Seeking Alpha
Long-term horizon, nano-cap, micro-cap, alternative energy
Profile| Send Message|
( followers)  

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)(NYSE: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 (NASDAQ:AXPW) and small long positions in Exide (XIDE), Enersys (ENS) and ZBB Energy (NYSEMKT:ZBB).

Source: Huge Incentives for Energy Storage in Today's House Bill