improving their charge acceptance rates from 0.05 to 0.1 amps per amp-hour of rated capacity, Axion was presenting charge acceptance rates of 2.0 to 3.0 amps per hour of rated capacity with four to five times the cycle life. These are not modest incremental gains like one typically sees in the battery world. Instead, they’re disruptive step changes that have several first tier OEMs and battery users making substantial direct investments in the kind of redundant validation testing that always precedes the adoption of a new technology for use in mass market products. While Axion’s PbC is not a silver bullet for all battery applications and the company still faces a variety of manufacturing, commercialization and financing risks, the principal technical risks of developing an entirely new class of energy storage device have, in my view, been successfully overcome.

In addition to my three primary picks, I’m seeing interesting chart patterns develop for Altair Nanotechnologies (ALTI), Johnson Controls (JCI), Maxwell Technologies (MXWL) and UQM Technologies (UQM). The stock prices for all four of these companies have been beaten down this year and could well be poised for a turnaround.

Q-4 Losers

The scariest company in my tracking list is A123 Systems (AONE) which peaked shortly after its IPO and has been on a downhill slide ever since. In May and June of this year, A123 announced a pair of toxic financing deals that had variable conversion rates and seemed likely to be highly dilutive. In August A123 announced that China’s Wanxaing Group had agreed to provide up to $450 million of additional financing in exchange for an 80% ownership stake. The combination of these three transactions has had A123 printing stock faster than the Fed prints money ever since.

On June 30th A123 had a total of 147 million shares outstanding. By August 6th the total had climbed to 170 million and by August 23rd the total had climbed to 202 million. The reason for the explosive ramp in the number of shares outstanding was a decision to leave the toxic securities in place, instead of redeeming them, and to alter the terms of the Wanxaing financing to provide for a variable conversion rate that’s tied to a percentage of ownership rather than a fixed stock price.

During the period from June 30th through August 23rd, total reported trading volume in A123’s stock was 305 million shares, or roughly 5.5 times the number of newly issued shares. Since August 23rd, another 491 million shares have traded. Since it’s impossible to tell whether the proportionality between new share issuances and total trading volume has held steady over the last three months, it’s also impossible to estimate the total number of shares currently outstanding. At a minimum I’d expect A123 to report 300 million shares outstanding on September 30th, but the actual number could be far higher. Based on the terms disclosed for the Wanxaing transaction, that would imply a fully diluted share count in the 1.5 billion range.

9.30.12 AONE.png

In light of the production problems it’s experienced to date and a recent brush with insolvency that will be clearly visible on the face of its September 30th financial statements, I continue to believe that Tesla Motors will soon pass its peak of inflated expectations and begin a descent into the Valley of Death that resembles the A123 experience. I don't want to denigrate Tesla's accomplishments as the first fledgling automaker to bring a new car to market since DeLorean, but it seems like all of the possible good news is already priced into Tesla's stock while the bulk of the execution risks and disappointment opportunities have become frighteningly imminent.

I get hundreds of comments every time I mention Tesla's name. The enthusiastic readers I hear from expect rave reviews, expect high reservation conversion rates, expect demand to skyrocket, expect the Model S to perform flawlessly in heavy daily use and expect Tesla to avoid the delays, defects and missteps that plague even seasoned manufacturers who launch a completely new product. I may be cynical when it comes to the applicability of Moore's Law in the battery and auto industries, but I'm a firm believer in Murphy's Law, fondly known as the fourth law of thermodynamics, which states: "If anything can go wrong, it will."

Disclosure: Author is a former director of Axion Power International (AXPW.OB) and holds a substantial long position in its common stock.

April 04, 2012

Grid-scale Energy Storage: Lux Predicts $113.5 Billion in Global Demand by 2017

John Petersen

Last month Lux Research released a bottom-up evaluation of the cost effectiveness of eight energy storage technologies in six grid-scale applications throughout 44 countries, including all 50 U.S. states. Their report titled "Grid Storage under the Microscope: Using Local Knowledge to Forecast Global Demand" predicts that annual global demand for grid-scale energy storage will reach an astounding 185.4 gigawatt-hours (GWh) by 2017 and represent a $113.5 billion incremental revenue opportunity for an industry that currently generates sales of $50 to $60 billion a year.

In the grid-scale sector alone, Lux predicts an average year-on-year demand growth of 231% from 2012 through 2015 when the growth rate moderates to 43% per year for 2016 and 2017. The forecast is tempered, however, by a cautionary note that demand of that magnitude can't be satisfied because "Believe it or not, the grid storage market will be supply-constrained in 2017."

Technologies and players

The eight energy storage technologies Lux evaluated for their new report are summarized in the following table, along with the price and performance metrics highlighted in beige. Comparable price and performance metrics from a recent SAND2011-2730 Sandia National Laboratories "Energy Storage Systems Cost Update" are also presented and highlighted in green. While there's room to quibble over the details and users of Lux's Smart Grid Storage Tracker and Demand Forecaster can fine tune the price and performance variables to suit their analytical needs, the parallels between the two sets of system cost estimates are close enough to lend substantial credence to Lux's basic assumptions.

4.4.12 Price-Performance.png

Based on a comprehensive evaluation of various local factors including "utility market structure, generation technology compositions, peak power demand, demand growth rate, infrastructure growth rate, penetration and growth rate of intermittent renewable energy sources, grid reliability, [time of use] electricity rates, commercial demand charges, and outage costs," Lux concluded that Japan, China, the United Kingdom, Germany, and the State of Arizona will be the top five regions for grid storage and collectively account for about 58% of global demand in 2017. Japan and China will each account for about 18%; United Kingdom and Germany, will each account for about 9%; and the US will account for about 23%, with Arizona alone accounting for 4% of global demand.

Some of the more surprising conclusions in the Lux report related to the relative importance of the various grid-scale applications by 2017. For me the biggest surprise was the conclusion that the current killer apps, ancillary services and renewable energy integration, will only account for 1.4% of global demand in 2017 while renewable energy time shifting will account for an impressive 54% of demand, or $61 billion in annual revenue potential. I was also surprised by the conclusion that high spreads between peak and off-peak electricity prices would create a major market opportunity in the residential and commercial sectors, which account for 28% and 17%, respectively, of the 2017 demand forecast.

Based on their in depth evaluation of application requirements and the price and performance of the eight energy storage technologies they evaluated, Lux reported that:

Li-ion takes the early lead, but fades to cheaper alternatives. Li-ion batteries for [power] applications capture nearly 80% of the market in 2012, but quickly fade as cheaper molten-salt and flow batteries become available in the ensuing years. By 2017, Li-ion batteries capture only 13% of the market, yielding 33% to vanadium redox batteries and a nearly even split of the rest of the market between sodium sulfur, sodium nickel chloride, and zinc bromine flow batteries at 19%, 15%, and 19%, respectively. This indicates the short timeframe Li-ion battery developers have to reduce their costs. In the long run, systems with discharge durations between two hours and four hours are the “sweet spot” size for most grid applications. Currently, Li-ion batteries are sought-after due to their availability and proven performance. Flow batteries and molten salt batteries, both of which perform well for longer discharge applications, have shown comparable performance to Li-ion batteries at a fraction of the cost and are currently limited by their availability and proven reliability. Flywheels retain 2% of the market in 2017 and find their niche in relatively small frequency regulation market and other niche applications that require rapid discharge capabilities, short durations, and an extremely long cycle life.

Many participants in the lithium-ion battery sector are developing and demonstrating grid-scale energy storage products. To date, the highest profile player has been A123 Systems (AONE), which has shipped over 90 MW of storage systems for ancillary services and renewables integration. While Johnson Controls (JCI) has been quiet about its plans to package and sell lithium-ion batteries for stationary applications, I have to believe the global footprint and sterling reputation of its building efficiency unit will make it a formidable competitor in the commercial markets.

Sodium Nickel Chloride, or Zebra, batteries have been a relatively low profile chemistry for years. They were originally developed by Daimler for use in electric vehicles but failed to gain much traction in that market despite a decade of solid performance in a 3,000 vehicle fleet that's logged over 150 million kilometers. In 2009 General Electric (GE) announced plans to build a NaNiCl factory in New York. In 2010, Italy's Fiamm bought a controlling interest in Swizerland's MES-DEA, the sole European manufacturer of NaNiCl batteries, and is now doing business as FZ Sonick. Both firms are rapidly ramping their marketing efforts on grid-scale systems.

The largest manufacturer of sodium sulfur batteries is Japan's NGK Insulators (NGKIF.PK), which was the global leader in grid-scale storage for the over a decade with an installed base of over 300 MW. NGK had a spotless safety record until late last year when they suspended NaS battery sales and asked customers to refrain from using installed systems pending completion of an investigation into the cause of a battery fire in Japan. Last year, NGK accounted for roughly 54% of the grid-scale energy storage market. While NGK's market share will fall as other technologies gain traction in the grid-scale markets, its revenues should continue to ramp because of rapid overall growth rates in the sector.

There have been no publicly held companies in the vanadium redox battery space since China's Prudent Energy bought VRB Power Systems in January 2009. At present, ZBB Energy (ZBB) is the only publicly held company that's active in the zinc bromine battery space. ZBB is actively exploring markets for a both zinc bromine flow battery that was originally developed by Johnson Controls and novel technology agnostic control systems that can integrate and manage a variety of conventional and renewable power sources and energy storage technologies.

I was a bit surprised that lead-carbon wasn't included in Lux's list of 2017 market leaders. When I asked the analyst why, he explained that the two leading developers of lead-carbon batteries, Axion Power International (AXPW.OB) and East Penn Manufacturing, were currently launching new products and conducting demonstrations, but didn't yet have enough price and performance history to warrant inclusion at anything beyond placeholder values. He also agreed that if Sandia's price and performance estimates prove accurate, lead-carbon could be a formidable competitor and garner a substantial market share.

Supply constraints

While Lux's bottom-up demand analysis contemplates an enormous ramp in new demand over the next five years, they acknowledged that the global battery industry can't satisfy that demand with existing and planned infrastructure. They didn't drill down into the details for the current report, but I think it's critical for investors to understand the magnitude of likely shortages and the market dynamics that are likely to flow from crushing supply constraints.

In its new report Lux predicted that lithium-ion batteries could account for up to 13% of $113.5 in demand by 2017, or roughly 20 GWh of batteries. To put that number in perspective, last year Lux reported that total global manufacturing capacity for large lithium-ion batteries would grow to about 30 GWh by 2017, which means demand from stationary applications alone could absorb almost two-thirds of global manufacturing capacity. This is good news for lithium-ion battery manufacturers in the short-term because it will help absorb an expected glut of manufacturing capacity. Over the long-term Lux believes lithium-ion batteries are not economically sustainable for grid-scale applications because:

"Li-ion batteries developed for transportation applications are energy dense storage devices. Stationary storage projects rarely value this metric, resulting in wasted value for grid-tied Li-ion battery systems. Rapidly evolving technologies with equivalent or superior performance metrics and substantially lower costs and higher resource availability will take over the majority of the grid storage market in the coming years."

For decades the battery industry has striven to standardize battery chemistries, formats and manufacturing methods. As a result, batteries are usually viewed as fungible commodities with little product differentiation or brand loyalty. In the final analysis, purchase decisions for grid-scale storage systems will be driven by the customer's specific power and energy needs and the ability of a particular battery chemistry to serve those needs at the lowest total cost of ownership. Absent a clearly demonstrable performance advantage, comparable products within a technology class will invariably be forced to compete on the basis of price, which will ultimately compress margins.

Any time there are several competing uses for a supply constrained commodity, the buyer that's willing to pay the highest price will get the first call on available production. If electric vehicle manufacturers are willing to pay up and outbid grid-scale storage users, they'll undoubtedly get enough batteries to satisfy their needs. If automakers are not willing to pay a higher price, battery manufacturers will undoubtedly serve their own economic interests first. On balance, I believe rapid growth in grid-scale energy storage will create substantial secondary problems for electric vehicle manufacturers who are already grappling with fundamentally uneconomic products.

As former director of Axion Power International, I'm intimately familiar with the work that's being done in the field of lead-carbon battery technology. Based on everything I know, I believe that Sandia's cost estimates are reasonable and that lead-carbon batteries will be a good choice for a large number of grid-scale storage applications that don't require extreme performance. It doesn't take much market share in a $113.5 billion niche to make for a very successful company.

Disclosure. Author is a former director of Axion Power International (AXPW.OB) and holds a substantial long interest in its common stock.

December 08, 2011

Hype Busters From Lux Research Explain Grid Based Energy Storage

John Petersen

In 1883 Thomas Edison said, "The storage battery is one of those peculiar things which appeals to the imagination, and no more perfect thing could be desired by stock swindlers than that very selfsame thing. ... Just as soon as a man gets working on the secondary battery it brings out his latent capacity for lying."

The problem isn't so much the batteries, which haven't improved all that much over the last century. Instead, the problem lies in the fertile imaginations of scientists, engineers, politicians, ideologues, analysts and investors who focus on new energy storage applications, overestimate the potential, underestimate the challenges and make a quantum leap from the reasonable to the absurd. There is no issue in the energy storage sector that's more wildly over-estimated than the short- to medium-term potential for using manufactured energy storage devices in the electric grid.

This week, the Smart Grid Intelligence Team at Lux Research, aka the hype busters, presented a 46 minute webinar on the current state of the grid-based energy storage market and its likely development over the next few years. After listening to the live webinar I asked Lux if they're be willing to share their work with my readers and they graciously agreed. Readers who want to listen to the entire webinar can do so by clicking on this link to "Grid Storage: Connecting dots in a fragmented market." For readers who don't have the time for the webinar, I'll try to summarize some of the highlights.

While respected institutions like Sandia National Laboratories have estimated that grid based energy storage represents a $200 billion opportunity, the global installed base of manufactured energy storage devices cost about $1.1 billion, roughly half of that capacity was built in 2011, and a similar amount of new capacity will be added next year. The following table offers a more granular analysis that allocates the installed base and planned additions, expressed in millions of dollars, among the five storage technologies Lux evaluated.

12.8.11 Storage Base.png

By 2015, Lux forecasts an annual market for grid-based storage in the $1.5 billion range. Other firms like Pike research expect faster growth rates. While the prospect of rapid and sustained growth is enough to awaken the animal spirits in all of us, Lux took pains to emphasize several key points:
  • There is no silver bullet solution for the grid and several technology classes will be important;
  • There is no unified mass market for grid-based energy storage technologies;
  • The market for grid-based energy storage is highly fragmented and extremely price sensitive;
  • The two largest market segments for grid-based storage are behind the meter installations for commercial and industrial facilities and in front of the meter facilities for renewable power generators;
  • Most buyers of grid-based energy storage will require several years of reliability data before making a major capital commitment to any energy storage technology; and
  • End-users of energy storage systems will try to aggregate as many value streams as possible to maximize the total economic benefit of their energy storage investments.
For energy storage investors, the most important question is always "Cui Bono?," who will benefit. While there are a lot more questions than answers at this point and Lux did not focus on the principal players in the emerging grid-based storage sector during the webinar, there is a fairly short list of public companies that are actively involved in developing large scale energy storage systems for the grid connected market including:
  • Japan's NGK Insulators (NGKIF.PK), which has built and installed the overwhelming bulk of the high-temperature sodium-sulfur battery systems in the world and is currently trading at about 40% discount from recent highs because it has suspended battery sales pending investigation of a recent fire.
  • General Electric (GE), which has built a new manufacturing facility for a high-temperature molten salt device known as the Zebra battery and is preparing to launch a series of products for large commercial and industrial users.
  • A123 Systems (AONE), which has a strong working relationship with AES Corporation (AES) and is making rapid progress in the renewable power generation market with its high-power lithium-ion battery systems that are used for output smoothing and renewable to grid integration.
  • Altair Nanotechnologies (ALTI), which has demonstrated a high-power lithium-ion battery system for frequency regulation and negotiated a significant sale in El Salvador that's bogged down in regulatory approval issues.
  • Enersys (ENS), which manufactures advanced lead-acid batteries for commercial and industrial power quality, load leveling and uninterruptable power supply systems.
  • Axion Power International (AXPW.OB), which has joined with Viridity Energy to demonstrate a behind the meter energy storage system for commercial and industrial facilities that integrates utility revenue and demand response savings with conventional power quality, load leveling and uninterruptable power benefits to users.
  • Active Power (ACPW), which is a world-leader in flywheel based power quality and reliability systems for data centers and other critical infrastructure facilities that require absolute reliability.
  • ZBB Energy (ZBB), which recently completed a three-year validation test of its flow-battery system in cooperation with Australia's Commonwealth Industrial and Scientific Research Organization, is awaiting UL approval for its power control systems and is rapidly expanding its sales and marketing team.
My clearest takeaway from the Lux webinar is that regulated utilities will probably be among the last to invest heavily in grid-based storage because of their risk aversion and their need to justify capital spending to regulatory agencies that are charged with protecting the ratepayers.

On the power producer's end of the grid there are significant opportunities for storage systems to smooth and stabilize power output from wind and solar while optimizing revenue streams to the owners of the facilities. At the power user's end of the grid, the most readily quantifiable values will be derived by commercial and industrial customers who can aggregate the internal benefits of power quality and reliability with external monetary benefits from demand response programs and providing ancillary services to the utility side of the meter. Over time, the most successful technologies will build a long enough track record of reliability to take a direct run at utilities and transmission system operators, but it's not reasonable to expect the utility and transmission markets to develop rapidly over the next five years.

It's far too early in the game for me to try handicapping likely winners and losers, but most of the companies in the list are currently trading at lottery-ticket prices that will not be available once their competitive positions in this rapidly expanding niche are better understood.

Disclosure. Author is a former director of Axion Power International (AXPW.OB) and holds a substantial long position in its common stock.

October 01, 2011

Energy Storage: A Bloody Q3 is Creating a Great Buying Opportunity

John Petersen

Tom Lehrer is frequently credited with a quip that perfectly summarizes my feeling about the financial markets in the third quarter, "Apart from that Mrs. Lincoln, how did you enjoy the play?" During the quarter we were given box seats to classic political opera in two acts. Act One was set in Washington DC while Act Two moved to Europe so we could hear the same tortured songs of woe in a different language. We all know the opera has to end with the immensely popular "Kick the Can Chorus," but we suspended disbelief, bought into the fear and held a massive liquidation sale. As a curtain call it looks like we've let our elected demagogues scare us into a new recession. Do you ever wonder if the system might work better if ballots included "None of the above" as an alternative and required the offices to remain vacant if nobody won a majority?

For the third quarter the Dow, S&P 500 and Nasdaq indexes were down an average of 13.1% and it was even uglier in energy storage where the best names in the business were beaten down by 35% to 50%. The following table summarizes the price performance of my tracking list for the year and the quarter ended September 30, 2011.

9.30.11 Price Table.png

It was a bloody time that's creating a great buying opportunity. While it's still a little early to buy the biggest companies in the sector, it's a wonderful time to do some homework, map out a strategy and prepare for the inevitable bottom.

For reasons I can't explain, several energy storage companies move in the same direction as the S&P 500, but react more violently to changing market sentiments. To illustrate the phenomena I've created a graph that compares percentage price movements for Johnson Controls (JCI), Enersys (ENS), Exide Technologies (XIDE) and Active Power (ACPW) against the S&P 500 using 10-day volume weighted moving averages instead of daily prices.

9.30.11 ST Comparison.png

While the pattern is less obvious over longer periods, the following graph that tracks the percentage price movements since April 1, 2009 shows that the pattern holds in both up and down markets, which suggests that buying storage at the next bottom should have a significantly greater upside potential than buying the broader market at the bottom.

9.30.11 LT Comparison.png

The next bottom may well be the buying opportunity of a lifetime as energy storage emerges as an investment mega-trend and the market realizes that cool has no place in an industrial sector where cost matters and the law of economic gravity reigns supreme. Core positions in Johnson Controls, Enersys and Exide Technologies are a must have for all serious storage investors. Depending on your risk appetite, more speculative companies like Active Power, Axion Power (AXPW.OB), Maxwell Technologies (MXWL) ZBB Energy (ZBB) and perhaps Beacon Power (BCON) also merit serious consideration.

For the last three years I've cautioned investors that the media circus around plug-in vehicles and exotic batteries was a transitory phenomenon driven by ill-conceived ideology instead of common sense. The upcoming recession will force the government and the markets to recognize that plug-in vehicles are unconscionable waste masquerading as conservation and a luxury no nation can afford, much less subsidize at relevant scale.

My last chart for the day compares the market capitalizations of my tracking list companies on September 30, 2009 and September 30, 2011. While Axion Power and Exide are far stronger today than they were in the fall of 2009, most of the companies that lost a lot of market value have also lost a lot of ground.

9.30.11 Two Year.png

The simple but undeniable reality is everybody wants better batteries but nobody wants to pay a premium price for them. The green in an ordinary consumer's wallet will always take priority over the green in his cocktail conversation. Manufacturers of objectively cheap products that can do the required work are certain to thrive over the next five years. Developers of exotic batteries for plug-in vehicles and other uneconomic applications are likely to follow the same tragic path as Ener1 (HEV).

Disclosure: Author is a former director of Axion Power International (AXPW.OB) and holds a substantial long position in its common stock.

August 18, 2011

Should We Worry About Beacon's Flywheels?

Tom Konrad CFA

How material is the failure of one of Beacon Power's (BCON) flywheels on July 27?

Last week, I published an article Four Clean Energy Value Stocks I'm Buying Now, including Beacon Power as one of the four.  My rationale for including Beacon was:
Beacon has been operating their first commercial scale 20MW flywheel energy storage plant  since early this year without mishap, achieving full capacity in June.  They are set to begin construction of their second 20MW plant later this year, 54% of the $53 million cost of which will be covered by state and federal grants, making the funding of the plant practical even for a company with a high cost of capital like Beacon.  If both plants continue the relatively trouble-free operation seen so far, that experience will pave the way for less capital-intensive turn-key sales for flywheel energy storage plants worldwide.
I was quickly contacted after my article by two disgruntled Beacon shareholders who informed me that there was indeed a "mishap" at Beacon's Stephentown plant in late July.  I had missed this incident in my research, which had consisted of a news search, reading management's discussion and analysis and the financial statements in the quarterly report, and a discussion with a Beacon employee in early July.

I generally prefer not to invest in immature technologies, but was drawn to Beacon because they seemed to have a track record with their flywheels sufficient to mostly eliminate technology risk, given Beacon's massively depressed price (currently around $1), and the fact that the company is reaching the point of significant revenue ramp, which has the potential of giving the brave investors who buy now returns of many multiples in just a few months or a year. 

Technology risk once again loomed large in my mind.  Given the information I had, I could not decide if the failure represented an isolated incident, or was a harbinger of more to come.  Was this the failure of "one out of 200 flywheels" as management prefers to characterize it, or was it the failure of one of 200 flywheels over the average 3-4 months the flywheels had been in operation?

If we only expect a failure of 1-2 flywheels (0.5% to 1%) over the life of the plant, that should not radically change the economics of the technology.  However, if we expect a failure rate of 1 flywheel every six months or so, that will make a significant difference to the operating costs of a plant that was supposed to be nearly maintenance free. 

Given this unresolved question, and the unpleasant surprise of not hearing about the potential bad news until after the fact (which made me wonder what other bad news I had not heard about) I decided to sell first and ask questions later.  Since it was the day after my article was published, I updated my article discussing the decision.

In Beacon's defense

Beacon's position on the failure of the flywheel was that it simply was not material.  The flywheel failed as designed, did not damage the rest of the facility, and its repair was "consistent with the reserves" set aside for operations and maintenance at the Stephentown plant, as Beacon CEO William Capp told me in a phone conversation this week. 

I was never worried about Beacon's technology being dangerous.  Certainly, you would not want to be standing next to a flywheel when it failed, but such failures are rare even in the most pessimistic scenario I can come up with, and people do not stand around Beacon's plants for the very good reason that they operate with extremely high voltage electricity.

My question is then, how many more flywheels are likely to fail?  Unlike some commenters, I do not immediately assume that once a flywheel is through a period of "infant mortality" they can be assumed to be safe.  I see two possible sorts of failures: failures due to manufacturing defects and failures due to wear and tear during operation. 

Beacon's engineers believe that this failure was infant mortality, so if we are to determine how much more infant mortality we are likely to have, we need some idea how long it takes this sort of defect to manifest.  Capp told me on the phone that the particular flywheel in question had been in operation for a "number of months" and that he did not know exactly how long that was.  I'll assume it was four months, to make math simpler.

Doing the math

It's very difficult to calculate failure rates from one data point, but with a Bayesian approach we can get some idea of what the failure rate looks like.  I think it's a fairly safe assumption that a flywheel with a defect is most likely to fail early on, so an exponential distribution is an appropriate probability model.  Since we only have one incident to go by, the best guess for the average lifespan of defective flywheels is the lifespan of the one that broke.  That means that the rate parameter λ will be the inverse of the lifetime of the defective flywheel, and any defective flywheel will have a 63% chance of failing in the first four months, a 86% chance of failure in the first eight months, and 95% chance of failure in the first year.

We also know that the first 30 flywheels which were in operation for one to three years at Tyngsboro are unlikely to have any defects, since any one of those which was defective would have more than a 95% chance of failure by now.  Since the 170 relatively new flywheels at Stephentown have been in service for about 4 months on average, more than half of those with manufacturing defects should have failed by now, meaning that it would be very surprising to see more than one more failure from initial defects, and not seeing any more failures is the more likely possibility.

Hence, if this failure was caused by a manufacturing defect as management believes, they are right that the total failure rate of flywheels from manufacturing defects is immaterial because it is less than 1%.

The other possibility is that the failure was due to wear and tear.  In this case, we would expect the failure rate to be fairly constant over time.  Given the average of two years of operation for the 30 flywheels at Tyngsboro, and the average four months operation of the 170 new flywheels at Stephentown, Beacon has about 120 flywheel-years of experience, during which they have experienced one failure.  So if this was a wear-and-tear malfunction, we would expect 0.6% of flywheels to fail each year, or 12% over the plant's expected 20 year lifetime.  This was the possibility that scared me into selling shortly after I wrote the article. (At the time, I did not have the numbers I do now, and my off-the-cuff estimate for the failure rate was considerably higher.)

However, we don't know that the failure arose from wear and tear, and Beacon's engineers believe that the failure was due to a manufacturing defect.  Given that information, I will assign a 2/3 probability that this was a manufacturing defect, and a 1/3 probability that this was wear-and-tear. 

Given all these assumptions, my estimate of the likely failure rate of flywheels at Stephentown over the plant's 20 year planned life will be 4%, which is probably low enough to be manageable with the plant's planned operations and maintenance reserves.

Conclusion

Although my estimates contain more uncertainty than hard data, I now feel that, Beacon management is likely correct that the failure of one or two flywheels in the first year of operation at the Stephentown plant is not material.  Any flywheel failures after the first year of operation would be a much greater cause of concern, as that would lend credence to the possibility that flywheels sometimes fail due to wear and tear, something that would have much greater impact on the cost of operating a flywheel plant.

Hence, I return to my original position that Beacon Power (BCON) is a compelling if highly speculative stock pick at the current $1 price.

DISCLOSURE: Long BCON.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

July 25, 2011

Toward a More Stable Grid: New Technological Solutions for an Old Problem

By: Matthew Hoff

For power providers, grid stabilization has been a rising concern in recent years, especially because of the increasing use of intermittent energy sources such as wind turbines. Maintaining a stabilized energy grid is difficult because of the unpredictability of these intermittent energy sources. If wind turbines, for example, are supplying 5% of the overall power for the electric grid and the turbines stop moving because the air grows still, the grid has to find a way to kick into overdrive to compensate for this sudden decrease in energy. It's not as easy as it sounds.

Philip LeGoy, senior consultant of power plant design for Ireland’s Electricity Supply Board, says his country is regularly obtaining 25% of its electricity from wind. “If I’ve got 1000 megawatts of wind power,” he says, “it is a detrimental thing when it goes offline.”

When the amount of energy provided by wind turbines falls short of the amount of electricity needed to operate a city’s power grid, the grid has to work harder to balance the discrepancy between the energy needed and the energy being produced. Demand for energy fluctuates rapidly between high need and low need, and power plants often cannot throttle power output to accommodate sudden increases in demand without suffering major repercussions.

Poor grid balance and stabilization can result in high network losses, equipment overloading, unacceptable voltage and frequency levels, voltage instability and even outages. These repercussions are indeed detrimental, to say the least. In order to successfully harness, maintain and distribute vast amounts of power, the active and reactive power balance in a system must be controlled.

One solution to the grid stabilization issue is to build energy storage plants that connect to the electrical grid. Storage plants help stabilize the grid by quickly providing additional power during periods of high demand (when the intermittent energy source ceases to contribute electricity, for example). In order to accomplish this, the plants store energy during periods of low demand.

While elaborate storage systems have been developed over the years, these older technologies require a net surplus of power in order to generate and distribute the additional electricity. This is counterproductive. Older systems continue to place strenuous demands on power generation plants, causing additional and unnecessary degeneration. They also contribute to the production of harmful greenhouse gases.

Recently, a milestone in environmentally friendly, renewable energy storage was reached when Beacon Power (BCON) announced the opening of the world’s first grid-scale, 20MW flywheel energy storage facility, on June 21st. "We're very proud to have reached this technical and commercial milestone in building and operating the first grid-scale flywheel-based storage plant in the world," said Bill Capp, president and CEO of Beacon Power, which worked with Oztek Corp. for power control solutions to bring this vision to fruition.

Oztek, which has been developing and manufacturing advanced inverter, DC/DC, and motor drive controls since 1997, worked to develop vital software and essential control hardware technologies used to interface the large arrays of giant flywheels to the power grid.

The energy storage plant utilizes 200 flywheels, each weighing over 2,800 pounds, to store up to 20 megawatts of power that can then be transferred to the grid during times of high demand. In order to store energy, the flywheels rely on mechanical inertia. The flywheel is accelerated by an electric motor that doubles as a generator upon reversal, slowing down the disc and producing electricity. Since friction must be minimized in order to prolong the storage time, the flywheel is suspended in a vacuum and employs a sensorless permanent magnet motor drive. Oztek designed and supplied the sensorless motor drive as well as the grid tie inverter controller.

The grid tie inverter provides the interface between the flywheel and New York City’s main power grid. Unlike systems implemented in years past, the flywheel system is clean and energy efficient. A very small percentage of the power is lost as heat during transfer, and the system is able to respond to large demand changes in seconds.

“Oztek is extremely proud of its contributions to this milestone in sustainable, utility-scale frequency regulation services,” said Dave Zendzian, CTO of Oztek. “Developing hardware and software solutions to control the 2,800-pound flywheels, as well as operating hundreds of power inverters in parallel, has provided no shortage of technical challenges. Due to the high-power nature of the installation, many of the algorithms employed in the controllers needed to be designed using simulation coupled with design verification on smaller-scale hardware platforms. As such, there are always risks and challenges when you attempt to bring up the full-scale system. To see the system up and running at full capacity is very satisfying for all of us.”

Since New York City has a reputation for being one of the most energy-efficient cities in the world, it is sensible to unveil and deploy the new technology there. Stephen G. Whitley, president and CEO of the New York Independent System Operator, agrees. “New York's competitive marketplace for electricity provides fertile ground for energy innovations such as Beacon Power's flywheel system. It's great to see pioneering technology bringing new solutions to meet New York's energy needs."

Beacon's Stephentown energy storage plant is a new and highly effective answer to an old, stubborn problem, and Oztek’s sensorless magnet motor drive and grid tie inverter controls are essential components of this new power storage technology. Soon it will be common for intermittent energy sources to drain into highly efficient power reservoirs, and companies like Beacon and Oztek are leading the way. Thanks to their ongoing efforts, power providers will save on maintenance costs, and consumers will save on electricity. The environment, too, will reap the rewards

March 22, 2011

Grid-based Energy Storage: Widely Misunderstood Challenges and Opportunities

John Petersen

The most widely misunderstood subject in the field of energy storage is the potential for grid-based applications. They fire the imagination because the grid is so pervasive and the need is so great. They also present immense challenges to storage technology developers because the fundamental economic value per unit of grid-based energy storage is very low. While the subject of grid-based storage provides rich fodder for media reports and political posturing, the reality bears little relation to the perception. On March 9th, Lux Research published a sorely needed reality check in a new report titled "Grid Storage – Islands of Opportunity in a Sea of Failure," which concluded that "Amongst the sea of possible scenarios, there are few combinations that offer an acceptable payback, while endless potential pitfalls exist."

Lux analyzed the business scenario for 14 emerging energy storage technologies across 23 applications to identify the best investments for utilities, transmission operators, independent power producers and building operators in California, Germany, and China. The report was based in large part on data from a December 2010 study published by the Electric Power Research Institute, "Electricity Energy Storage Technology Options – A White Paper Primer on Applications, Costs and Benefits." While the Lux report and the EPRI study both offer detailed insight for institutional investors that are contemplating investments in energy storage, they're too detailed for individual investors who are mainly concerned with managing their personal portfolios.

The first thing individual investors need to understand is that while global electric power generating capacity is roughly 4,000 GW, total installed energy storage capacity is less than 128 GW, or 3.2% of generating capacity. The second thing they need to understand is that substantially all of the existing storage facilities are pumped hydro. The following graph from the EPRI report provides additional color on how much installed capacity really exists for the exciting new energy storage technologies the press is gushing over.

3.22.11 Global Storage.png

While EPRI's installed capacity graph should be enough to make cautious investors pause to check their assumptions, another graph from the EPRI report is far more useful. It shows the estimated size of the potential market for 15 key energy storage applications on the horizontal axis and then shows the maximum price per kWh of storage capacity an end-user would be willing to pay on the vertical axis. The red annotations are mine.

3.22.11 Grid Markets.png

Wholesale frequency regulation, the application that's getting the bulk of the media attention, is shown on the left-hand side of the graph. It's the primary target for cool storage technologies like flywheel-based systems from Beacon Power (BCOND) and lithium-ion battery based systems from Altair Nanotechnologies (ALTI), A123 Systems (AONE), Ener1 (HEV) and others. Despite the media's excitement, the reality is wholesale frequency regulation represents less than 1% of potential demand for grid-based storage. The other 99% can only be served by cheap energy storage technologies. Less than a half of the potential market will ever be addressable by manufactured energy storage devices. The rest will remain out of reach without widespread deployment of pumped hydro, compressed air and other large-scale electro-mechanical systems.

There's little question that the potential markets for manufactured energy storage devices in grid-based applications are big enough to support several successful companies. They're just not as easy as the media reports would have us believe. Wholesale frequency regulation in the US is probably limited to something on the order of 400 MW, which works out to about $1.6 billion in domestic revenue potential. The bigger prize is the $16 billion of potential demand for manufactured systems that can be installed at a price point of $500 to $1,700 per kWh. Globally, those target markets are closer to $5 billion and $50 billion, respectively.

Of the electro-chemical energy storage technologies discussed in the EPRI report, conventional and advanced lead-acid batteries and flow batteries usually offered the best cost profiles for the work of transmission and distribution upgrade deferral in both fixed and transportable formats. The economics remain challenging when you include the costs of containerization, interconnect equipment and control electronics, but they are within the realm of reason. Once you get beyond short-duration frequency regulation, however, cool technologies don't stand a chance of being competitive.

The universe of publicly traded US companies that can respond to the need for cheap grid-based energy storage is small. It includes Enersys (ENS), Exide Technologies (XIDE), and C&D Technologies (CHHPD.PK)  in the established manufacturer ranks with Axion Power International (AXPW.OB) and ZBB Energy (ZBB) in the emerging company ranks. Cool technologies will probably continue to claim the lion's share of the headlines, but cheap technologies will almost certainly claim the lion's share of the revenues and profits. From an investor's perspective, those are the only metrics that really matter.

Disclosure: Author is a former director of Axion Power International (AXPW.OB) and holds a substantial long position in its common stock.

December 19, 2010

Active Power – A Solid Investment Opportunity And A Valuable Object Lesson For Investors

John Petersen

In December 2008 I went hunting for opportunities in the energy storage sector and selected six pure-play stocks that seemed seriously undervalued. I bought Enersys (ENS) at $6.00, Exide Technologies (XIDE) at $2.00 and Active Power (ACPW) at $0.26. While Enersys and Exide have been fabulous performers with appreciation to date of 442% and 397%, respectively, Active Power has been the runaway champion with appreciation to date of 923%.

My other three picks have performed poorly. C&D Technologies (CHHP.PK) is down 96% and finalizing a restructuring that will give 95% of its equity to noteholders; so I don't expect stockholders to recover more than a fraction of their losses. ZBB Energy (ZBB) is down 49% and remains a question because of its weak financial condition. Axion Power International (AXPW.OB) is down 51%, but my confidence in its technology, business model and financial health has never been greater.

A diversified portfolio created in December 2008 with a $1,000 investment in each of my six picks would have been worth $19,218 at Friday's close, for a two-year portfolio appreciation of 220%. In comparison, a diversified portfolio created in December 2008 with a $1,000 investment in each of Ener1 (HEV), Valence Technologies (VLNC), Altair Nanotechnologies (ALTI) and Beacon Power (BCON) would have been worth $2,284 at Friday's close, for a two-year portfolio depreciation of 43%. In simple terms, cheap energy storage has outperformed cool energy storage for two years running and I don't expect that dynamic to change anytime soon.

While an occasional glance in the rearview mirror can be an ego booster, it's rarely helpful for investors who want to position their portfolios for an uncertain future. Since Active Power was the best performer over the last two years; it offers a solid medium-term opportunity; and it can serve as a valuable object lesson in speculative stock picking, the balance of this article will focus on Active Power, its growth opportunities and the object lessons hidden in its history.

A recurring theme of this blog is that the energy storage sector plays by a different set of rules than the ones we came to know and love during the information and communications technology revolution. While IT companies can bloom and grow like wildflowers in an alpine meadow, companies in the energy storage sector behave more like vineyards that need years of careful attention before they begin bearing fruit. Investors who do not understand the differences will suffer.

Active Power manufactures, sells and services mission critical power infrastructure solutions for end-users that demand power quality and reliability at the 99.99999%, or seven nines, level. Past customers include factories, refineries, banks, datacenters, broadcasters, law enforcement command centers, airports and hospitals around the world.

Active Power's infrastructure solutions are not the simple battery backups most of us think of when somebody mentions uninterruptible power. Instead, they're multiply redundant integrated power solutions for users that can't afford outages like the one encountered earlier this month at a Toshiba factory in Japan where a 0.07 second voltage drop interrupted operations and damaged up to 20% of the flash memory chips the plant was planning to ship to customers in January and February of 2011. While the incident was an extreme example, credible estimates peg the total productivity losses from power outages in the US at $150 to $200 billion per year.

Active Power went public in August of 2000 and raised $156 million at $17 per share. It was one of the last major IPOs before the tech-wreck. By September 2000, Active Power's stock had surged to a peak of $79.75 before starting a hellish decline to $0.25 a share by December 2008. It was a classic case of a young company that had a promising technology and ambitious plans that:
  • let irrational expectations run wild in the early days;
  • learned its technology and market development challenges were far more difficult, time consuming and costly than anyone expected them to be;
  • buckled down to hard work of refining a world-class technology solution and then proving the value of that solution to skeptical customers who can't afford failures or mistakes; and
  • turned the corner at a time of maximum discontent and outright investor capitulation.
Since a ten-year stock price chart is too ugly for an upbeat article like this one, I'll use a five-year version instead.

12.20.10 ACPW Price.png

The following graph tracks several important financial statement metrics over the last decade. Since hard numbers for 2010 won't be available till next March, I've used September 30th balance sheet data and trailing-twelve-month income statement data as approximations. Active Power's actual 2010 numbers should be better than they appear in the graph.

12.20.10 ACPW Financial.png

While a detailed discussion of Active Power's products, history and future could fill a small book, there are a few key points that investors need to understand when evaluating Active Power as an investment or as an object lesson.

First, Active Power needed several years to complete the development of its technology and begin installing systems for end-user validation and testing. In the beginning Active Power relied on Caterpillar (CAT) to include its flywheels in power quality systems sold by them. By 2005, it became clear that leaving the marketing function to a large partner that had ready access to several competitive energy storage options didn't always benefit Active Power. That dynamic forced Active Power to adopt a more proactive marketing approach and when it began integrating Caterpillar generators into its own systems instead of relying on Caterpillar as a principal sales channel, the game changed.

Second, end-users needed several years of validation and testing before there was a broad enough experience base to drive working relationships with first tier industrial engineering firms and distribution partnerships with companies like Hewlett Packard (HPQ) and Sun Microsystems (JAVA). Now that core business relationships are established, along with a widespread end-user experience base, Active Power can focus on selling its product line to a rapidly expanding market based on competitive capital cost, high power density, extraordinary system performance and low total cost of ownership.

Third, Active Power's target market is growing very rapidly because global reliance on automation and computerization is increasing while the level of power quality and reliability in many countries is declining. Active Power has no desire to stabilize the grid, but it knows that many industrial, commercial and governmental facilities will readily pay a premium price for the power quality and reliability their utilities can't deliver. Utilities in China typically promise customers 99.1% reliability. While that's an impressive accomplishment for a rapidly developing economy like China's, it's a far cry from the seven nines that many end-users must have.

Fourth, Active Power understands that its flywheel systems must compete with battery-based systems from companies like Emerson/Liebert, Eaton/Powerware and APC/MGE, and rotary systems from companies like Piller, Eurodiesel and Hitec. It also knows that a rapidly growing multi-billion dollar market is large enough to support several successful competitors. Accordingly, its primary goal is market credibility rather than market dominance.

When I first evaluated Active Power in late-2008, it had completed most of the heavy lifting associated with technology development and end-user validation. Its sales were ramping at respectable rates and its losses were narrowing. While Active Power's balance sheet was a mere shadow of its post-IPO glory, it had enough cash and working capital to finance a full year of operations and continue the orderly execution of its business plan. When I combined those factors with a market capitalization that was hovering around 75% of stockholders equity, it was clear that Active Power had limited downside risk and huge upside potential.

Over time, stocks tend to oscillate between undervalued and overvalued and they only touch fair value briefly during the transitions. If Active Power's management can stay the course and continue to execute the way they have over the last few years, I believe today's price is but a fraction of what it will be in 2012. I don't expect another 923% gain because companies like trees don't keep growing forever. However a double or even a triple from current levels would not be an unreasonable target given the magnitude of the undervaluation Active Power suffered through in late 2008.

I've previously written about the Gartner Group's Hype Cycle and think it's worth revisiting here. The following graph shows a stylized version of what happened to Active Power between its peak of inflated expectations in the fall of 2000 and its trough of disillusionment in the winter of 2008. I've seen a similar pattern in the stock of every public company I've ever represented.

Gartner HC Slide.jpg

In my view there are only two great times to buy a stock for investment. The first is in the early days of the innovation trigger, but investments at that stage are usually reserved for venture capital and by the time a company makes its public debut, the price is already in nosebleed territory. The second is at or near the bottom of the trough of disillusionment when business and financial fundamentals are sound, but the market is too tired or distracted to recognize the opportunity.

I am frequently and fervently chastised for expressing negative opinions on high-flying market superstars and favorable opinions on unloved companies with simple products. My goal, however, is to point out the risks of companies that are near the peak of inflated expectations and the opportunities of companies that are preparing to emerge from the trough of disillusionment. It's more art than science, outcomes are never certain and timetables are impossible to predict because of the market's ability to stay irrational for extended periods. In the fullness of time, however, the weighing machine always does its job.

The next couple years should be a lot of fun as Active Power makes the transition from losing money to making money. It's always an exciting time where positive surprises generate favorable price swings but negative surprises are discounted as part of the maturation process. I look forward to devoting more attention to Active Power.

Disclosure: Author is a former director of Axion Power International (AXPW.OB) and owns a substantial long position in its common stock.

December 30, 2009

Pure Play Energy Storage Stocks Year-End Review And Outlook

John Petersen

With only a couple trading days left in 2009, this is as good a time as any for a performance review. The predictions I made at this time last year were pretty solid with an 80% accuracy rate on price direction. For the year, a $1,000 investment in each of my green star companies would have yielded a portfolio appreciation of 67%, which handily beat the broader market indices. That being said, my star and caution ratings were a good deal less prescient because I seriously underestimated the potential of both Maxwell Technologies (MXWL) and Active Power (ACPW), which appreciated by over 200%.

The following table identifies my current universe of pure play energy storage companies, reiterates my outlook at the beginning of this year, summarizes their performance during 2009 and offers my assessment of likely price performance during 2010. In the table, a single star signifies a neutral position.



Valence Technologies (VLNC) scares the hell out of me. It had a working capital deficit of ($10.8) million at September 30, 2009 and its stockholders were under water to the tune of ($74.7) million. Valence is currently surviving on life support financing from the open market re-sale of 650,000 shares every two weeks. The financing is enough to keep the doors open, but leaves little or no room to build a business. My experience with companies in comparable financial straits has not been good.

Ener1 (HEV) is in a better position than Valence, but not much. It had $2.4 million in working capital at September 30, 2009 and then raised $20 million by selling stock to an equipment vendor, so short-term operating cash does not seem to be a problem. Nevertheless, Ener1's September 30th balance sheet includes a $13.6 million investment that allowed Th!nk Motors to emerge from the Norwegian equivalent of a bankruptcy reorganization; $13.7 million of intangible assets; and $50.4 million in goodwill. Even after the $20 million cash infusion, Ener1 had a net tangible book value of roughly $0.54 per share before fourth quarter losses. Since Ener1 needs to come up with $118.5 million in matching funds for an ARRA battery manufacturing grant that was awarded in August and it also needs an indeterminate amount of working capital, I can't help but believe that the company will face substantial financial challenges over the next few months. Management may be able to pull off a miracle, but given market conditions I would expect any major financing to go off at a big discount to the current price.

I remain quite bullish on established battery manufacturers with a global presence that trade for mere pennies on the dollar of annual sales including C&D Technologies (CHP) where the market cap equals 11% of sales, Exide Technologies (XIDE) where the market cap equals 21% of sales, Ultralife (ULBI) where the market cap equals 43% of sales and Enersys (ENS) where the market cap equals 67% of sales. All these companies have been actively restructuring operations to improve profitability and when the fruits of those efforts become more obvious, I expect significant upside potential across the board. Since I don't fully understand the business culture or the market, I'm a bit more cautious when it comes to the Chinese companies.

My two favorite speculations are ZBB Energy (ZBB), which has an ultra-low market capitalization for an exchange listed public company, and Axion Power International (AXPW.OB). I'm far from objective when it comes to Axion because I poured four years of my life and a large chunk of my personal fortune into the company. However, Axion's tangible accomplishments since I stepped out of an active role are truly impressive. Now that the pain of a recent down round financing is largely history and Axion's short- to medium-term financial future is secure, it's all up to the PbC battery.

It will be fascinating to see whether my predictions can be generally right for another year. I’ll revisit this list at least quarterly over the next year and either gloat or eat crow as appropriate. In the meantime I would like to wish everyone a Happy New Year and a prosperous 2010. It should be a fascinating year for the energy storage sector.

Disclosure: Author is a former director of Axion Power International (AXPW.OB) and holds a large long position in its stock. He also holds small long positions in Exide Technologies (XIDE), C&D Technologies (CHP), Active Power (ACPW) and ZBB Energy (ZBB).

August 14, 2009

NanoMarkets LLC Forecasts $8.3 Billion Annual Market For Smart Grid Batteries By 2016

In August of last year I wrote an article titled "Grid-based Energy Storage: Birth of a Giant." Over the last 12 months I've written a series of follow-on articles that discuss the principal classes of manufactured energy storage devices and the companies that are making or planning to make products for smart grid energy storage applications. My entire archive of articles on the energy storage sector is available here.

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 (rob@nanomarkets.net) 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.

August 10, 2009

Why I'm Long Active Power

10.08.09 ACPW John Petersen

This morning I awoke to a comment from Seeking Alpha contributor Michael Eisenberg who asked me to lay out my core thesis on why Active Power, Inc. (ACPW) merits attention from investors who are interested in the energy storage sector. While Altenergystocks and Seeking Alpha don't generally like to publish articles about companies that trade for under a dollar, I believe Active Power merits an exception to the general policies.

As regular readers know, I've been a small company securities lawyer for almost 30 years and immersed in the energy storage sector since early 2004. During my career I've had many clients in diverse industries succeed and fail. While their businesses have all been quite different, they invariably go through the same stages of initial excitement over a novel idea, disenchantment as the business model proves difficult and costly to implement, and sustained growth when diligent pursuit of the business model begins to bear fruit. In many ways the life cycle of a small company is like a marriage that begins with an overly optimistic honeymoon, gets rocky for a period of years as the reality of paychecks and budgets sinks in, and then strengthens over time to become something valuable and enduring.

My favorite example of a typical small company growth cycle is J2 Global Communications (JCOM), a company that I got to know first as a customer and then as a stockholder. J2 went public in July 1999 in at an IPO price of $9.50 per share (market capitalization $312 million) and its stock price immediately began a gradual downhill slide to a low in the $0.30 range (market capitalization $16 million). While the market obviously hated the stock, I loved the service, believed J2 had a bright future and bought its stock in the $0.50 range. After living through the indignity of a reverse split, J2's stock price recovered nicely and I ended up selling for a triple in late 2002, which proved to be dreadfully premature. The full trading history of J2 is summarized in the following graph.



I began researching Active Power last fall because they manufacture and sell uninterruptible power supplies based on a flywheel technology that's similar to what Beacon Power (BCON) is developing for grid-based applications. While Active Power's focus is data centers and other facilities that need extraordinary power quality and reliability, its solutions should be easy to scale up as demand for grid-based systems develops. When I first began comparing the two companies, Beacon was sporting a market capitalization of $80 million and Active Power was limping along with a market capitalization of just $24 million. When it came to business fundamentals, however, Active Power had a comparable product, comparable stockholders equity, smaller operating losses and a far more impressive business history. That led me to the inescapable conclusion that Active Power had attractive upside potential while Beacon had worrisome downside risk.

Active Power went public in August 2000 in an IPO price of $17 per share (market capitalization $640 million) and after an initial run-up; its stock price began to tank. The price ultimately decayed to the point that even after a reverse split it traded as low as $0.22 per share last winter. The full trading history of Active Power is summarized in the following chart.



While Active Power's stock price chart tells a tale of unmitigated disaster, the selected financial data from its last Form 10-K tells an entirely different story; a story of sustained growth, improving margins and declining losses (click on figure for a larger view). In other words a management team that’s had the courage to stay the course even when times got tough is successfully implementing their business plan.



During the first six months of 2009, Active Power booked a 24% year on year sales growth and improved its gross profit margin from 12% to 26%. In my view these are solid performance metrics for a small company in recessionary times.

I bought Active Power in the fourth quarter of last year at $0.26 per share because I saw the same long-term pattern developing that I experienced with J2. So far the investment has been very good for me and its market value has increased by 185% in eight months. Since I believe Active Power is turning an important corner in its business development and I'm convinced that overall growth in the energy storage sector will be spectacular for decades, I won't be anywhere near as quick on the trigger as I was with J2. I may even buy a little more.

DISCLOSURE: The Author is long Active Power


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.

August 05, 2009

My ATVM Loan and ARRA Battery Grant Preview

John Petersen

The next few days are going to be a very exciting time in the energy storage and electric vehicle sectors because the Obama Administration is preparing to announce a series of major ATVM Loan and ARRA Battery Manufacturing Grant awards.

President Obama will be in Elkhart, Indiana where he will presumably announce an ATVM loan to Navistar (NAV) and may announce some additional ATVM loans or ARRA battery grants. Vice President Biden will be in Detroit where he is scheduled to announce one or more ARRA battery grants and perhaps some ATVM Loans. Secretary Chu will be in Charlotte, North Carolina where he will presumably announce an ARRA battery grant to the Celgard subsidiary of Polypore International (PPO) and may announce other ARRA battery grants or ATVM loans.

I've resisted the temptation to wade in and predict the likely winners of the ARRA Battery Grant contest because there are so many deserving companies and many of them are privately held. But since The Wall Street Journal is making predictions I guess there's no harm in handicapping the "Cell and Battery Pack Manufacturing Facilities" category which is expected to include 7 to 8 awards of $100 to $150 million each. My list of likely grand prize winners is:

1.   A123 Systems;
2.   Ener1 (HEV);
3.   JCI/Saft, a joint venture between Johnson Controls (JCI) and France's Saft Batteries (SGPEF.PK);
4.   General Electric (GE); and
5.   Somebody from the lead-acid battery sector.

Trying to round out the top tier list with any more detail is almost impossible and while I have my personal favorites, my opinion and $5 will get you a cup of coffee at Starbucks (SBUX).

The original funding opportunity announcement broke the ARRA grants down into several categories as follows:

Industry subsector Total Funding Awards Award Size
Cell and Battery Pack Manufacturing Facilities $1,200 million 7 to 8 $100 to $150 million
Advanced Battery Supplier Manufacturing Facilities $275 million 14 $20 million
Advanced Lithium ion Battery Recycling Facilities $25 million 2 $12.5 million
Electric Drive Component Manufacturing Facilities
$350 million 3 to 5 $80 million
Electric Drive Subcomponent Manufacturing Facilities
$150 million 6 to 8 $20 million

I have a hard time imagining that the Administration will announce a total of 32 to 37 grants in just three events. Accordingly I expect the process to draw out at least into tomorrow and perhaps into next week. In any event, I suppose we'll know more this afternoon than we do this morning.

DISCLOSURE: None

August 03, 2009

Alternative Energy Storage: Cheap is Still Outperforming Cool

John Petersen

The next couple months are shaping up as a time of extraordinary change in the energy storage sector. Events that will drive the change include:
So now seems like a good time to update the relative performance of the individual energy storage stocks I've been writing about for the last year.

The following table provides comparative price data for the short-list of pure play energy storage companies I track. It shows closing prices on November 14, 2008 and July 31, 2009, calculates the percentage of change over the last eight months, and calculates current market capitalizations based on recent SEC reports.



14-Nov 31-Jul Percent Market
Cool Emerging Symbol Close Close Change Cap
Ener1 HEV $6.75 $6.38 -5.48% $723.96
Valence Technology VLNC $1.88 $1.83 -2.66% $228.58
Altair Nanotechnologies ALTI $0.87 $0.97 12.14% $90.36
Beacon Power BCON $0.82
$0.76 -7.32% $90.62






Cool Sustainable




Maxwell Technologies MXWL $6.50 $14.16 117.85% $328.26
Advanced Battery ABAT $2.13 $4.28 100.94% $247.47
Ultralife ULBI $9.08 $6.42 -29.30% $108.88
China BAK CBAK $1.99 $3.31 66.33% $190.95
Hong Kong Highpower HPJ $3.50 $1.41 -59.71% $19.12






Cheap Emerging




Axion Power International AXPW.OB $1.30 $1.25 -3.85% $44.53
ZBB Energy ZBB $0.93 $1.30 39.78% $13.80






Cheap Sustainable




Enersys ENS $6.86 $19.79 188.48% $951.70
Exide Technologies XIDE $3.38 $4.87 44.08% $367.78
C&D Technologies CHP $1.94 $2.00 3.09% $52.59
Active Power ACPW $0.40
$0.74 83.75% $48.85

Between November 14, 2008 and July 31, 2009, a $1,000 index investment in the Dow Jones Average, the Nasdaq Index and the S&P 500 would have resulted in an average portfolio appreciation of 17.2%. The following table summarizes the portfolio gain or (loss) that would have resulted from an investment of $1,000 per company in each of my four groups.

Tracking
Percentage
Category Gain (Loss)
Cool Emerging
(0.8%)
Cool Sustainable
39.2%
Cheap Emerging
18.0%
Cheap Sustainable
79.9%

Equity markets are driven by a combination of greed and fear, emotional reactions that are often at odds with fundamental economic realities. Over the past few years, both cool groups have been driven by headlines that highlight opportunities while both cheap groups have been driven by headlines that highlight problems. Since headlines invariably feed the greed and fear cycle, the cool groups were driven to relatively high valuation levels while the cheap groups were driven to relatively low valuation levels. If the last eight months are any indication, the pendulum is moving back toward a more balanced position where cheap group valuations will eventually catch up with cool group valuations. As the following summary valuation metrics show, they still have a long way to go.



Shares Price/ Price/ Price/ Book Value
Cool Emerging Group Symbol (000s) Earnings Book Sales Per Share
Ener1 HEV 113,474
8.63 48.38 $0.74
Valence Technology VLNC 124,905

8.39 -$0.55
Altair Nanotechnologies ALTI 93,153
2.48 16.39 $0.39
Beacon Power BCON 119,239
3.67 519.28 $0.20
     Group Average


4.93 148.11 $0.20







Cool Sustainable Group





Maxwell Technologies MXWL 23,182
5.41 3.79 $2.65
Advanced Battery ABAT 57,821 14.31 2.88 5.04 $1.47
Ultralife Batteries ULBI 16,959 12.64 1.19 0.41 $4.92
China BAK CBAK 57,688
1.19 0.82 $2.74
Hong Kong Highpower HPJ 13,563 10.85 1.14 0.28 $1.23
     Group Average

12.60 2.36 2.07 $2.60







Cheap Emerging Group





Axion Power International AXPW.OB 35,625
7.25 42.09 $0.17
ZBB Energy ZBB 10,618
1.74 15.24 $0.74
     Group Average


4.50 28.67 $0.46







Cheap Sustainable Group





Enersys ENS 48,090 11.56 1.49 0.49 $13.43
Exide Technologies XIDE 75,519 7.49 1.09 0.11 $4.37
C&D Technologies CHP 26,296
1.11 0.15 $1.81
Active Power ACPW 66,458        
2.24 0.91 $0.30
     Group Average
54,091 9.53 1.48 0.42 $4.98

I have long argued that every energy storage decision boils down to a cost-benefit analysis and the bulk of the incremental sales revenue will flow to companies that serve the mundane needs of the average user, rather than the extreme needs of "power users." Based on his recent statement that lithium-ion batteries are overhyped, it appears that Vinod Khosla, one of Silicon Valley's most active cleantech investors, agrees with me. While I believe fundamental market drivers will result in rapid and sustained growth across the entire spectrum of energy storage companies, I’m convinced the superstars will be the manufacturers of objectively cheap products that can serve the needs of average users at a reasonable price. Until cheap group valuations approach parity with cool group valuations, I will continue to believe that investors who want to maximize portfolio performance in the energy storage sector should focus on the cheap groups instead of the cool groups.

DISCLOSURE: Author is a former director Axion Power International (AXPW.OB) and holds a large long position in its stock. He also holds small long positions in Exide (XIDE), Enersys (ENS) Active Power (ACPW) 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.

July 17, 2009

Energy Storage on the Smart Grid Will Be 99.45% Cheap and 0.55% Cool

7.17.09 Storage Week John Petersen

Infocast’s Storage Week was all I had hoped it would be, and more. While I thoroughly enjoyed serving on three discussion panels and was warmly received by roughly 250 attendees, including executives of companies that I've occasionally criticized, the most important value for me came from the opportunity to hear four days of high-level presentations by industry executives, national thought leaders and policymakers who repeatedly stressed that:
  • From a utility perspective grid-based energy storage is the functional equivalent of an instantly dispatchable generating asset;
  • The combination of wind assets with cost effective load-shifting storage can improve internal rates of return by 50% or more;
  • The combination of solar assets with cost effective load-shifting storage can improve internal rates of return by 50% or more;
  • When it comes to grid-connected energy storage, cost, reliability, maintenance and cycle life will be the primary decision drivers.
Consensus was that an optimal smart grid configuration will need storage capacity equal to at least 5% of peak system load and areas that rely heavily on intermittent renewables like wind and solar will need a higher capacity to maximize the value of those assets.

In the example of California, the required annual storage build was estimated at 500 MW per year for the next 10 years. Of this total, 50 MW would need to be fast storage in the form of flywheels and Li-ion batteries and the 450 MW balance would be 4 to 6 hour storage in the form of pumped hydro, compressed air, flow batteries and advanced lead acid batteries.

The following table assumes that fast storage for frequency regulation will have an average discharge duration of 15 minutes and load shifting storage will have an average discharge duration of five hours. It shows how the aggregate annual storage build for both California and the U.S. as a whole will break down in terms of both MW of dispatchable power and MWh of stored energy.

State of California
MW Percent MWh Percent
Annual Fast Storage Build
50 10.00% 12.5 0.55%
Annual Load Shifting Build
450 90.00% 2,250 99.45%





Nationwide (8x California)




Annual Fast Storage Build 400
10%
100
0.55%
Annual Load Shifting Build 3,600
90%
18,000
99.45%

Using a quick and dirty pricing metric of $1 million per MW for fast storage devices including flywheels and Li-ion batteries the annual revenue potential of $400 million is impressive. Using an equally quick and dirty pricing metric of $500,000 per MWh for load shifting storage, the annual revenue potential of $9 billion is mind-boggling.

In the fast storage space, the leading contenders are Maxwell Technologies (MXWL), a leading manufacturer of supercapacitors; Active Power (ACPW), which builds low-speed flywheel systems for industrial power conditioning and UPS applications; Beacon Power (BCON), which builds high-speed flywheel systems for utility frequency regulation and recently snagged a DOE loan commitment for a 20 MW fast storage demonstration project; Altair Nanotechnologies (ALTI), which has built and deployed 2 MW of fast storage that is currently being tested by a major utility; and A123 Systems, which has also built and deployed several MW of fast storage for utility customers in the U.S. and overseas.

In the load shifting space, the leading contenders are Dresser Rand (DRC) which builds above ground compressed air systems, ZBB Energy (ZBB), which builds zinc-bromine flow batteries; lead-acid battery manufacturers like Enersys (ENS), Exide (XIDE) and C&D Technologies (CHP); and innovators like Axion Power (AXPW.OB) which is in the early stages of demonstrating the capabilities of its lead-carbon storage technologies.

The broader market has not yet come to grips with the realities that:
  • The combination of wind and storage yields better returns than wind as a stand-alone;
  • The combination of solar and storage yields better returns than solar as a stand-alone; and
  • While the fast storage developers have been grabbing all the headlines because of the push to develop PHEVs and EVs, the manufacturers of cost effective load shifting systems will lay claim to well over 90% of the anticipated revenue.
As investors in the $100+ billion wind and solar sectors come to understand the critical need for storage to maximize the economics of those intermittent renewables, interest in the $2 billion storage sector will surge. As storage sector investors come to understand the critical need for cost-effective load shifting storage, interest in established manufacturers of less glamorous technologies will also surge. It all goes back to my fundamental premise that for the next decade, cheap will beat cool.

I'm in transit from California to Europe and won't have access to electronic copies of the Storage Week presentation materials for a few days. So I apologize for the dearth of links to source materials. When those materials become available, I'll follow up with a more detailed series of articles that get into the grittier questions of which companies are best positioned to capitalize on explosive growth in both fast and load-shifting grid based energy storage.

For the first time in my career, I find myself on the leading edge of a trend that will be larger than most investors can begin to imagine. It's going to be a fun decade for investors who position their portfolios early because events like Storage Week and the anticipated IPO from A123 Systems are rapidly sending a clear signal to the broader market.

DISCLOSURE: Author is a former director and executive officer of Axion Power International (AXPW.OB) and holds a large long position in its stock. He also holds a small long position in Exide (XIDE).

April 21, 2009

A Very Smart Plan for Federal Smart Grid Grants

In mid-February President Obama signed the American Recovery and Reinvestment Act of 2009 (ARRA), a massive spending bill that spawned gigabytes of analysis and comment from bloggers like me. Unlike many, I've tried to stay politically agnostic and focus solely on the economic impact of ARRA on companies that manufacture batteries and other energy storage devices. From that limited perspective, everything is wonderful!

The principal energy storage appropriations included in the ARRA were:
  • $4,500,000,000 for grants for “Electricity Delivery and Energy Reliability” including activities to modernize the electric grid, include demand response equipment, enhance security and reliability of the energy infrastructure, energy storage research, development, demonstration and deployment, and facilitate recovery from disruptions to the energy supply;
  • $2,000,000,000 for grants to manufacturers of advanced battery systems and vehicle batteries that are produced in the United States, including advanced lithium ion batteries, hybrid electrical systems, component manufacturers, and software designers;
  • $500,000,000 for research, labor exchange and job training projects that prepare workers for careers in energy efficiency and renewable energy; and
  • $300,000,000 to purchase high fuel economy motor vehicles including: hybrid vehicles; neighborhood electric vehicles; electric vehicles; and commercially available, plug-in hybrid vehicles.
In a February 22nd article about why I believed energy storage stocks could easily double as a direct result of ARRA spending, I cautiously speculated that a large number of $100 to $200 million grants seemed more likely than a handful of mega-project grants. In response, many readers expressed concerns that the ARRA funding would be hijacked by the utility industry or wasted. While we've all been eagerly awaiting clarification, I'm very impressed with the direction the Administration's policies seem to be heading.

In his early remarks on ARRA policy objectives, President Obama seemed inclined toward an egalitarian approach that would use ARRA funding for a wide variety of projects in a concerted effort to create new jobs, explore reasonable alternatives and rely on market mechanisms rather than policy-wonks. I was particularly impressed by remarks President Obama made at the Southern California Edison Electric Vehicle Technical Center last month when he said:

"Show us that your idea or your company is best-suited to meet America's challenges, and we will give you a chance to prove it. And just because I'm here today doesn't exempt all of you from that challenge - every company that wants a shot at these tax dollars has to prove their worth."

While we all know the opera ain't over 'til the fat lady sings, an April 16th press release from the DOE has spurred my optimism to new heights and given me reason to believe the DOE's plans for smart grid grants will take a very reasonable and pragmatic approach. In discussing their plans for financing smart grid projects, the DOE press release said:

"$3.375 billion for Smart Grid Investment Grant Program"

DOE’s Smart Grid Investment Grant Program will provide grants ranging from $500,000 to $20 million for smart grid technology deployments. It will also provide grants of $100,000 to $5 million for the deployment of grid monitoring devices. This program provides matching grants of up to 50 percent for investments planned by electric utilities and other entities to deploy smart grid technologies. The program will use a competitive, merit-based process to select qualified projects to receive funding.

Eligible applicants include, but are not limited to, electric utilities, companies that distribute or sell electricity, organizations that coordinate or control grid operations, appliance and equipment manufacturers, and firms that wish to install smart grid technology. There will be a 20-day public comment period on the Notice of Intent; the Department will use feedback to finalize the grant program structure and subsequent solicitation.

$615 million for Smart Grid Demonstration Projects

The draft Funding Opportunity Announcement is for smart grid demonstrations in three areas:
  • Smart Grid Regional Demonstrations will quantify smart grid costs and benefits, verify technology viability, and examine new business models.
  • Utility-Scale Energy Storage Demonstrations can include technologies such as advanced battery systems, ultra-capacitors, flywheels, and compressed air energy systems, and applications such as wind and photovoltaic integration and grid congestion relief.
  • Grid Monitoring Demonstrations will support the installation and networking of multiple high-resolution, time-synchronized grid monitoring devices, called phasor measurement units, that allow transmission system operators to see, and therefore influence, electric flows in real-time.
Each demonstration project must be carried out in collaboration with the electric utility that owns the grid facilities. An integrated team approach that includes, for example, products and services suppliers, end users, and state and municipal governments, is encouraged. The projects require a cost share of at least 50 percent of non-federal funds."

Frankly, the DOE's goals are more ambitious, reasonable and broad-based than I had hoped they would be. Instead of a relatively small number of $100 to $200 million grants that would provide immense boosts to a small number of companies, the DOE is talking about hundreds of more modest grants that will benefit a much larger number of companies and probably be spent more wisely.

If the policy objectives defined by President Obama and clarified by the DOE flow through the entire ARRA grant allocation process, we may be entering a golden age for investors in companies that are developing batteries, energy storage devices and other smart grid technologies; a tidal wave of public and private funding that will lift all boats in the sector rather than a select few.

The overriding policy objectives I've been able to glean from the statements to date are:
  • The DOE will spread the wealth across a broad range of technologies and companies; and
  • The DOE will not finance technologies or companies that cannot attract the bulk of the required funding from non-government sources.
The result is a true public-private partnership where generous government support is available for companies that the market is willing to support as stand-alone business ventures, but the market holds the ultimate trump card. It's a structure that's simple in its genius and recognizes that the job of government is to enable the market process rather than supplant it.

I've written more than a few unkind words about publicly announced applications under the DOE's Advanced Vehicle Technology Manufacturing Loan Program because many applicants including A123 Systems, Ener1 (HEV), Tesla Motors and Th!nk are underfunded and the amount of the requested loans is disproportionate to the established value of the advanced vehicle technologies they want to manufacture. My basic question has always been "What if they build their proposed factories and nobody wants their products?" That question, in turn, led to the inescapable conclusion that the ATVM loans are a 'heads I win tails you lose' proposition that can be nothing but good for successful applicants and nothing but bad for the government.

We may indeed end up with a wasteful outcome from the ATVM loan program because it takes a lot of money to build manufacturing capacity from the dirt up and the process has been politicized. My sense, however, is that the ARRA grants will be another story altogether. Carefully administered ARRA grants can double the available funding for grid-connected energy storage partnerships like the ones that A123 Systems, Altair Nanotechnologies (ALTI), Axion Power International (AXPW.OB), SAFT Batteries (SGPEF.PK) and ZBB Energy (ZBB) have negotiated with counterparties including AES Corporation (AES), ABB Limited (ABB), Eaton Corporation (ETN) and NYSERDA. If similar policies flow control the ARRA grant policies for advanced battery manufacturing, the impact on the entire energy storage sector can be huge.

I frequently criticize the bloated market capitalizations of Li-ion battery developers, but it's important that readers understand that my criticisms relate to stock market factors rather than an assessment of the underlying technology. We need Li-ion, lead-acid, lead-carbon and flow batteries, and a host of other technologies that haven't even been invented yet if we want to break our addiction to imported oil and pave the way for cleantech, the sixth industrial revolution.

While I've always believed that good things happen in America in spite of government, the evolving policies of the Obama Administration may well change my views. At least for now, I believe the Administration's plans for distributing the ARRA smart grid grants are very smart indeed because they rely on the capital markets and sound business judgment as a counter weight to idealism that frequently drives government action.

Disclosure: Author is a former director and executive officer of Axion Power International (AXPW.OB) and holds a large long position in its stock. He also holds a small long position in 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. From January 2004 through January 2008, he was securities counsel for and a director of Axion Power International, Inc. a small public company involved in advanced lead-carbon battery research and development.

February 28, 2009

Viva the Cleantech Revolution

It’s official! Cleantech, the sixth industrial revolution, has arrived on time and in the midst of extraordinary crisis. Like every good revolution, blood is flowing in the streets; the guillotine is en route to Wall Street and the mob is so busy plotting retribution for the excesses of the past that most have no time to consider the future. But as yesterday’s dynasties decay, crumble and fall, a new generation of visionaries is already building on the wreckage of the past. These are indeed troubled times that bear an eerie resemblance to the opening sentence from A Tale of Two Cities.

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way - in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.” Charles Dickens (1812 – 1870)

However like all times of trouble, this too shall pass.

In mid-February, President Obama signed an economic stimulus package that included $38 billion in alternative energy spending. A week later, in a memorable address to a joint session of Congress, the President outlined a vision for America’s future that rests on four pillars: energy independence, improved education, reduced healthcare costs and jobs. Last Thursday, he unveiled a 10-year plan that envisions $150 billion in alternative energy subsidies that will be paid for by a carbon cap and trade scheme. After decades as a backwater agency with a modest mandate and budget, the Department of Energy is finally surging to the forefront as the powerful agency it should be. With a little luck we may even see a comprehensive national energy policy and that would be a wonderful thing.

If you believe the press and listen to the politicians, a brave new world of clean renewable energy is just around the corner, but there are a couple of particularly nasty flies in the ointment. Alternative energy is inherently less stable than its conventional counterparts and cost-efficient transmission, distribution and storage systems do not yet exist. While the litany of potential solutions grows longer with each passing day, these solutions are largely unproven and will take years if not decades to implement nationwide. In the interim, our only option is to wake up in the morning, go to work with the toolbox we own, solve our problems to the best of our ability and be ready to embrace newer and better technologies when they are perfected. If we're lucky and sensible, cheap will triumph over cool.

I’m a dilettante when it comes to power generation, transmission and distribution, so I’ll leave those issues to better-informed writers and focus my attention on a narrow sector that I know well, manufactured energy storage devices.

Historically, batteries have been a critical but largely invisible part of daily life. They start our cars and power our cell phones but the only times they merit more than a passing thought are when they need to be recharged or replaced. With the dawn of cleantech, however, rechargeable batteries are no longer mere conveniences. For the first time in history, rechargeable batteries are fundamental enabling technologies that can help smooth the peaks and valleys in renewable power and foster the development of electric vehicles. Unfortunately, the battery industry is not ready for the current challenges, much less the sweeping changes that the cleantech revolution will require.

To understand the current state of battery technology, one must first understand the historical necessities that were the mother of invention. Around 250 BC, a clever Babylonian discovered that a genie could be released from a clay pot containing the right combination of lead and acid. During the 1800s, people began to find ways to make the genie do useful work beyond electro-plating and parlor tricks. Until the 1970s, there were only two primary classes of batteries: rechargeable lead-acid batteries and disposable dry cells. Lead-acid batteries handled the heavy work like starting cars and providing emergency lighting while dry cells were used for flashlights, toys and consumer goods, including the first portable radios and tape players.

In the mid-70s, maintenance free valve regulated lead-acid (VRLA) batteries were introduced and rapidly became the dominant automotive technology. They worked so well in fact that most battery manufacturers cut their R&D budgets to the bone because VRLA batteries performed well and a complacent auto industry saw no reason to pay premium prices to fund further research. While there was some progress on deep-cycle batteries for golf carts, forklifts and industrial systems, R&D in the lead-acid sector essentially took a 25-year siesta as electrochemistry became passé and college students gravitated toward more exciting, glamorous and rewarding careers in electronics, communications and information technology. Over the last few years, rapidly evolving bulk energy storage needs have sparked a new wave of lead-acid research that uses modern materials and manufacturing methods to improve and revitalize an old-line chemistry. The results have been almost magical and an entirely new generation of advanced lead acid and lead carbon batteries is in the final stages of pre-commercial development. These products are not widely available yet, but the new generation of batteries promise extraordinary performance at a lead-acid price, which once again proves the ancient wisdom that with time, everything old is new again.

The late 70s were a time of sweeping change as electronics manufacturers shifted their focus from toys, radios and tape players to productivity tools. The introduction of business tools like electronic calculators and the pagers, computers and telephones that quickly followed, drove the development of compact and light-weight rechargeable battery chemistries including nickel cadmium (Ni-Cd) nickel metal hydride (Ni-MH) and lithium ion (Li-ion). Since buyers of portable electronics invariably viewed run time between charges as a critical performance metric, R&D spending on these technologies soared and continues to this day.

Until recently, rechargeable batteries were not something the average consumer would think of as a discrete product class. Instead, they were relatively inexpensive components in high-end consumer durables like cars and electronics. In automobiles, batteries typically represent less than 1% of total product cost and in electronics it is rare for batteries to represent more than 5% of product cost. This historically low ratio of battery cost to total product cost resulted in a market dynamic where the auto industry could afford to be complacent, while electronics manufacturers were willing to pay huge premiums for modest improvements in battery performance. Both approaches were sensible in an earlier epoch, but neither has any utility in the emerging world of cleantech.

Where batteries were once viewed as low-cost components in expensive products, the pendulum is swinging in the other direction with a vengeance as the ratio of battery cost to total product cost escalates to the point where the batteries represent up to 20% of the cost of an HEV, up to 50% of the cost of an EV and over 90% of the cost of a grid-based system. Unfortunately, most batteries are simply too expensive for the jobs people want them to do. As thought-leaders, policymakers, manufacturers and consumers come to grips with the cruel and inflexible economic realities, cost accountants and industrial engineers will end up making the hard buying decisions and the opinions of futurists, scientists, techno-geeks and bloggers like me will become increasingly irrelevant. In the end, the only thing that will matter is a rigorous and comprehensive cost benefit analysis for each new energy storage application.

A couple days before Christmas, I published “Alternative Energy Storage Needs to Take Baby Steps Before It Can Run,” an article that was selected as an Editor’s Pick at Seeking Alpha and included cost data from a July 2008 Sandia National Laboratories report on its Solar Energy Grid Integration Systems – Energy Storage program. While the Sandia report focused on the current and projected capital costs of energy storage for solar power installations, the basic cost structure applies to the entire spectrum of energy storage applications. Several Li-FePO4 advocates promptly pointed me to Chinese Internet sites to support their arguments that Sandia's cost estimates are wrong, but I've found the Sandia estimates consistent with available industry cost data and believe they provide a reasonable basis for investment decisions. The Sandia capital cost estimates are set forth in the following table:

Technology Current Cost ($/kWh) 10-yr Projected Cost ($/kWh)
Flooded Lead-acid Batteries $150 $150
Sealed Lead-acid Batteries $200 $200
Low-speed Flywheel $380 $300
Na-S Batteries $450 $350
Asymmetric Lead-carbon Hybrid $500 <$250
Zn-Br Batteries $500 $250/kWh + $300/kW
Ni-Cd Batteries $600 $600
Zebra Na-NiCl Batteries $800 $150
Ni-MH Batteries $800 $350
Li-ion Batteries $1,333 $780
Vanadium Redox Batteries 20 kWh=$1,800/kWh
100 kWh =$600/kWh 
25 kWh=$1,200/kWh
100 kWh=$500/kWh
High-speed Flywheel $1,000 $800

With the basic cost structure firmly established from reliable sources, it’s probably worthwhile to revisit some cherished mythologies and incontrovertible realities that I assembled from eight months of reader comments and discussed at length in an article on the importance of rebuilding America’s domestic battery infrastructure.

Cherished Mythology Lead-acid batteries are environmental hazards.

Incontrovertible Reality With recycling rates approaching 99%, lead-acid batteries are the most highly recycled product on the planet and substantially all of the materials recovered through recycling can be used to make new batteries. Neither NiMH nor Li-ion chemistries can even come close to matching the natural resource efficiency and environmental safety of lead-acid batteries.

Cherished Mythology Li-ion batteries are one-quarter of the weight of their lead-acid counterparts.

Incontrovertible Reality The relentless but frequently unsuccessful quest for product safety has doubled the weight of Li-ion batteries. So while the explosive Li-ion chemistries have four times the energy density of lead-acid batteries, the safe Li-ion chemistries only cut the weight in half. In either event it’s silly to fret about battery weight in the context of a 3,000-pound car or a stationary power storage installation.

Cherished Mythology NiMH and Li-ion batteries have more power than lead-acid batteries.

Incontrovertible Reality The recent development of asymmetric lead-carbon hybrids has improved the power profile of advanced lead-acid batteries to competitive levels at a fraction of the cost.

Cherished Mythology NiMH and Li-ion batteries have far longer cycle-lives than lead-acid batteries.

Incontrovertible Reality The recent development of asymmetric lead-carbon hybrids has improved the cycle-life of advanced lead-acid batteries to competitive levels at a fraction of the cost.

Cherished Mythology NiMH and Li-ion batteries will improve as the technology matures.

Incontrovertible Reality NiMH and Li-ion batteries are already fully mature technologies. Substantially all of the recent advances in Li-ion technology are like changing a carrot cake recipe; call it what you will, but it's still a carrot cake when it comes out of the oven. There have been big safety gains from new flavors of Li-ion chemistry, but those gains have always come at the cost of reduced energy density.

Cherished Mythology Li-ion batteries are an ideal solution for most energy storage problems.

Incontrovertible Reality Li-ion batteries are the best solution for small format energy storage needs including cellular phones, power tools and portable computers. They also have significant potential for use in electric bicycles and hybrid scooters. Their cost effectiveness plummets when the battery pack is bigger than a breadbox. Even if Li-ion batteries could be cost effective in power-hungry applications like EVs and stationary applications, sound economics and rational industrial policies will always favor the manufacture and sale of 5,000,000 cell phones or 500,000 laptops over exporting the same batteries to power 1,000 EVs.

Cherished Mythology Plug-in electric vehicles provide a cost-effective path to a clean energy future.

Incontrovertible Reality Plug-in electric vehicles provide dramatic PR sound bites for politicians, car companies and environmentalists, but even the auto executives are quick to acknowledge that pure electric vehicles cannot be paying propositions for the average consumer until gas prices are far higher than they have ever been.

Cherished Mythology NiMH and Li-ion batteries will get cheaper as demand increases.

Incontrovertible Reality Roughly 75% of the cost of any battery is raw materials and NiMH and Li-ion batteries have been mainline industrial products for almost 20 years. The bulk of the potential manufacturing cost savings have already been achieved and the only way battery prices can fall dramatically is if massive new supplies of raw materials become available at bargain basement prices.

At the dawn of the cleantech revolution, the financial sector is in shambles and the Obama administration has thrown down the gauntlet on healthcare spending. While I have every confidence that the banks and insurance companies will heal with time, I also believe that margins in healthcare will be pressured for the foreseeable future. So the only investable long-term trend that I see in the current economic and political environment is alternative energy. In the alternative energy sector, the fundamental enabling technologies are transmission, distribution and storage. Each of these sub-sectors is essential, each is a target rich environment for investors and each will be a major recipient of long-term government support. Since accepted market wisdom holds that you should never fight the Fed, I think the policy clues for investors are crystal clear.

I can identify a dozen pure play public companies that have the potential to make a real difference in America’s energy storage future. Since I’ve made my personal opinions clear in earlier articles, I won’t bother re-plowing that ground today. However I encourage readers to study each of the principal market participants, consider where their existing and proposed products will mesh with the needs of the coming cleantech revolution, and consider who the likely buyers of their existing and proposed products will be. The short list of pure play public companies includes:

Name Trading Symbol Product Class Product Status
Active Power ACPW Low-speed flywheels Manufacturing
Altair Nanotechnologies ALTI Li-titanate batteries Demonstration
Axion Power International AXPW.OB Lead-carbon batteries Demonstration
Beacon Power BCON High-speed flywheels Demonstration
C&D Technologies CHP Lead-acid batteries Manufacturing
Enersys ENS Diversified batteries Manufacturing
Ener1 HEV Li-titanate batteries Demonstration
Maxwell Technologies MXWL Ultracapacitators Manufacturing
Ultralife Batteries ULBI Diversified batteries Manufacturing
Valence Technologies VLNC Li-phosphate batteries Manufacturing
Exide Technologies XIDE Lead-acid batteries Manufacturing
ZBB Energy ZBB  Zinc-bromine batteries Demonstration

As a student I strove for the extreme right hand tail of the bell shaped curve. As a businessman, I’m delighted to sacrifice the extremes on both ends of the curve because the bulk of the revenue will go to the company that best serves the needs of the guys in the middle.

Disclosure: Author holds a large long position in Axion Power International (AXPW.OB) and small long positions in Active Power (ACPW), Exide (XIDE), Enersys (ENS) 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. From January 2004 through January 2008, he was securities counsel for and a director of Axion Power International, Inc. a small public company involved in advanced lead-acid battery research and development.

February 06, 2009

Alternative Energy Storage: Enabling the Smart Grid

America’s electric power grid is subject to immense inefficiencies that arise from the interplay between centralized power generation, local power consumption and on demand utility service. To put things into a broad perspective, the nameplate capacity of U.S. generating facilities is about 1 million Megawatts (MW), so if all of our power plants ran 24/7 we would have a theoretical annual generating capacity of 8.7 billion Megawatt-hours (MWh). Since demand for electricity fluctuates on both a daily and seasonal basis, total electric power generation in 2007 was only 4.2 billion MWh, or less than 50% of nameplate capacity. The goal of the Smart Grid is to maximize the efficiency of existing generating facilities and accommodate the integration of renewable power resources. Since many better-qualified authors are writing volumes about transmission and distribution, demand management and renewable power technologies, I’ll limit this article to manufactured energy storage devices; enabling technologies that will be the beating heart of the Smart Grid for the next 10 to 20 years.

Last August I wrote Grid-based Energy Storage: Birth of a Giant, an introductory article that offered an overview of the potential uses for energy storage systems in the electric grid. At the time I confessed that the subject matter was a bit out of my depth, a problem that was compounded by a dearth of third-party analysis on specific applications. Mercifully, all that changed in December 2008 when the Department of Energy’s Electric Advisory Committee (EAC) published two reports that are must reads for investors that want to understand how the Smart Grid will develop, and position their investment portfolios to profit from cleantech, the sixth industrial revolution.

The first EAC report,“Smart Grid: Enabler of the New Energy Economy,” explains how the Smart Grid will use advanced technology to transform the energy production and distribution system into a more intelligent, resilient, reliable, self-balancing, and interactive network that enables enhanced economic growth, environmental stewardship, operational efficiencies, energy security, and consumer choice. The companion report, “Bottling Electricity: Storage as a Strategic Tool for Managing Variability and Capacity in the Modern Grid,” explains why the evolution of the Smart Grid will depend on cost effective energy storage, particularly in the early stages while other distribution and demand management solutions are being developed, adopted and implemented. This report divides Smart Grid energy storage applications into three functional classes: generation; transmission and distribution; and end-user, and then provides thumbnail descriptions of each potential energy storage application. Since my goal is to encourage readers to download and study the EAC reports and other source documents, this article will use summary tables to identify the major application classes and the existing and emerging manufactured energy storage devices that are expected to be useful in those applications.

I’ll apologize up front for giving short shrift to pumped hydro and compressed air energy storage. Both are highly efficient for storing massive amounts of energy and both are subject to physical and environmental constraints that limit where facilities can be built. More importantly, there are no pure-play public companies that focus on either storage technology, so spending a lot of time discussing cool technologies that you can’t invest in seems futile.

One of the most important concepts in any discussion of grid-based energy storage is discharge duration; or the optimal time required for a particular device to release its stored energy. Some grid-based applications require discharge durations measured in hours, others require discharge durations measured in minutes and still others require discharge durations measured in seconds. In general, manufactured energy storage devices that can store large amounts of energy are not good at discharging the stored energy quickly. Likewise, manufactured energy storage devices that can discharge energy quickly do not generally store large amounts of energy. Since the big challenge for utilities is to only provide slightly more power than customers need at any particular moment in time, they have to focus on peaks and valleys, rather than the averages. That's why a comprehensive solution will require a multi-pronged approach that uses a variety of manufactured energy storage devices to meet particular needs.

The core data in the following table comes from a July 2008 Sandia National Laboratories report on its Solar Energy Grid Integration Systems – Energy Storage (SEGIS-ES) program. While the original Sandia table focused on the current and projected capital costs for manufactured energy storage devices that can be used in solar power projects, the basic cost structure applies to all Smart Grid applications. Since the EAC’s Bottling Electricity report states that the principal purchase decision metrics in Smart Grid applications will be installed cost, reliability, discharge duration and cycle life, I’ve reordered the Sandia data to create a cost hierarchy and provide summary information for each type of storage device. More detailed information on the advantages, disadvantages, commercial status, current research and development and potential applications for each type of manufactured energy storage device can be found in the SEGIS report.

Click for pdf version

The following table is my attempt to integrate the cost and performance data from the SEGIS report with the Smart Grid application information in the EAC’s energy storage report. My goal is to identify the principal technologies that might be useful in each application and highlight the technologies that seem most likely to prove cost-effective. Since the EAC’s report highlights the need for substantial additional research, development and testing to better identify the optimal technology choices, the table is only one man’s informed view through a cloudy crystal ball.

Click for pdf version

At first blush, the percentages of generating capacity that could be satisfied by energy storage systems seem pretty modest, a mere couple of percentage points here and there with higher margins for alternative power installations. But those tiny percentages become massive potential revenue numbers when you consider that the capital cost of energy storage installations ranges from $150,000 to $1.3 million per MWh. Since the principal competitors in the energy storage sector are small compared with similarly positioned companies in other sectors, I believe energy storage is likely to be a veritable investment tsunami that will offer extraordinary returns.

Most of the buzz in the alternative energy sector focuses on renewable power, demand management technology, advanced power transmission systems and batteries for electric vehicles. In the process, the media has largely overlooked the reality that energy storage devices are essential enabling technologies for both transportation and the Smart Grid. A number of analysts are predicting that annual global demand for energy storage devices could grow from $25 billion to $100 billion over the next decade. Most estimates of future growth in the automotive market talk about battery sales the $15 to $20 billion range. The much larger growth will come from using energy storage technologies to support the development and evolution of the Smart Grid. While size and weight may matter when it comes to automotive applications, they will be meaningless in grid-based applications where installed cost, reliability, discharge duration and cycle life are the critical metrics.

There are two pure-play public companies in the flywheel sector. Active Power (ACPW) manufactures systems that use low-speed flywheel technology to provide backup power for server farms and a wide variety of commercial and industrial installations. Since Active Power’s technology is modular, scaling systems to provide Smart Grid support should be relatively simple and I expect Active Power to be an early beneficiary of the trend toward grid-based energy storage. Beacon Power (BCON) has recently begun field-testing of utility scale governor response and frequency regulation systems. While Beacon will likely require a couple years of testing before utilities are willing to commence wide-scale implementation of Beacon’s technology, its stock offers significant long-term potential.

There are five pure-play public companies in the advanced lead acid battery group including Exide Technologies (XIDE), Enersys (ENS), C&D Technologies (CHP), Ultralife Batteries (ULBI) and Axion Power International (AXPW.OB). Each of these companies has proven products that can be rapidly integrated into storage systems for the Smart Grid. Moreover, Axion’s pioneering work on lead-carbon devices promises a level of performance, power and cycle-life durability that has not previously existed in the lead-acid world. In addition to its activities in the transportation sector that have resulted in a couple of significant grants, Axion is involved in two utility scale demonstration projects. Since lead-acid is frequently perceived as old-tech, the group trades at a significant discount to comparable companies that focus on other advanced battery technologies. I believe the market valuation metrics will normalize as the Smart Grid opportunities become more widely understood.

There are three pure-play public companies in the lithium ion group that have expressed an interest in the Smart Grid market. Altair Nanotechnologies (ALTI) has shipped a utility scale frequency regulation system for testing and both Ener1 (HEV) and Valence Technologies (VLNC) have taken preliminary steps to evaluate the potential for using their technologies in utility scale applications. Since size and weight are not mission critical issues in utility scale installations, I expect the cost of Li-ion technology to be a significant impediment. However, there are limited Smart Grid applications like frequency regulation that could benefit from extreme high performance batteries.

The only pure-play public company actively involved in the commercialization of Zinc-Bromine flow batteries is ZBB Energy (ZBB) which has recently partnered with Eaton for the global distribution of its flow battery systems.

Foreign companies that have active plans to manufacture products for the utility sector include France’s SAFT Groupe (SGPEF.PK), which has partnered with ABB (ABB) for large-format Li-ion devices, and Japan’s NGK Insulators Ltd. (NGKIF.PK).


DISCLOSURE: John Petersen is a former director of and holds a large long position in Axion Power International (AXPW.OB), a leading U.S. developer of lead-carbon batteries, and also holds small long positions in Active Power (ACPW), Exide (XIDE), Enersys (ENS) 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. From January 2004 through January 2008, he was securities counsel for and a director of Axion Power International, Inc. a small public company involved in advanced lead-acid battery research and development.

July 06, 2008

Investment Ideas From the One-House Grid

In June, I wrote how intermittent power sources such as photovoltaics and wind would have to compete with baseload technologies such as IGCC "Clean Coal" and nuclear for capacity on the grid.  The key problem is that neither baseload technologies nor intermittent technologies are able to match themselves to the fluctuations of demand.  This creates a need for technologies which can fill the varying gaps between supply from these sources, and normal energy use.  From the comments, it seems like I was not completely clear how intermittent and baseload power cause problems for each other, so I will start with a simplified example, which I will use to illustrate the various strategies for dealing with the problem.  I see investment potential in all of these strategies.

The One-House Grid: An Illustration

Suppose that the entire grid were just one house, and it was the utility's job to make sure that there was always enough power to run all the gadgets that anyone in the house was using.  Even in the middle of the night when everyone is asleep, there will still be some power usage: running clocks, the VCR, charging cell phones for use the next day, and maybe the porch light.  That is the minimum load of the house, and traditionally utilities have met this demand with baseload power.  In contrast, there will probably also be a moment on hot summer afternoon when the air conditioner is running full blast, the refrigerator kicks on, dad is watching football on his 60" plasma TV, dinner is cooking in the electric oven, and 15 other appliances are on somewhere or other.  This is peak load, and the difference between the minimum load and peak would traditionally be met with dispatchable generation, which, until recently, mostly means gas turbines.  

In addition, some dispatchable generation will always be kept running below full capacity in order to maintain power quality and availability as appliances are turned on and off throughout the day.  These ancillary services [pdf] are called load-following reserves (maintaining availability) and voltage and frequency regulation (power quality,) and both require fuel, even if the actual energy provided is negligible.  Ancillary services are like your car's engine idling at a stop light so that you can start quickly when the light changes.  They're necessary to keep the system running, and they use fuel, but they don't actually get you anywhere.  Also like idling engines, options like hybrids exist which can save much of the energy cost (see below.)

Add a Solar Panel

Suppose we now add a photovoltaic system and a wind turbine on the roof.  Most people with solar systems know, that if you want to spin your meter backwards (i.e. produce more energy than you are using) the best time to do it will be in the late morning, while it is still cool, but it's bright enough that the panels (which actually produce more power from the same amount of light when they are cool) are producing near their peak output.  

With grid-connected solar, spinning your meter backwards may be fun, or at least get you bragging rights.  However, in my fictional one-house grid, we now have a new minimum demand: demand will be negative (we're going to have to find something to do with the excess electricity) because there is no other grid to sell it back to.  Peak demand will also be reduced, because on the hot summer day, the PV will also be producing power.  The result is that the one-house gird with a PV system will no longer need any baseload generation (since minimum demand is now negative), and it will probably also need less dispatchable generation, because peak demand will also have been reduced, most likely by more than minimum load. Not only will peak demand have been reduced, but it will also have shifted to the early evening when the PV is producing little electricity, but cooling, cooking, and football watching needs are still high.

Adding a wind turbine to the roof has a similar effect.  Now, the meter will also be spinning backwards on windy nights, and demand is reduced whenever it's windy, which will in turn save fuel and reduce the need to run the remaining dispatchable generation..  However, if the climate is similar to that here in Denver, on the hottest days of the year, the wind will typically be minimal, so there will be little further reduction in peak load, so nearly the same total amount of dispatchable generation will be needed, although it will not be in use as often.

Consequences

As the above illustration shows, the oft-repeated shibboleth that we "need" baseload generation is not only misleading, but also counter-productive.  Adding baseload generation will simply increase the number of hours per year that intermittent sources of power exceed net demand.  I too, formerly believed we needed baseload.  I no longer do, although some level of baseload power in the grid is no doubt inevitable, at the very least produced by renewable sources such as geothermal and electricity generation from industrial waste heat.

Solutions

Returning to our one-house grid thought experiment, a number of options present themselves.

  1. Storage.   In the real world, if you build a house off the grid, you will add batteries so that you can still run your lights when the sun isn't shining and the wind isn't blowing.  
  2. Transmission.  Suppose our one-house grid has a neighbor, running his own one-house grid.  While generation from their PV and wind systems will be similar (but not identical), demand at the two houses is likely to be different.  By diversifying the electric demand, average demand will double, but peak load will increase by somewhat less, and minimum load will more than double.   This reduced volatility of electrical load brought by connecting two homes is analogous to the reduced volatility of a portfolio of two securities, rather than just one.  Unless the electrical load of the two homes is perfectly correlated, there will be benefits in terms of a reduction in the overall amount of dispatchable generation needed to service the same total load.  Our knowledge of the principles of diversification will correctly lead us to the intuition that connecting dissimilar users of electricity will lead to greater diversification benefits than similar users.  If residential, commercial, and industrial users are all on the same grid, the same average electric demand will be easier to serve than if only residential or only industrial customers were connected, because a residential user will have lower correlation of demand with most industrial users than with other residential users.
  3. Demand-Response.  My sister lives in an old house, and the kitchen is on an old, low amperage circuit breaker.  If she ran both the microwave and the toaster at the same time, it would trip the breaker and she would have to trudge outside to turn it back on.  Needless to say, she quickly stopped using the toaster and the microwave at the same time, and thereby reduced the peak load in her kitchen.  Demand response involves getting electric customers to agree ahead of time to refrain from using high-wattage appliances during times of high electric demand.  In the one-house grid example above, dad might choose to record the football game and watch it later in that evening.
  4. Energy Efficiency.  Another way to reduce volatility of demand is simply to reduce overall demand.  If dad had decided to buy an LCD TV rather than a Plasma TV, the demand from his 60" TV might have been reduced by as much as 200-300 watts, depending on the models, and this in turn would have reduced peak load.

Investments

Each of the above solutions leads to an investment, and as intermittent power sources grow as a percentage of total generation, the needs for these solutions will increase.  Below is a selection of companies working to provide each of the above solutions to the overall problem of matching electrical supply and demand.

Electricity Storage

Electricity storage can serve several related needs of the grid.  First, it can absorb excess supply of power at times of otherwise low demand, which means that intermittent and baseload sources of power do not need to be curtailed, even though they are producing power at near zero marginal cost.  Second, when charged, energy storage can provide ancillary services to the grid, by supplying power to meet short term spikes in demand or drops in supply, and absorbing power if intermittent generation ramps up unexpectedly, or demand suddenly drops.  According to Paul Denholm of the National Renewable Energy Lab, the revenues from these ancillary services are significant, and should not be discounted in any economic assessment of an energy storage technology.  Finally, storage can help to shave peak load by supplying power from off-peak charging.

I have previously written about investments in large scale batteries for the electric grid, but when I did so I neglected to consider the value of ancillary services.  Since I wrote that article, both VRB Power (VRBPF.PK) and NGK Insulators have continued to sell their respective solutions to utilities, telecoms, and other consortia.  However, these technologies are still searching for general market acceptance.  Beacon Power (BCON) recently commissioned a 20 MW flywheel based plant to supply frequency regulation services to the New York grid, which will primarily be used for frequency regulation.  Given the enormous potential of demand response and electricity transmission to improve long-term electricity price volatility, I am currently much more bullish about companies using energy storage primarily to provide ancillary services over large scale storage.  Because of that, I have recently increased my investments in Beacon, Maxwell Technologies (MXWL) and Active Power (ACPW).  

Maxwell's ultracapacitors can be used in various power quality applications, as well as a high power, low energy supplement to batteries in hybrid electric vehicles. (As a side note, high power is more of a concern in hybrids than pure electric vehicles, because the smaller battery pack has difficulty producing enough power for rapid acceleration.)

Active Power, like Beacon, uses flywheel technology, selling mostly into the customer side, rather than utility side of the market.  However, as the market for ancillary services grows and becomes more sophisticated, I could see Active Power's UPS systems selling ancillary services to the grid, in addition to their primary function of protecting data centers and other sensitive equipment from temporary power outages.

Transmission

I've written extensively about investments in electricity transmission and distribution.  My top picks are ABB Group (ABB) and Siemens (SI), Composite Technology Corporation (CPTC.OB), ITC Holdings Corp (ITC), Quanta Services (PWR), General Cable (BGC), and National Grid (NGG).  Geographic diversification of electric supply and demand is as essential as financial diversification in your portfolio.

Demand-Response

I haven't written about demand-response aggregator EnerNOC (ENOC) since before its IPO in March 2007, but that doesn't mean I'm no longer interested.  EnerNOC, along with Demand-Response/Smartgrid companies Comverge (COMV) and Echelon (ELON) all became quite expensive on a wave of investor euphoria in 2007, which is why I was not buying or writing about them much at the time.  That has now changed, with all three losing about 70% from their peaks, and making them look relatively valuable.  I have been taking positions in all three over the last few months.

Energy Efficiency

Unfortunately, few pure-play energy efficiency companies exist.  The recently named Waterfurnace Renewable Energy (WFIFF.PK) is one I've recently been adding to my portfolios.  I've previously written about Flir, Inc (FLIR), a thermal imaging company which I do not currently own due to valuation concerns, a pair of LED companies, Cree (CREE) and Lighting Science Group (LSCG.OB) , and a number of energy efficiency related conglomerates.

DISCLOSURE: Tom Konrad and/or his clients have long positions in VRBPF, BCON, ACPW, ABB, SI, CPTC, ITC, PWR, BGC, NGG, ENCO, COMV, ELON, WFIFF, CREE, LSCG.

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.

January 03, 2007

What’s Going On With Beacon Power and RailPower Tech?

Two diametrically-opposed stories for this post: Beacon Power [NASDAQ: BCON] and RailPower Tech [TSE:P]. The latter is up 134% on its week-ago closing price, while the former is down nearly 22% over the same period.

Beacon Power Corp

I wrote about Beacon Power a little while ago. The recent drop in share price is due in large part to the fact that Beacon announced, last Friday (Dec. 29), a glitch at one of its testing facilities in Massachusetts. This was followed by an analyst at Merriman Curhan Ford downgrading the company from Buy to Hold. Almost immediately, the stock began experiencing strong downward momentum on high volumes. 2.44 million shares changed hands today – compare that to a 3-month average of around 426,000.


I poked around but was unable to find much substantive info that would allow me to properly appraise the problem. Maybe some of you have info that you could share with the rest of us?

So far, Beacon’s tests in California and NY have gone well. As I told a reader who asked about this earlier, I think it is a tad early to panic and I haven’t dumped any of my stocks yet. Nonetheless, I wouldn’t buy any until I know more about the exact impact this problem will have on the company’s plans to begin generating revenue from its flywheel-based grid regulation system. Beacon hopes to begin offering its grid regulation services on a commercial basis in the 2nd half of ’07.

The company’s technology appears to have been well received by California's regulators, and, as I mentioned in my last post about them, this could be a 5-year affair saddled with volatility. Overall, however, I still buy their story, and I think the increasingly rapid deployment of renewable energy in California and other US states will create strong demand for Beacon’s applications. Anyone who's experienced rolling blackouts or brownouts in the past few years knows that grid regulation will be a big deal going forward.

RailPower Tech

The RailPower story is, as indicated initially, completely different. RailPower makes diesel-powered hybrid locomotives that are overall markedly more efficient and less polluting than conventional locomotives.

This is a stock that had been trading consistently above $4 on the TSE since the 2nd half of 2004. 2006 was nothing short of a misery year for RailPower; it went from a 52-week high of $6.67 to a low of $0.45 a few weeks ago. The stock began slowly rebounding in mid-December after the company announced it had managed to get out of a money-loosing contract that would have cost it around $17 million (C$20 million).


The real action began, however, on Dec. 27, when the stock closed 17% higher than its day-before closing price, and volumes reached 1.4 million shares. Volumes have averaged 4 million shares since Dec. 27, compared with a 3-month average of around 1 million. As mentioned in the intro, the stock gained 134% between Dec. 27 and today. I should mention that RailPower was actually down 5.75% today, probably on profit taking.

Other than the contract cancellation, I couldn’t find anything else that would account for this very sudden return to favor of RailPower. This is a company which I have been watching from afar for about a year, without ever really looking into it seriously. There was nothing about RailPower that made it stand out from the cleantech crowd, as far as I could tell; it has a really cool technology but is having a hard time turning it into strong sales and operating cash flows. I suspect, however, that it may only be a matter of time. If any of our readers have good insight about this company, it would be interesting to hear it.

(DISCLOSURE: I am long Beacon Power)

March 30, 2006

Beacon Power Delivers and Connects Smart Energy Matrix Flywheel Demonstration System in New York

Beacon Power Corp (BCON) announced that it recently delivered, installed and connected a scale-power Smart Energy Matrix demonstration system to the electricity grid in Amsterdam, New York. After arriving at the site, the system was connected and turned up to full power, and is now following and responding to live ISO-specified requirements to demonstrate frequency regulation. The project, jointly funded by the New York State Energy Research and Development Authority (NYSERDA) and the U.S. Department of Energy (DOE) Energy Storage Program, is the second such scale-power system Beacon has delivered, in addition to a similar system in California. [ more ]

March 22, 2006

SatCon Receives a Follow-on Order For a Second Rotary Uninterruptible Power Supply from NIST

satcon_logo.gifSatCon Technology Corporation (SATC) announced that it has received a follow-on purchase order for a second 2200 kVA Rotary Uninterruptible Power Supply (RUPS) on a government contract valued in excess of $1.1 million.

SatCon's StarSine(TM) Rotary UPS is designed to provide both high quality electrical power during normal operation, as well as prevent any interruption of electricity to critical manufacturing processes, telecommunication centers, data centers, and healthcare facilities in the event of power grid failures such as black-outs and brown-outs. The RUPS is connected directly to SatCon's patented flywheel for short duration power disturbances and is integrated with a diesel engine to provide a seamless transfer to provide long-term power in the case of an extended outage. [ more ]

February 16, 2006

Active Power Receives 6 MW Order from Eaton Powerware

acwp_logo.gifActive Power Inc (ACPW) announced an order from Eaton Powerware for twelve 500 kW DC flywheel systems. These units will ship in the first half of 2006 and be used to upgrade the power infrastructure of an existing data center in the United States. [ more ]

January 31, 2006

Active Power Receives 11-Megawatt UPS Order

acwp_logo.gifActive Power Inc (ACPW) announced an order from Caterpillar Inc. for eleven one-megawatt flywheel UPS systems. The majority of these systems will be shipped during the current quarter and will be used to provide power protection for a large datacenter in the United States. [ more ]

January 11, 2006

Largest Airport in Mexico Selects Active Power for Backup Power Solution

acwp_logo.gifActive Power Inc (ACPW) announced that the largest airport in Mexico, Aeropuerto Internacional de la Ciudad de Mexico (AICM), has selected its battery-free CleanSource® UPS to protect runway and taxiway lighting. Additionally, a new terminal that will begin construction this year will also be supported by Active Power's battery-free systems. Deliveries against this order started in Q4 of 2005 and will continue through the first half of 2006. [ more ]

Active Power is following a good business model of selling into a niche that it already has a good presence in (FuelCell Energy has a similar practice with Hotels.) They currently have several airport installations in Spain and this marks the second airport installation in Mexico.

November 15, 2005

Beacon Power Announces Third-Quarter 2005 Results

Beacon Power Corp (BCON) reported revenue of $304,064, compared to revenue of $80,902 in the third quarter of 2004, an increase of $223,162, or 276%. Revenues for the nine months ending September 30, 2005, were $1,258,503, compared to $264,793 for the same period in 2004, an increase of $993,710, or 375%.

Beacon Power reported a net loss of $2.1 million, or ($0.04) per share, compared to a net loss of $1.9 million or ($0.04) per share for the third quarter of 2005 and 2004, respectively, representing an increase of approximately $0.2 million or 16%.

They ended the third quarter of fiscal 2005 with approximately $3.4 million in cash and cash equivalents. On November 8, 2005, the Company raised approximately $15 million, before expenses of approximately $0.8 million, from ten institutional investors in a private placement. The Company expects to use the proceeds to begin development of its Smart Energy 25 flywheel, which is a key component of the Company's Smart Energy Matrix system for frequency regulation. [ more ]

October 10, 2005

Beacon Power Announces Award of Phase II SBIR Contract for Advanced Flywheel Energy Storage System

Beacon Power Corp (BCON) announced that it has been awarded a contract through the Air Force Research Laboratory (AFRL), and co-funded by the Defense Advanced Research Projects Agency (DARPA) of the U.S. Department of Defense. The contract, valued at $750,000, is for the preliminary design of a space-based flywheel energy storage system for satellite applications, and is a Phase II award under the Small Business Innovation Research (SBIR) program of the U.S. Small Business Administration's Office of Technology. Beacon announced completion of an associated Phase I project earlier this year. [ more ]

This was welcome news for this company and its stock. BCON closed the day with a greater than 15% gain today on the news. This gain was also against the general trend of the market today. In general most of the stocks in this sector have had a tough past couple of days in the stock market.

I have become extremely cautious about adding any new money to the portfolios. I have received short term sell signals for the general trend of the market on many technical indicators I follow. I have also received confirmation from several advisors that I trust with the regard to the trend of the general market.

I only say this as a note of caution about adding new money to the market now. I'm currently at 50% cash in the mutual fund and plan to stay that way in the interim. I'm not planning on selling any of my current holdings but will be ready with cash when I feel the time is right to jump back in. If you have large gains in any of these stocks, you may want to take some money off the table at this point.

September 20, 2005

Shares in Active Power Purchased

acwp_logo.gif
I currently don't have time to do a complete writeup on this stock, but wanted to let everyone know that I purchased shares in Active Power Inc (ACPW) this afternoon for both my personal portfolio and the mutual fund. The average price was at $3.77. I will updated this post later this afternoon with more details.


Updated at 10:00 PM

As I mentioned above I purchased shares in Active Power Inc (ACPW) this afternoon for both the mutual fund and my personal portfolio. Active Power designs and sells battery-free uninterruptible power supply (UPS) systems. They accomplish this through the use of flywheel technology and they have also developed their CoolAirTM DC: Thermal and Compressed-Air Storage (TACAS) technology that uses compressed air and heat to provide clean power backup.

Last week the stock made a bullish technical signal with a golden cross using the 50/200 day moving averages. The stock is currently sitting at some support at the $3.50 level and the potential downside could be all the way down to $2.50 by looking at the technical picture. As a long term purchase, I would be willing to buy all the way down to the $2.50 level. My gut is telling me that we will not see anything below $3 for sometime.

acpw_20050920.gif

However, keep in mind this is a speculative purchase. The company is still not profitable and analyst estimates are not seeing profit opportunities for 2006 either. There is also nobody willing to float an estimate for profits looking out 5 years. The key driver for future growth in this company are more contracts and running the company efficently.

There is plenty of interest in the company and I see positive signs in the company and also the potential for a higher stock price in the future.

On the plus side, there is a history of steady buying of the stock by the Chairman, Mr. Pinkerton. The number of shares short have been steadily declining. They have been making postivie progress on the revenue estimates and also reporting better than expect losses for the most recent quarter. Finally, they have also been securing some large orders recently that have helped the stock on its recent up move.

Active Power Ships Continuous Power System for Use at Chinese National Olympics
announced the shipment of a continuous power system to China for use at the country's National Olympics being held in Nanjing in October. The system integrates an Active Power CleanSource® flywheel UPS, diesel engine generator and transfer switch, all enclosed in a standardized mobile container that allows it to operate in harsh outdoor environments. Control software is also included that allows the user to remotely monitor all aspects of the power system at one central location. [ more ]
Active Power Receives 5.4 MVA UPS Order; Largest Megawatt-Class UPS Order to Date
announced receipt of a new order from Caterpillar Inc. for four 1200 kVA flywheel uninterruptible power supply ("UPS") systems and two 300 kVA UPS systems. The units will be used to protect the state-of-the- art high speed printing operation of a large communications company in the Southeast United States. Shipment is expected to take place within the next two quarters. [ more ]

As I look at this trading for this stock today, I ended up purchasing it at the high of the day and will look for an opportunity in the near future to average down to a better price point for the mutual fund. My plans for my personal portfolio is to let it stand as is.

DISCLAIMER: I am not a registered investment advisor. The information and trades that I provide 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.

June 08, 2005

Beacon Power Delivers Flywheel-Based Power System to Bechtel Bettis, Inc.

Beacon Power Corp (BCON) announced that it has delivered a flywheel-based power system to Bechtel Bettis, Inc., under a contract that it announced in March 2005. The demonstration system, built using a Smart Energy 6 flywheel, is designed to provide a high cycle-life, reliable source of stored energy for a number of potential applications.

"This system we've delivered to Bechtel Bettis is an example of our strategy to address additional market opportunities beyond our primary business focus of providing advanced technology solutions for electric power systems," said Bill Capp, Beacon Power president and CEO. "We continue to seek ways to leverage Beacon technology as a viable alternative to conventional, non-sustainable energy storage. With this system in the hands of users who will evaluate its performance, we hope to both learn from their feedback and establish ourselves as a capable supplier." [ more ]

April 06, 2005

New Investment Report Highlights $360-Million Market for Power Grid Frequency Regulation Services in the U.S.

The market for grid frequency regulation services open to new service providers in the United States in 2004 was valued at nearly $360 million - and is expected to increase in 2005 - according to a Technology Brief issued today by Ardour Capital Investments, LLC. Frequency regulation is the target market for Beacon Power Corp (BCON) Smart Energy Matrix flywheel energy storage system, two demonstration systems of which are being built under contract to the California Energy Commission (CEC) and the New York State Energy Research and Development Authority (NYSERDA). The Technology Brief is available online at www.ardourcapital.com, under "Ardour's Energy Tech Updates." [ more ]

March 22, 2005

Beacon Power Receives Contract from Bechtel Bettis, Inc. to Demonstrate Advanced Flywheel-Based Power System

Beacon Power Corp (BCON) has announced that it has been awarded a contract from Bechtel Bettis, Inc., to design and deliver an advanced flywheel-based power system demonstration unit. Bill Capp, Beacon Power president and CEO says "...Although this contract is not considered material from a revenue standpoint, these types of projects are significant because they extend our technology portfolio, help defray operating expenses, and can lead to other business opportunities." [ more ]

March 09, 2005

Beacon Power Announces Compliance with NASDAQ Continued Listing Requirement Related to Closing Bid Price

Beacon Power Corp (BCON) announced that on March 2, 2005, it received a letter from The NASDAQ Stock Market stating that because the closing bid price of the Beacon's common stock has been at $1.00 per share or greater for at least 10 consecutive business days, Beacon has regained compliance with Marketplace Rule 4310(c)(4). [ more ]

This is wonderful news for BCON.

February 28, 2005

Beacon Power to Present on Two Flywheel Energy Storage Topics at POWER-GEN Renewable Energy Conference

Beacon Power Corp (BCON) is scheduled to deliver two presentations at conference sessions next week at the 2nd Annual POWER-GEN Renewable Energy Conference and Exhibition, held at the Las Vegas Hilton from March 1-3. Both presentations will focus on the role of flywheel energy storage systems, and Beacon's patented technology in particular, in critical power grid applications. [ more ]

February 14, 2005

California Energy Commission Awards Beacon Power $1.2 Million Contract for Major Energy Storage Project

Beacon Power Corp (BCON) announced that it has executed a contract with the California Energy Commission to demonstrate an advanced energy storage solution for frequency regulation and grid stability. At a business meeting on December 1, 2004, the California Energy Commission had given its approval to the project, leading to contract negotiations that have now been finalized. The contract is expected to produce approximately $1.2 million of revenue, with the majority of it in 2005. [ more ]

February 10, 2005

New York Energy Authority Awards Beacon Power Contract to Demonstrate Flywheel Energy Storage System

Beacon Power Corp (BCON) announced that yesterday it received from the New York State Energy Research and Development Authority (NYSERDA) an executed contract between Beacon Power and NYSERDA under a joint initiative between the U.S. Department of Energy (DOE) Energy Storage Research Program and NYSERDA, to demonstrate an advanced energy storage solution for frequency regulation and grid stability in New York State. The contract is expected to produce approximately $645,000 of revenue, nearly all of it in 2005. [ more ]

The stock is trading up over 20% today on this news.

February 07, 2005

Beacon Power Announces Major Patents for Flywheel Technology

Beacon Power Corp (BCON) announced that it has recently been awarded a United States patent for the unique design and construction of its composite flywheel rim, and that a few days ago, it received a written notification that another U.S. patent on the rim is to be granted in early February 2005.

The composite rim is a key component of a flywheel energy storage system, as a rim's mass and ability to spin at high speeds have a direct relationship to the amount of energy that can be stored. Beacon Power, a pioneer in this technology, has been able to design and build flywheel systems that deliver the highest amount of stored energy for their size and weight, thanks in part to this critical proprietary knowledge. [ more ]

December 16, 2004

Active Power Ships First CleanSource XR Unit

acwp_logo.gifActive Power Inc (ACPW) announced the shipment of its first CleanSource® XR evaluation unit to one of the largest producers of electricity in the United States. The CleanSource XR unit will be tested under a variety of conditions for both backup power and load-shifting applications.

CleanSource XR stores energy in the form of heat and compressed air. When power is needed, the compressed air is routed through a thermal storage unit to acquire heat energy. The heated air spins a simple turbine-alternator to produce 5 to 85 kW of electric power for up to several hours. Unlike commonly used lead-acid batteries and engine-generators, CleanSource XR is non-toxic and produces zero emissions. [ more ]

December 14, 2004

BCON up over 147% today

Beacon Power Corp (BCON) was up over 147% at the close today. This move was primarily based on two project wins. One with the New York State Energy Research and Development Authority and the other with the California Energy Commission.

The projects would have Beacon Power provide grid frequency regulation and reactive power by utilizing its flywheel energy storage system. The final terms and conditions of the projects have not been disclosed. [ more ]

November 22, 2004

Beacon Power Delisting Stayed by Nasdaq

Beacon Power Corp (BCON) announced that on November 17 it received a letter dated November 16, 2004 from the Nasdaq Stock Market, stating that the Nasdaq Listing Qualifications Panel has granted the Company an additional 180 days to regain compliance with marketplace Rule 4310(c)(4). [ more ]

What this means is that Beacon is going to do everything in its power to get the stock price back above $1. They had a nice run up to .80 in October but have since fallen back down to the .40 range. Shares in BCON are up 10% today on this reprieve.

October 01, 2004

Active Power Receives Order for First Parallel Multi-Megawatt UPS System

acwp_logo.gifActive Power Inc (ACPW) announced that it has received its first order for two multi-megawatt systems in a parallel configuration. With this order, the total number of megawatt UPS systems sold is now eleven, with eight of these sales occurring in the last 4 months.

Active Power's products are a proven alternative to problematic battery-based systems. CleanSource flywheel technology uses the kinetic energy from a constantly spinning steel flywheel to eliminate the need for lead acid battery-based systems. [ more ]

September 20, 2004

Active Power Unveils Revolutionary New Technology

acwp_logo.gifActive Power Inc (ACPW) announced the details behind its latest breakthrough in alternative energy storage. The new technology, based upon the innovative combination of several mature technologies, constitutes a monumental achievement in energy storage by providing the extended runtimes of lead-acid batteries without any of the well-known shortcomings of these cells. This Thermal and Compressed Air Storage (TACAS) technology will be incorporated into Active Power's newest product that will begin shipping as an alpha unit late this year, the CleanSource® XR. [ more ]

August 31, 2004

Active Power Achieves 2-Hour Runtime Milestone

acwp_logo.gifActive Power Inc (ACPW) announced that it successfully operated a prototype of its new battery-free energy storage system at 10 kilowatts (kW) for over 2 hours, a milestone that positions the new product well for the telecommunications segment.

"The runtime of this prototype system is already 60 times that of our flywheel product and yet offers the same battery-free benefits," stated Joe Pinkerton, Chairman and CEO of Active Power, Inc. "A battery-free system that provides hours of backup time will allow Active Power to pursue the $4 billion telecommunications backup power market." [ more ]


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