Huge Incentives for Energy Storage in Today's House Bill

In August of last year I published a primer on using batteries and other energy storage devices to help stabilize the electric grid and facilitate the integration of inherently variable renewable power resources. A week later I published a short list of pure play energy storage stocks that I expected to perform well as the energy storage sector matured and developed. In early November I started talking about rising tides in energy storage and by the end of the month I was arguing that energy storage was rapidly becoming an investment tsunami. Today, the House of Representatives is expected to pass H.R. 1, the American Recovery and Reinvestment Act of 2009, and forward the bill to the Senate. The detailed funding provisions in H.R. 1 prove that everything I’ve said about the importance of energy storage has been miles short of the mark.

I understand that H.R. 1 is in the earliest stages of the legislative process and substantial changes are likely. Nevertheless, if the provisions of the final bill bear even a remote resemblance to the current legislation, the impact on storage sector investors will be staggering. Highlighted Congressional descriptions of the four provisions that will directly impact companies in the storage sector follow:

Energy Efficiency and Renewable Energy

(1) $2,000,000,000 shall be for expenses necessary for energy efficiency and renewable energy research, development, demonstration and deployment activities, to accelerate the development of technologies, to include advanced batteries, of which not less than $800,000,000 is for biomass and $400,000,000 is for geothermal technologies.

(10) $1,000,000,000 shall be for expenses necessary for the manufacturing of advanced batteries authorized under section 136(b)(1)(B) of the Energy Independence and Security Act of 2007

Electricity Delivery and Energy Reliability


For an additional amount for 'Electricity Delivery and Energy Reliability,' $4,500,000,000: Provided, That funds shall be available for expenses necessary for electricity delivery and energy reliability activities to modernize the electric grid, enhance security and reliability of the energy infrastructure, energy storage research, development, demonstration and deployment, and facilitate recovery from disruptions to the energy supply, and for implementation of programs authorized under title XIII of the Energy Independence and Security Act of 2007 (42 U.S.C. 17381 et seq.):Provided further, That of such amounts, $100,000,000 shall be for worker training: Provided further, That the Secretary of Energy may use or transfer amounts provided under this heading to carry out new authority for transmission improvements, if such authority is enacted in any subsequent Act, consistent with existing fiscal management practices and procedures.

Advanced Battery Loan Guarantee Program


For the cost of guaranteed loans as authorized by section 135 of the Energy Independence and Security Act of 2007, $1,000,000,000, to remain available until expended: Provided, That of such amount, $10,000,000 shall be used for administrative expenses in carrying out the guaranteed loan program, and shall be in lieu of the amount set aside under section 1106 of this Act: Provided further, That the cost of such loans, including the cost of modifying such loans, shall be as defined in section 502 of the Congressional Budget Act of 1974.

Over the last few months we’ve all been horrified by the unfathomable cost of the financial industry bailout, and the law of large numbers has deadened our sensitivity to the relative size of incentives included in the House Bill. To provide a little color, the following table provides summary information on the pure play U.S. public companies that will be eligible to share in the likely subsidies including their total assets and total stockholders equity as reflected in their most recent SEC reports and their total market capitalization as of last Friday. (Click to enlarge.)

In addition to the pure play public companies identified in the table, there are a number of privately held battery research and development companies and a number of diversified industrial companies that are active in the energy storage space. Nevertheless, it seems clear to me that $1 billion in advanced battery grants and $1 billion in advanced battery loans, together with a potential share of $2 billion of renewable energy grants and $4.5 billion in grid development grants, should make a significant difference in the futures of a handful of companies that have a collective net worth of $1.5 billion and a collective market capitalization of $1.8 billion. As somebody who has been tracking the storage sector in considerable detail, I’m both floored and delighted by the amounts that Congress wants to spend for advanced battery research, development, manufacturing and deployment.

The pending subsidies represent an incredible opportunity for both the nation and the stakeholders in my list of pure-play storage companies and others that are active in the sector. Every company on my list can significantly accelerate their ongoing research, development, demonstration, manufacturing and deployment activities with a reasonable amount of Federal funding. I firmly believe that each of these companies has an important contribution to make and their respective technologies merit reasonable funding. My only cautionary notes are that:

• Politics and public relations have a nasty tendency to get in the way of good science and sound research, development, testing and commercialization decisions.
• Small companies are like children in developing countries that rarely starve but frequently die of dysentery.
• If you force feed an infant, one way or another you’re going to have a real mess on your hands and small companies are no different.

I believe the grants and loans included in the current House Bill can do an immense amount of good across broad sections of the energy storage landscape as long as the Department of Energy avoids the temptation to pick a presumptive winner before the research, development and testing race is run and the results are tabulated.

It looks like the storage sector is in for some very interesting times.

Disclosure: Author holds a large long position in Axion Power International (AXPW.OB) and small long positions in Exide (XIDE), Enersys (ENS) and ZBB Energy (ZBB).

Comments

[John Petersen:]

Sonrisa, its actually AXPW.OB, not AXPW.PK. My profile and several of my earlier articles disclose that I served as a member of Axion's board for four years and as its legal counsel for five. For the last year I've just been a shareholder. Of all the technologies, I know Axion's far better than I could ever talk about, but the work I did for them is what gave me the knowledge of this sector that I have.

My author's profile page is:

seekingalpha.com/autho...

Links to all of the articles I've written on this sector can be found at:

seekingalpha.com/autho...

If you decide to go back through the archive, be sure to read the comments. There are some really smart people out there that are great for helping newcomers build perspective. They don't always agree with me, but I think the dialogue is the best part of all of it.

Jan 29 03:20 PM

[John Adam:]

John P., there is something that I do not understand about your interest in alternative renewable energy and the smartGRID. Why do you primarily focus on battery technology? You are correct about the 4.5 billion to improve the energy grids being great for alternative energy. However the stock of contractors that build the grid infrastructure would be my first investment followed by investment in wind, solar, and geothermal solutions that will be used in the thousands of such projects triggered by the electric grid access created in step 1. Then the battery technology becomes important to prevent overloading the grids with excess power from variable sources such as wind and solar and to better balance generation with usage 24/7 to minimize waste.

Ultimately battery and fuel cell technology will be important, but mostly after the expansion of transmission grids and the implementation of renewable alternative technologies. Then we need electric vehicles that require large, safe, reliable batteries.

Jan 29 03:24 PM

[In the Know:]

This portion of the bill is great for energy storage in general. The distribution of funds is going to be key. Companies that have overstated capabilities in order to get Venture Fund money should be eliminated off the top. Three in particular went through these phases and should continue to fund themselves with public and private funds (non government). That's Altair, Ener1, and A123. These three companies are in existence only because of their pretensive claims on capability. All the money put into these companies needs to be washed out before any federal funds flow in or we the taxpayer will be left holding the bag of past decisions and mistakes.

Jan 29 03:24 PM

[John Petersen:]

John Lounsbury, you're far more accomplished than I when it comes to broad economic concepts so I would love to hear your thoughts on the recent Soros proposal that a variable tax regime should be imposed to keep oil prices at a stable base of perhaps $70.

billp37 raised the issue in a comment to this article and I can see interesting arguments both pro and con.

Do you think it's something you might be interested in writing on?

Jan 29 03:27 PM

[John Petersen:]

John Adam, the link in the first sentence takes you to an August article I did on the use of energy storage in utility installations. The applications are quite surprising to most readers and it's a pretty good review. I agree that the contractors and smartgrid specialists are going to take the lion's share of that $4.5 billion pie, but storage companies like Beacon, Altair and Axion that have ongoing grid projects may also benefit. The same goes for renewable energy.

In the know, you're a harsher man than I.

Jan 29 03:32 PM

[In the Know:]

JP,

You can tell I don't believe in emerging "bailouts". Should we give the homebuilders money to increase their production capacity? No, no one is buying. Should we give them money to build houses with the same standards, features, and size in the sub $100,000 range? Perhaps. Should we give the homebuilders money to start developing energy efficient appliances? (This analogy is to point out the stupidity of the car companies developing batteries). The point is that I believe the funds should help deliver the solutions and not accelerate bad management and business models at taxpayer cost.

Jan 29 04:11 PM

[John Petersen:]

In the know, you're preaching to the choir here. I would be happiest if we could see those funds spread across a wide base of competing ideas that could then be tested side-by-side, analyzed for performance and cost effectiveness and then perhaps subsidized through initial manufacturing. Some of the requests that were made in connection with the $25 billion auto industry bailout were, to my way of thinking, a bit piggish.

seekingalpha.com/artic...

Thanks for reading and speaking your mind.

Jan 29 04:20 PM

[Mayascribe:]

Maybe Obama should give everyone a cow and a MH car; I'll call it the "Pailout" plan. You get all the milk you can drink, and cheese to make from what's left. Then, at night, you can hook your car up to the cow's arse and run it all day on the methane produced. And think of the "gas" savings in that you don't even have to get out the "toro" to mow your lawn!

Jan 29 04:42 PM

[John Petersen:]

I have to hand it to you Mayascribe. This idea of yours could eliminate gazillions of cubic feet of methane (a far more dangerous greenhouse gas than C02) and help with energy independence at the same time.

Who said all the good ideas had already been taken?

Jan 29 05:23 PM

[sonrisa777:]

Hello John,

Thank you so much for that answer. I will do some reading on the subject because I'm very attracted to everything that's energy stocks and... I love the idea of projecting into the future. I do think that this battery business is going to grow, like the solars and wind and all the other "clean" or "green" technologies that give power.

As for it being the best technology that Axion has... you know... you can have a really great product and never get anywhere. The one thing that this company needs in addition to a great product is someone to get others to know about it :o) How are they with regards to this aspect?

Jan 30 12:38 PM

[John Petersen:]

Sonrisa, since they're still finalizing production processes and want all product claims to be fully documented for independent scrutiny, Axion is very cautious about what they say and when they say it. As more third party tests are completed and publicized, I expect they'll become more proactive.

Jan 30 01:08 PM

[sonrisa777:]

Just with that answer, I can tell how much I don't know beans about any of this. You're opening up a whole new world for me. For now... in terms I can understand, does this mean that they are still in the phase of "preparing the product" (and being very cautious about it) before they can think of doing some serious marketing?

Jan 30 01:22 PM

[John Petersen:]

Sonrisa, the product is at what's called a commercial prototype stage, which means they are manufacturing limited quantities for testing and evaluation purposes, and having specialized equipment made to manufacture the electrodes in higher volume. Currently production levels are in the 10 to 20 battery per day range and later this year the first automated lines should take it up to about a thousand units a day.

Right now, all of the production is dedicated to a couple large scale demonstration projects in the utility and electric vehicle sectors. Once production is high enough, they'll be able to start offering to a larger audience of potential purchasers.

I don't want to seem paternalistic, but I get the sense that you don't have a lot of investing experience. If my guess is right, the last thing you should be doing is picking individual stocks, particularly speculative stocks like Axion. There are a number of well managed exchange traded funds (ETFs) that focus on the alternative energy sector and offer far more diversity for new investors than a single stock ever could. In fact, Tom Konrad posted an article on Clean Energy ETFs just the other day:

seekingalpha.com/artic...

I love the entire alternative energy sector and have high expectations overall, but picking individual stocks is a lot like casino gambling and doing it well requires a great deal of experience and careful diligence.

If you're new to the field, a balanced diversified ETF is the safest way to go.

Jan 30 01:39 PM

[sonrisa777:]

Well... I'm not really that new at it. I've actually been in it long enough to loose plenty of money because I caught the end of the bull market with FXI... I read a lot of articles and I try to figure things out but... I don't know anyone who'll answer all the questions I have. I signed up for a course a while back and it turned out to be for technical analysis. I'm not into reading graphics, more than just the basic curve that is, and the teacher was a trader so... he didn't want to answer any questions that didn't have to do with the class :o((( I dropped out!

As for this interest I have in the batteries... I have the equivalent interest in solar. I've learned about the different materials and that kind of thing. But... I've also got to learn about how companies function like integrated like LDK that produces its own material and sells its product by opposition to just selling the product or producing it. And then... when companies come out with their numbers... I'm still trying to figure out how something is good, very good or fantastic. Of course if it's more than predicted it's good but... for the rest, ouf...

I'm a psychologist and I can read moods fairly well, so that part of the stock market doesn't phase me but... all this other stuff! At times I feel I'd need a 3 year course in business to just *begin* to know all I need to understand!

As for picking the individual stocks... yeah... I'm also a bit of a gambler but... I've learned the difference between a stock like PG and FXI and the financials (that are supposed to be blue chip but that are tanking) and a stock like NBF (which is a biofuel that uses waste product to produce their fuel) but this also is a small company.

I'll read up on the articles that you referred me to. Thank you so much for answering. I have the impression that I understand a bit more than I did before we started this conversation and that's always a very satisfying feeling.

Have a good day!

Jan 30 02:15 PM

[John Petersen:]

Sonrisa, any questions I can clarify for you just let me know. I'm always willing to help.

Jan 30 02:49 PM

[sonrisa777:]

Even if it's got nothing to do with batteries but definitely something to do with the stockmarket? I mean... this thing is HUGE. So many things to know!

Jan 30 03:59 PM

[John Petersen:]

contact me through my website ipo-law.com

Jan 30 04:03 PM

[frflyer:]

DiggerUK

What is it that you think is goofy about having sources of electricity that will never, ever, need any fuel to mine, prospect for, transport, store, refine, burn, clean up mess from, manage the wild price fluctuations of, or fight wars over?

"I'd put my money on the sun & solar energy. What a source of power! I hope we don't have to wait until oil and coal run out before we tackle that."

Thomas Edison, 1931


What's goofy about solar thermal plants that can replace coal plants, using less land than coal power and coal mining use, especially since coal pretty much destroys the land it uses?

All fuels are finite. For our purposes, at least for the next billion years or so, we can consider sunshine and wind as infinite.

Both can be built quicker than nuclear or coal.

Ultimately, they will both be cheaper than any fossil fuel, and probably cheaper than nuclear will ever be.

And they are clean.

In the U.S., 8 GW of solar were built in the last year. Wind power now employs more people than coal in the U.S.

Imagine building 8 average nuclear plants each year. Keep imagining. The speed at which wind and solar are built will exceed that rate in the coming years.

Jan 31 12:29 PM

[frflyer:]

Paul Davis

I wonder whose "property rights" were violated in the process of subsidizing the oil industry for the past 90 years. Pretty much the same for coal gas and nuclear. Nuclear has received over $100 billion over the years.


Why are we taxpayers subsidizing what's probably the most profitable enterprise in the history of the world? Exxon just reported record $45 billion profits. So why are taxpayers subsidizing the oil industry at $39 billion a year? That's a low estimate, I've seen an estimate for $84 billion a year at SetAmericafree.org

One comment mentioned $4 billion a year. Not even close. Bush "increased" the oil company subsidies by over $6 billion/year a few years ago. $32 billion increase over 5 years. McCain wanted another $4 billion increase. The leading expert on energy subsidies in the U.S., Koplow, said he is not aware of any oil subsidy that has ever been phased out since 1918.

In fact that's one of the main reasons renewables need subsidies, to compete against the hugely subsidised fossil fuel industry. $39 billion could pay for a lot of greenwashing and climate science denial propaganda. We pay them to fool us.



billp37

The BTUs IN for wind and solar are free and endless.
Sounds like you are comparing apples and oranges. Or am I missing something?


Mayascribe

Your Pailout plan is a gas.

Seriously though, does anyone else follow Environmental Power (EPG)? They have proprietary anaerobic digesters that turn manure and other farm waste into methane, which they clean up and send into commercial NG pipelines. They have an anecdotal story of a large dairy farm in Wisconsin, with 900 cows. The methane powers 600 homes. If this is true, that's only a cow and a half per home. So you weren't that far off. They have at least one contract with PG&E. Like John alluded to, this kills two birds with one stone, capturing methane that would eventually make it into the atmosphere, and harnessing it for power. It can be burned or used in fuel cells.

Jan 31 07:17 PM

[James Everitt:]

<b>Creating more green jobs has multiple benefits. It helps the economy as a whole; it helps our environment; and it will save you money.

Stay tuned for more information on green jobs following the Middle Class Task Force’s, first meeting on February 27, 2009 in Philadelphia, Pennsylvania.

BRIEFING ROOM: The White House provides timely and accurate information about the President's latest events and public statements. Here you'll find photos, video, and blogs, as well as proclamations, executive orders, and press releases.

<object id="_ds_3779438" name="_ds_3779438" width="670" height="550" type="application/x-sh... data="viewer.docstoc.com/"><param name="FlashVars" value="doc_id=3779438&... name="movie" value="viewer.docstoc.com/"></param>&l... name="allowScriptAccess" value="never"></... name="allowFullScreen" value="true"></p...
<br/><font size="1">

H.R. 1: House Stimulus Package - Free Legal Forms</font>

PS: Don't have time to read all 647 pages? Shame, shame. Still, this bill is mostly a combination of bills moved through three major committees. Summaries of each section can be found here, here and here.

CREATE JOBS WITH CLEAN, EFFICIENT, AMERICAN ENERGY

To put people back to work today and reduce our dependence on foreign oil tomorrow, we will make investments aimed at doubling renewable energy production and renovate public buildings to make them more energy efficient.

! Reliable, Efficient Electricity Grid: $11 billion for research and development, pilot projects, and federal matching funds for the Smart Grid Investment Program to modernize the electricity grid making it more efficient, secure, and reliable and build new power lines to transmit clean, renewable energy from sources throughout the nation.

! Renewable Energy Loan Guarantees: $8 billion for loans for renewable energy power generation and transmission projects.

! GSA Federal Buildings: $6.7 billion for renovations and repairs to federal buildings including at least $6 billion focused on increasing energy efficiency and conservation. Projects are selected based on GSA’s ready-to-go priority list.

! Local Government Energy Efficiency Block Grants: $6.9 billion to help state and local governments make investments that make them more energy efficient and reduce carbon emissions.

! Energy Efficiency Housing Retrofits: $2.5 billion for a new program to upgrade HUD sponsored lowincome housing to increase energy efficiency, including new insulation, windows, and furnaces. Funds will be competitively awarded.

! Energy Efficiency and Renewable Energy Research: $2 billion for energy efficiency and renewable energy research, development, demonstration, and deployment activities to foster energy independence, reduce carbon emissions, and cut utility bills. Funds are awarded on a competitive basis to universities, companies, and national laboratories.

! Advanced Battery Loans and Grants: $2 billion for the Advanced Battery Loan Guarantee and Grants Program, to support U.S. manufacturers of advanced vehicle batteries and battery systems. America should lead the world in transforming the way automobiles are powered.

! Department of Defense Efficiency: $1.8 billion for efforts to make our military bases more energy efficient, beyond benefits that will come from replacing and repairing facilities.

! Energy Efficiency Grants and Loans for Institutions: $1.5 billion for energy sustainability and efficiency grants and loans to help school districts, institutes of higher education, local governments, and municipal utilities implement projects that will make them more energy efficient.

! Home Weatherization: $6.2 billion to help low-income families reduce their energy costs by weatherizing their homes and make our country more energy efficient.

! Smart Appliances: $300 million to provide consumers with rebates for buying energy efficient Energy Star products to replace old appliances, which will lower energy bills.

! GSA Federal Fleet: $600 million to replace older vehicles owned by the federal government with alternative fuel automobiles that will save on fuel costs and reduce carbon emissions.

! Electric Transportation: $200 million for a new grant program to encourage electric vehicle technologies.

! Cleaning Fossil Energy: $2.4 billion for carbon capture and sequestration technology demonstration projects. This funding will provide valuable information necessary to reduce the amount of carbon dioxide emitted into the atmosphere from industrial facilities and fossil fuel power plants.

! Department of Defense Research: $350 million for research into using renewable energy to power weapons systems and military bases.

! Alternative Buses and Trucks: $400 million to help state and local governments purchase efficient alternative fuel vehicles to reduce fuel costs and carbon emissions.

! Industrial Energy Efficiency: $500 million for energy efficient manufacturing demonstration projects.

! Diesel Emissions Reduction: $300 million for grants and loans to state and local governments for projects that reduce diesel emissions, benefiting public health and reducing global warming. This includes technologies to retrofit emission exhaust systems on school buses, replace engines and vehicles, and establish anti idling programs. 70% of the funds go to competitive grants and 30% funds grants to states with approved programs. Last year EPA was able to fund only 27% of the applications received.

Contact Elected Officials

We encourage you to contact your elected officials and share your thoughts on current events and government policy. Below you'll find links to e-mail and postal addresses, and phone numbers for key elected officials.

President Barack Obama and Vice President Joe Biden – Send questions, comments, concerns, or well-wishes to the President or his staff.

U.S. Senators – Search for your senators by name, state, or congressional class; and visit their websites.

U.S. Representatives – Find contact information for your U.S. representative by typing in your zip code.

State Governors – Select your state to access e-mail, telephone, and postal contact information for your governor.

State Legislators – Search for state legislators and topical legislative information, by U.S. states and territories.

The challenges our country faces are too great for us to sit on the sidelines. We’d like to hear from you.</b>

Feb 12 02:43 PM