Rising Tides in Alternative Energy Storage 26 comments
-
Font Size:
-
Print
- TweetThis
Since July I’ve been writing a series of Seeking Alpha articles on the energy storage sector because I believe it is poorly understood but likely to be the next major investment trend. From August 15th through October 31st, the Dow fell by 19.9% but the energy storage stocks I’ve been following tanked by an average of 38.8%, which gives me a dismal track record as a short-term stock market prognosticator. The following table summarizes the gory details.
(Click to enlarge)
Mercifully, I’m more concerned with long-term trends than short-term volatility and the fundamental market forces that I’ve been writing about for the last few months are developing faster and showing more strength than even I could have imagined.
I was excited when A123 Systems filed a registration statement for its long awaited IPO in August because I was convinced that an A123 IPO would draw market attention to the storage sector in a way that only a major IPO can. Frankly, I was surprised when A123 amended its registration statement on October 10th and amazed when it filed a second amendment on October 31st. Based on my experience after the ’87 crash, I would have expected the IPO to be delayed or even withdrawn until market conditions improve. But despite the worst market conditions in 20 years, A123 is effectively saying, “damn the torpedoes and full speed ahead, we have a business to build.” If things follow a typical track from here, we can look forward to the A123 Systems IPO sometime in November.
Another fine example of the fundamental strength of the energy storage sector is Warren Buffet’s recent investment of $230 million to buy 10% of BYD, a Chinese battery manufacturer that plans to build hybrid electric automobiles.
While lesser examples of the fundamental strength in the storage sector are too numerous to mention, the following quote from the closing paragraph of Jeremy Grantham’s October 24th newsletter “Silver Linings and Lessons Learned” may just say it all.
Let me suggest that the magic word this time is not “plastics” but “alternatives.” Massive spending on energy and, better yet, energy savings will create jobs, stimulate the economy, produce a good long-term economic return, reduce dependence on depleting Middle Eastern oil, curtail carbon dioxide emissions, and set, for once, a real example for other countries. From the simplest – better insulation and more efficient machines – through the new alternatives – solar, wind power, and second generation biomass – to the potentially massive investments in new nuclear plants and efficient energy transmission, this could be in total a long range bonanza for the U.S. in economic and broader respects.
I think this outlook is remarkable, particularly when it’s coming from a value investing legend that many have come to view as a perma-bear.
The message is clear: Our biggest challenge as a species is not reducing the amount of energy we use; it’s reducing the amount of energy we waste. Since cost-effective energy storage is one of the best ways to minimize waste, it is critical to our energy future and, by transitivity, essential to the future of civilization. Energy storage is not merely a desirable thing – it is an essential thing. The stock market hasn’t quite gotten the message yet, but it will! As the magnitude of the challenges and opportunities become more commonly understood, I believe a rapidly rising tide of market sentiment is certain to lift all of the pure play energy storage stocks I follow. It should be fun to watch.
The biggest challenge facing potential energy storage investors is that the sector is a target rich environment that does not have a single ‘silver bullet’ technological solution. The root causes of the challenge include:
- Storage needs that range from watt hours to megawatt hours or even gigawatt hours;
- Discharge needs that range from seconds to hours or even days;
- Cycling rates that range from infrequent (e.g. back-up power) to intense (e.g. recuperative braking);
- Cycle depths that range from very shallow (e.g. engine starting) to very deep (e.g. fork lifts);
- Technological improvements that are usually incremental gains instead of disruptive advances;
- Products that require huge inputs of high value or exotic raw materials;
- The need to carefully analyze costs and benefits for each potential storage application; and
- The sheer immensity of the current and potential market for energy storage products.
The informed consensus is that annual revenues of companies in the energy storage sector will increase from $30 billion to $100 billion or more over the next several years. While I can identify 14 pure play public companies that are focused on one or more billion-dollar market segments, and likely to be a strong competitor in those segments, none of their technologies has broad utility across the entire energy storage spectrum. So instead of a future where three or four dominant competitors survive and the others fall by the wayside, it’s easy to predict a future where dozens of strong competitors will thrive by serving different billion-dollar market segments.
That’s why I remain bullish about the growth prospects for almost every company in the energy storage sector. I may believe that Li-ion advocates who ignore cost benefit analysis, dismiss resource availability questions and assume disruptive future advances overstate the long-term potential of Li-ion technology, but it’s impossible to dismiss that potential.
Over the last couple months I’ve taken significant heat from commenters because I’m bullish on the entire energy storage sector but only own Axion Power International (AXPW.OB). While that situation is largely due my prior relationship with the company, I also believe that Axion occupies a unique position in the storage sector because its hybrid battery-supercapacitor PbC technology is truly a disruptive advance in lead-acid technology instead of a simple incremental gain. Axion’s PbC devices will offer the power, cycle-life and recharge rates of advanced battery chemistries at lead acid prices. Moreover, the success of its business will not depend on building an entirely new manufacturing infrastructure and then selling finished batteries in the industrial and consumer markets. For those reasons, I think Axion’s a game changer.
Unlike all other energy storage products, Axion’s PbC devices are based on a multi-patented carbon electrode assembly that can be used in existing lead acid battery plants without requiring substantial changes to equipment, components or manufacturing methods. While Axion plans to introduce the PbC technology by manufacturing its own batteries, the company’s medium-term strategy is to implement a platform technology business model where it will fabricate carbon electrode assemblies for sale to other battery manufacturers. I’m convinced that Axion’s ability to rollout a disruptive battery technology without first building a dedicated manufacturing infrastructure is unique and the closest anyone in the energy storage sector can come to an “Intel Inside” growth potential.
In addition to the pure play public companies that I follow, there are a large number of diversified domestic and foreign industrial companies that are very active in the energy storage field. There are also a large number of development stage companies that aren’t public yet but appear to have substantial potential. So I think the landscape is likely to change significantly over the next several years. But I remain convinced that energy storage will be the next major investment trend and far more pervasive than most of us can imagine.
Disclosure: Author holds a long position in Axion Power International (AXPW.OB) and is a former director of that company.
Related Articles
|
Find People on SA
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most activeSee all
Instabloggers.
Top Instabloggers » -
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 26 comments:
news.cnet.com/8301-111...
No pun intended
No pun intended
The next, like in 3 to 6 months, best investment will be crude oil. Thereafter, in the 6-12 month range, it will still be crude oil.
Neither candidate will be able to provide a cohesive energy policy until after they are in office. The financial crisis will be over, a new $200-300 Billion dollar stimulus package will take hold and people will spend more. They will drive more. Spending on all of these new tech alt Energy solutions will be put on the backburner until the next Oil jump forces us to see the ramifications of putting these projects on hold just because of something piddly like a recession.
None of the emerging markets have the infrastucture to utilize these forthcoming batteries. I exclude China because they have an electrical grid of sorts.
The Chinese have built cities based entirely on the usage of hydrogen in their cars, other cities use CNG. Some cities are geared toward EV's. They are trying every thing. They want solar to produce 20% of their electrical generation within 10 years.
Here look at SNEN, its Chinese, building CNG stations in one of their cities, they have years of expansion ahead. Currently, they are the only ones in a city of 10 million people.
VRB power systems will be the Future? will look for them.
much, much too low from my perspective. The Altair battery prototype is in the 2 mega watt range.
I will invest in penny stocks. Some of them have annual revenue growth as low as 40% and trade at 1,2 and 3 current pe ratios.
Nothing stands out and there are over 160 million shares outstanding. No thanks, not for this kid.
While VRB's technology is cool, it's business structure is a wreck. Until things improve, ZBB is a far safer bet in flow batteries.
> jack
Remember what over active expansion can do. VeraSun, VSE, just declared bankruptcy. Surely one must realize that if VSE can go bellyup, so can many of these underfunded potential stars.
Is there an ETF that includes this sector?
We will see what develops.
I am hoping for Fuel Cell advances. There are some promising developments but not a lot of production talk, other than speculation.
I have to agree that Li-ion (polymer) and NiMH are cool technologies. As a freebie to a couple companies I frequently criticize, Li-ion (titanate) is even cooler! The message I keep repeating and people keep missing is that there is an immense difference between technical performance and economic performance. Julia Child once had a gold frying pan that apparently had tremendous cooking properties. But it had no potential to perform economically in the average guy's kitchen. A 1.5 Wh Li-ion battery that costs $3 can perform economically in anyone's cell phone. But there are very few people who can claim economic performance for an EV battery pack that costs $30,000 to $75,000.
Do the folks at AXPW consider the new UltraBattery from Csiro in Australia to infringe upon their patents? It seems to be a similar concept with similar cost/benefit and uses but I do not know enough about the design to know if it infringes on the patents.
Not only does this technology work for power flow regulation in wind/solar farms it's perfect for off grid diesel generator power systems (telecom, remote mining, and northern settlements).
The light at the end of the tunnel for this company/technology is that we are seeing interest (Alaska, Nova Scotia, Safaricom) even though oil is down around 65/barrel.
Sustained $100+ oil will be key for the smaller systems. Government action on climate change will be the catalyst for large scale wind/solar applications.
Because they would be offering upgrade kits, so I do not have to buy a new car. Its bad enough that the batteries are so expensive, having to buy a car on top of that rankles.
While I have some strongly held opinions, I don't expect anybody to buy or sell anything because of those opinions. Time and performance will prove me right or wrong. But there are some huge opportunities in the current market. The value stars are Exide, Enersys, C&D and Ultralife and I think the entire lithium group (except HPJ) is overvalued.
Axion is a speculative stock as are ALTI, HEV, BCON and ZBB. I like Axion and if you spend some time reading the accumulated comments from the last several months you'll find equally devoted followers of other companies. The only thing I can confidently say today is that we will all be pleased over the next couple years and some will be more pleased than others.
I would be appalled if I thought people were buying or selling based on my opinions. But this is as good a place as any to start your own due diligence.
Some will ask questions about companies like VRB, I certainly wouldn't have bothered with a 2 cent stock if it had been mentioned elsewhere. I did not go for it, others might.
What would really be considerate when introducing a company not on the list is a stock symbol to go along with it. Just my opinion.
This technology is being viewed as a way to eliminate oil dependance. It will do that. It will also be very painful to those who lose their jobs as a result.
As a toy for the pretty people and as dream for the future, EV cars are being embraced by everyone who hasn't thought through to the pain that will occur.
1. We have 20 years worth (100s of millions) of pure gassers on the road that will keep old school mechanics increasingly busy as they age and break.
2. The next big market penetration will be on non plug in hybrids and high fuel efficiency pure gassers, which still use gas engines and all the parts and maintenance you describe, plus electrical work for the hybrids, so in the short run automakers, auto parts and auto mechanics will see growth from more components and complexity, somewhat tempered by the lower maintenance and higher reliability of the electric drive portion. The mainstream market penetration for non plug in hybrids is just starting, 10 years in, and is fairly slow and steady, which gives industries plenty of time to adjust, just a veternarians did way back when as automobiles grew in practicality.
3. As plug in hybrids make series hybrids and more pure electric drive combinations more prevelant, less strain will occur on the partnered gas engines as the electric drive will do more and more work, which will mean less overall maintenence cost and less after market parts. We're talking about 10 years in from now before meaningful market penetration, which gives auto mechanics, auto parts and the after market industries plenty of time to see this as the opportunity it is and start making boatloads of money on electric drive accessories, such as automaker drive combination options with more profit for the high performance options, after certified auto mechanic installed market algorithm options on the controller, for individualized performance (my electric vehicle has a switch that allows it to emulate (electronically) crappy gas vehicle perfomance, should I want to feel that), custom sound kits (to make your vehicle project supercar or freight train sounds linked to your throttle inputs, for example), rooftop solar kits and options, etc. We're talking twenty years in before we have this happening in a mainstream way. Do you think that's enough time for auto makers, mechanics and parts suppliers to adjust enough (mostly hiring additional smart staff who see can see and squeeze new markets) to make the boatloads of new money that'll be available from such new opportunities?
4. We are near auto market saturation domestically. If there's not a clearly new (I mean NEW, not a fresh skin) product to change the structural replacement rate in autos, the industry is toast anyway. Electric drive based drivetrains offer such a new product, in some cases making a new addition to a families garage rather than only a replacement. Think of gas engines as a highly strung, finely trained race horse at the limits of its genetic manipulation, from decades of careful breeding, - it's a pretty mature technology, with efficiency improvements coming more and more cheaply from other sources and ideas.
5. There will always be a place for gas engines, just as we have millions of horses in the US still. Even after electric dominates decades from now, hybrids have a long term role in long haul transport and heavy machinery, so we'll always have some gas engine manufacturing mechanics. Just look in your local yellow pages (or Google) and see if we still have horse breeders and veternarians. As a correlary - that should leave enough liquid fuel demand to satisfy domestic suppliers at reasonable prices to truckers - (i.e. expect lower shipping costs which can boost profits or have some trickle to lower prices for cosumers). Kinda looks like a win-win-win-win here.
So yes, lots of people have thought of the consequences - more resources for all, with no pain.