Energy Storage Incentives Approved by Congress

On Friday, the House of Representatives and Senate passed H.R. 1, the American Recovery and Reinvestment Act of 2009 and sent the bill to President Obama for his signature. The impact on companies that manufacture advanced batteries and other energy storage devices will be staggering. The principal energy storage appropriations include:

• $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;
• $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;
• $6,000,000,000 to pay the cost of guaranteed loans under a “Temporary Program for Rapid Deployment of Renewable Energy and Electric Power Transmission Projects;”
• $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 addition, the final bill includes tax credits for purchasers of plug-in electric vehicles as follows:

• For new plug-in electric vehicles, a base credit of $2,500 plus $417 for the first 5 kWh of battery capacity plus $417 for each additional kWh of battery capacity, up to a maximum of $7,500 per vehicle;
• For new neighborhood electric vehicles, a credit of $2,500 per vehicle;
• For plug-in EV conversions, a credit equal to 10% of the first $40,000 in conversion costs.

Analyzing Congressional intent is difficult and predicting how regulatory agencies like the DOE will interpret that intent is even harder. Nevertheless, recent DOE publications and the text of the legislation provide some important clues about how the subsidies are likely to be distributed. So I’ll go ahead and climb out on a limb and offer one lawyer’s opinion of how things are likely to evolve.

There are substantial differences between the original House bill and the final version sent to the President. The original House bill included $2 billion in funding for renewable energy research and development and specifically allocated those funds to biomass ($800 million), geothermal ($400 million) and other ($800 million).

It also authorized $1 billion in battery manufacturing grants and $1 billion for the cost of guaranteed loans for battery manufacturing. Most of the bells and whistles were eliminated before the final bill was sent to the President. Now we have a single $2 billion appropriation for battery manufacturing grants. I would characterize the final bill as far more results oriented than the original House bill.

In a recent article titled “DOE Reports That Lithium-ion Batteries Are Not Ready for Prime Time,” I reviewed the 2008 Annual Progress Report for the DOE’s Energy Storage Research and Development Vehicle Technologies Program. While DOE concluded that Li-ion technology was promising, it also noted that there were numerous technical barriers that prevented immediate commercialization of Li-ion batteries for use in automotive applications including cost, performance, abuse tolerance and life. Based on the conclusions, tone and tenor of the DOE report, it’s clear that the DOE views Li-ion as a promising R&D stage technology, but believes it is not a prime technology that’s ready for immediate commercialization.

The final bill sent to the President requires the DOE to include Li-ion battery developers in the class of eligible grant applicants. Without that requirement, I think there would have been a reasonable argument that Li-ion developers should be excluded from grant eligibility. While Congress clearly wants some funding for Li-ion battery developers, it’s clear that the battery manufacturing grants are not directed solely or even principally toward Li-ion technology. The Congress wants energy storage solutions that work today, not potential solutions that may work in 5 or 10 years. On balance, I expect the bulk of the battery manufacturing grants to go to companies that are manufacturing and selling existing products into established markets.

In another recent article titled “Alternative Energy Storage: Enabling the Smart Grid,” I reviewed two recent reports from the Department of Energy’s Electric Advisory Committee that discussed the critical enabling role that energy storage technology would play in the evolution of the Smart Grid. At the time of the original House bill, I speculated that some of the $4.5 billion appropriation for electricity delivery and energy reliability might ultimately be used for energy storage devices.

Since the final bill sent to the President specifically added, “demand response equipment” to the list of authorized uses, and the final bill includes a new $6 billion appropriation for guaranteed loans to electric power transmission projects that should alleviate some pressure on the $4.5 billion in grant money, I think my earlier speculation can now be classified as certainty. I’m not courageous enough to predict the amount of electricity delivery and energy reliability grants that will ultimately be allocated to energy storage, but I will be surprised if the grant funds allocated to energy storage don’t exceed $1 billion.

I believe a total of $3 billion in battery manufacturing and electricity delivery and energy reliability grants can do an immense amount of good across broad sections of the energy storage landscape as long as the DOE sticks to legislative intent and funds companies that can manufacture and sell commercial products today. It all goes back to my core belief that we need to wake up in the morning, go to work with the tools we currently have available, solve our problems to the best of our abilities and be prepared to embrace new tools and new technologies when the R&D work is done and the commercial value is established.

I have no doubt that the energy storage sector is in for some very interesting times, but this is a jobs, productivity and manufacturing bill, not a research and development bill.

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).

Comments

[D. McHattie:]

Thanks, John, I was hoping someone would summarize the energy-related components of this stimulus bill and spare us all the aggravation.

The more we expand the alternatives to oil the better off we'll be. This period of dollar strength could end at any moment, given the commitment of the fed, congress and obama to create inflation. Higher oil prices will be one major consequence.

One of the main differences between oil and other energy sources, as you have identified, is storage. The only storage device you need for fossil fuel storage is a tank.

Wind and solar require massive batteries to store the energy collected during day-time or windy periods for use at night or calm periods.

Vehicles and devices that typically run on gas (lawn-mowers, snow-blowers, chain-saws, etc) will also benefit from battery improvements.

For the next 10 years, building a better battery these will be like building a better mouse-trap - the world will beat a path to your door.

Feb 16 09:11 AM

[Gravity404:]

Thanks for reading the +1000 page bill and summarizing.

Since Lithium Ion batteries seem all the rage, from vehicles to other storage needs, from an investor stand point, it seems SQM will be a big beneficiary -- since "buy in America" only works if America has it.

Feb 16 09:35 AM

[John Petersen:]

D McHattie, I'm personally amazed by the scope of the subsidies for energy storage companies. I'm also floored by the scope of the problem. Storage isn't so much packing away giga-watt hours of electricity to use later as it is to smooth the output of wind and solar and maintain grid stability. You may want to glance through a few of my earlier articles to get a better feel. From the perspective of an investor, the combined market cap of the pure-play companies I follow is about $1.5 billion. Since these companies are collectively responsible for about half of domestic sales, the subsidies will effectively double the size of the industry without diluting existing stockholders.

Gravity, I won't claim that I read the entire bill, because I didn't. Thank heaven for key word searches. Notwithstanding my generally critical view of the cost of Li-ion chemistry, there are a lot of places where it will be essential and I'd never bet against SQM.

Feb 16 09:57 AM

[Paul Killinger:]

John,

When questioned on the subject of wind energy transmission and storage devices, Boone Pickens has repeatedly stated that these problems are already manageable. Since this gentleman is anything but an "All Hat" Texan, precisely what types of devices is he referring to when he makes this statement?

Feb 16 12:13 PM

[John Petersen:]

Paul, I have to assume that he's thinking in terms of using natural gas for peaking, governor response and frequency regulation; which is how the utilities have always done it. But as petroleum prices mount, the cost advantages of storage improve. Since everything I've read says that increasing the level of renewables increases instability, I'm not entirely confident that the future problems are as manageable as the present ones are. I like the Plan, but think it's only part of a well rounded and fully developed policy.

Feb 16 12:18 PM

[Mayascribe:]

Hold on to your hat, John! This column going to get real interesting now -- not that it hasn't been before.

The answers to questions down the road I will want to know, will be many:

1) Which companies will receive how much of the grants/loans?

2) Does the bill preempt receiving companies from paying down long term debt? (ie., as in toward Exide's $684 million in long term debt, with the bond holders receiving an obscene 27 percent interest?)

3) What "shovel ready" projects are going to be advanced?

4) What parts of the country will benefit the most? (I'm guessing California, Nevada, Arizonia and New York, maybe Michigan.)

5) How will this effect the Big Detroit Three, in that I'm reading hints of emminent GM bankruptcy? Will the giant automakers be around to release the new battery assisted city cars?

6) What companies will gain benefit from switching their fleets to electric vehicles, such as UPS, the U.S. Post Office, school busses, etc.?

7) Since "Buy American" was stitched into the stimulus package, which material companies, software companies and utility companies will benefit?

Just seven quick questions off the top of my head--there will be more.

What bothers me is how the market appears to be recieving the stimulus package. I hope I'm wrong, and that things pick up. But all indications are the S & P and DOW are in for another dip, according to the Futures Fair Value right now (DOW down pre-market; 134.41, S & P down 15.74).

Even though I'm glad that Uncle Sam is investing billions in the Grid and the Energy Storage Sector, investing in those correlating stocks right now, to me, is "strangely risky."

Just remember, it cost $18 billion to build the Boston Tunnel, nearly a billion to build one link of a subway under the Monogahela River in Pittsburgh.

So, how much can really be done?

I dearly want to be bullish on the USA turning it around, but I don't see enough in this package to be much more than a temporary bandaid. There's just way too much wrong in the very murky financial sector, with several more tsunami waves of bad news out there yet to come. We still don't know how many trillions are involved with bad loans, credit defuault swap derivatives, student loans, and quite possibly, another big wave of commercial property defaults in the pipeline, and that's just in our country!

Thanks for detailing out "your part" of the stimulus package, John. Well done!

Feb 16 12:22 PM

[Mayascribe:]

Surely am glad it's President's Day! To have a whole day (of no financial risk) to figure out what to do with my portfolio is going to be fun!

Feb 16 12:41 PM

[Alan Young:]

SQM has doubled since the November low. Maybe a little late now? Similar patterns in other battery stocks--it might be "sell the news" time.

Feb 16 01:03 PM

[frflyer:]

D. McHattie

"Wind and solar require massive batteries to store the energy collected during day-time or windy periods for use at night or calm periods."

Other readers of these articles are probably tired of having me point it out, but CSP (Concentrating Solar Power) otherwise known as Solar Thermal when combined with heat storage( as in molten salt) can provide steady power, day and night. This is dispatchable base load power. It has it's own storage built in.
And it is much cheaper than batteries.
One source says it's 20-100 times cheaper to store heat than electricity.

see here:
climateprogress.org/20.../

I keep harping on CSP mainly because I don't think most Americans are even aware of it, and it may be our most promising renewable because of the ability to provide base load power that can displace coal fired plants.


"The only storage device you need for fossil fuel storage is a tank."

That's storage, what about prospecting, mining, transport, refining, burning, cleaning up the waste from or fighting wars over?

Feb 16 01:44 PM

[John Petersen:]

mayascribe, I'd be rich several times over if I could accurately predict the answers to those questions. The biggest challenge any of the companies will have is formulating an honest answer to the question "How much can we spend wisely in a limited time frame?" I'm sure we'll see some of the same gluttonous grant requests we saw with other DOE loan programs, but they'll look even more silly this time around than they did the last time because the projects need to be shovel ready in the short-term and the planned products need to be commercially viable (for everybody except li-ion).

While my crystal ball is more murky than normal, there are a couple questions that I think I can answer:

1. Unless they want to deliver a FUBAR outcome, the money will need to be spread over a broad base of public and private companies.

2. The funds have to be used for plant expansion so the cash won't go to pay down existing debt;

3. I can foresee a variety of modest projects that will probably make a great deal of sense. But most of the mega-projects people talk about are either R&D consortia headquarters or plants to build uneconomic products. I don't think either will fly under this bill.

4. Since Senator Specter of Pennsylvania was critical to the bill's passage, I think it bodes well for Pennsylvania companies;

5. The auto industry may get reorganized, but it will not evaporate. Perhaps in the process we'll actually see some forward thinking people end up in positions of authority.

6. Many companies that put 30 or 40 miles a day on their vehicles can benefit from switching over to electric. The immediate ones are FedEx, UPS, the post office etc (and did I mention that battery size and weight are far less mission critical in a FedEx truck?). I'm sure there are lots of other potential fleet conversion opportunities, but I'll let smarter folk than me identify them.

You know my thoughts on market's ability to remain irrational longer than many can remain liquid, but I have a hard time believing that a balanced portfolio of storage sector stocks wouldn't perform very well over the next year to 18 months.

Feb 16 01:45 PM

[Advill:]

Agree with John, the size of the subsidies could easily duplicate the value of all the stocks of the sector just for that, buy american, build in US is a clear intention on the bill, solving problems with money (if possible) is another, the intnentions of the bill subsidies for EV is ....strange but anyway is a direction to follow.

This is a distortion of R&D, of market and financials around the companies, which ones, why and how and for what will be a "political" not a technical-feasibility question.

Do I invest more in VLNC? why?, what about XIDE? a 27% bond is really important now?, what about AXPW they do not have a "real " product right now but...they look pretty....

Market conditions are no more important in the next future...it seems more a bureau work than a real world market it´s like DARPA pushing projects but in big scale.

Regards.

Feb 16 02:00 PM

[John Petersen:]

frflyr, I agree with everything you say about CSP and its potential. It's excited me since the first time I heard of it. Unfortunately, CSP is a lot like pumped-hydro and CAES, which are not technologies that I can invest in directly today. So I don't see a lot of sense in discussing them in my Seeking Alpha articles, I'm waiting anxiously for the day that somebody creates the investment vehicle.

Feb 16 02:07 PM

[searcher:]

Most of those here could afford one of these toys, but as a significant or useful transportation alternative, please!

Feb 16 03:26 PM

[Mayascribe:]

Thanks, John. I believe you're most correct about the potential and positive future for battery stocks.

I just don't think pulling the trigger right now, as in tomorrow or the next week, is prudent, in any sector but precious minerals.

I have to find my Velcro pants and senior Huggies so that I can sit in this chair and watch and "work" the market. The next three to six weeks are going to be a financial roller coaster.

The information flowing forth in the next few weeks will be as intruiging to decipher as it will be in volume!

Feb 16 03:50 PM

[Mayascribe:]

I should add that I will be looking/studying hard at your favorite, Axion Power, tomorrow.

Several times have I put in orders for Axion that lasted all day and did not get a hit. I believe, Friday, only about 7000 shares traded all day. How about just letting me buy some shares from you?

Feb 16 04:10 PM

[Igorsky:]

The big problem with green technologies is their inherent instability. Putting these green tech in the grid will make the system unstable. To counter this instability requires massive storage capacities, and I mean massive. Has anyone done a calculation on the magnitude required and compare it to what can be manufactured (batteries)? To make it work, we need two types of peaking power -- one from solar and wind and the second from the curent gas fired peakers. This is cost duplication.

In our power system today, we use peaking generators which are powered by natural gas or LNG. They ramp up fast and shut down as quick so it tracks demand nicely...making for a very stable electric grid. What wind and solar power will do is burden the system with additional cost for good base power and gas peakers will still be needed to back up the 'greens' inherent shortcomings. This will make our electric system much more expensive to run and users will have to pay lots more for duplicate 'green' power.

What will these storage batteries cost us in terms of overall wate generation in their manufacture? All the chemicals we use to make solar cells and battery cells add to our pollution. Anyone done an accounting of environmental impact yet? Obama is going headlong on this with out doing a comprehensive environmental study on a macro (world) scale.

Have people noticed that Obama's plan does not address the continued massive CO2 gas that coal fired plants generate 24/7? Looking at the big picture I see 'green energy' as perhaps addressing only the increase in power demand due to increasing US population and does not address at all our current consumption requirements which we must reduce to slow global warming.

Without addressing the need to replace coal fired units with nuclear power, we are not going to slow the exponentially rising CO2 green house gases we generate.

One thing more. Right now we are locating wind mills in windy locations. With global Warming - more correctly, Climate Change - the weather patterns has been drastically changing. The windy locations we now pick may not be as good 10 years from now.

Feb 16 04:29 PM

[Old Wizard:]

John,you might be the only person in america that has actually read the bill. While its provisions do pump money into battery stocks, the bill is completely devoid of a recognizeable comprehensive energy policy.As an investment, it strikes me as a buckshot approach to component development and is missing concrete goals that make us less dependent on oil in the president's potential time in office.

Feb 16 04:33 PM

[aquaculture:]

Direct investment in concentrated solar power (CSP); some examples,

Solar Millennium ag (SMLNF) OTC. worldleader!!!

There is a smart money land rush going on in the desert south west, some 80 GW of production land sold!!
Good chance most of the mirrors, evacuated tubes etc. will come from Germany.

Schott Solar ag (S9S) Frankfurt XE
Abengoa (ABG) (madrid stock exchange)

Iberdrola (IBE) (Madrid stock exchange) is building a 1200 MW pumped hydro storage facility in Portugal -2 terrawatt-hour/annual, Europe's largest in 25 years.

Best wishes,
aqua.

Feb 16 05:05 PM

[John Petersen:]

Mayascribe, you are far more knowledgeable about market timing issues than I am. I don't mind being a prophet for a five year time frame, but the five day, five week or even five month stuff scares me to death. In a recent response to somebody, I said that if I was doing it today, I'd build a diverse portfolio across the entire sector because you just can't know what the future holds. I'm not willing to sell my current holdings at a loss in order to diversity, but I truly believe that will be the smartest move until the muddy waters clear.

Old Wizard, the hardest part of any comprehensive energy policy is that there will be forces massed against every single element. I just want my lights and heat to work; so I love oil and gas, I love wind and solar, I love storage and I even love nuclear; and since I'm a GW agnostic, I'm not entirely convinced that coal is a tool of the devil. From where I sit we need them all and we need them in massive quantities because 6 billion people want the lifestyle that 500 million of us currently enjoy. So regardless of what the political flavor of the day is, anything that gives us progress on one or more fronts is a good thing.

Feb 16 05:19 PM

[aquaculture:]

Never mind the government, all they have to do is run the b. of land management. And they're not very good at it...

ecogeek.org/content/vi.../

solarmillennium.com

Ask not what the government can do for you...connect the dots

Feb 16 05:56 PM

[aquaculture:]

ecogeek.org/content/vi...

Feb 16 06:44 PM

[aquaculture:]

sorry, link did'nt work.

solargoldrush.com

Best wishes,
aqua.

Feb 17 07:01 AM

[Old Wizard:]

JP, I agree that some progress is better than none. My problem is that the stimulus bill does not focus the effort and thereby will propgate a tower of babel discourse on the roadmap to energy indepedence. While providing money for component development such as battery storage and grid management is a good thing, I believe more progress would be made by setting specific alternate energy production goals that are significant in a five year incremental time frame and enabling large enough pilot projects to jump start the activity. Provision of altrernate energy, e.g. example solar, is a systems problem that only converges when the total problem is addressed under specific time constraints. A large enough pilot project would serve as a learning mechanism and also as a focusing framework for component development. Alternate energy can be provided in many ways and the most readily available one in the short term, natural gas,[as fitz has pointed out and i agree] is not part of the bill. New jobs could immediately be created. Simultaneously the other forms, like wind,solar, electric cars,etc which have a longer pay-off should be kicked off as well through the process I discussed above. When the country invests over 7% of its annual gross domestic product, it should be done with much more specific goals, if the country wants to ensure a prosperous future.

Feb 17 12:36 PM

[John Petersen:]

Old Wizard, I can't disagree with any of your points. There is a desperate need for a comprehensive policy and reasonable steps to attain the policy goals. Doing it in bits and pieces is never as good as developing a plan and implementing it. We need to use natural gas as a bridge and folks who think the alternatives will come on rapidly enough to supplant the need for natural gas are, in my view, unduly optimistic. There are also some really exciting possibilities out there (like molten salt storage) that need a large scale test over a reasonable period of time. My biggest worry is that in the rush to show results, a suboptimal decision will be made. I appreciate your willingness to comment as a voice of moderation who keeps a sharp eye on cost-benefit relationships. There are times when I feel terribly alone when I ask, "sure it works but can we afford the cure?"

Feb 17 01:03 PM

[John Petersen:]

Speculawyer, I think I said "While Congress clearly wants some funding for Li-ion battery developers, it’s clear that the battery manufacturing grants are not directed solely or even principally toward Li-ion technology."

I have never suggested that Li-ion should be cut out of the game, but I have insisted that it is not the entire game.

Feb 19 12:30 AM

[Ames Tiedeman:]

Energy storage looks very promising. The flywheel technology is particularly awesome. It is nice to see that Austin, Texas has ACPW. They appear poised to grow.

Feb 21 09:33 AM