Are Energy Storage Investors Chasing Their Own Tails?

I didn't learn about normal bell shaped curves in kindergarten but I developed a pretty solid understanding of the concept by the second or third grade because at report-card time A's were worth a quarter, B's were worth a dime and C's had no value at all. By the time I reached college I was chasing the right hand tail of the bell curve on my own initiative. Law school and the competitive nature of my profession merely pushed my drive for the right hand tail up a notch.

Old habits die hard, so I still tend to chase that right hand tail of the bell curve in almost everything I do. The only real exception is investing where 30 years of experience has taught me that the most successful companies are the ones that sell products to the 95% of the population that don't command $200,000 salaries. There are companies like LVMH that have a great business catering to the elite, but they're not in the same league as Target (TGT) and Wal-Mart (WMT).

The energy storage sector is undergoing an amazing metamorphosis as the market comes to the realization that a boring old-line industrial sector holds the keys to cleantech, the sixth industrial revolution. Storage isn't a sexy alternative energy technology in its own right; instead it's an enabling technology that makes other technologies more reliable, efficient and profitable. This dynamic has encouraged a different class of investors to investigate energy storage for the first time. Unfortunately most of the attention goes to technologies on the right hand tail of the performance and cost curves. In my view, this is precisely the wrong place for investors that want to position their portfolios for the coming of cleantech.

I love quarterly reporting cycles because they provide a great opportunity for a reality check. This quarter, the reality check is even more important because General Electric (GE) just announced plans to enter the energy storage business in a big way and manufacture sodium nickel-chloride batteries for hybrid locomotives and grid-connected applications. Their plan to make batteries that integrate well with their railroad and wind turbine businesses makes great sense. Their choice of a technology that currently falls into the "cool" category but has the potential to become very cheap speaks volumes about what GE thinks a reasonable price point will be. If any company on the planet has a good feel for what everybody needs and is willing to pay for, it's GE.

I first wrote about this theme in "Energy Storage Stocks: Performance, Cost and Bell Shaped Curves" and expanded on the topic in "Alternative Energy, Regular Guy Stuff and Rainbow Stew" and "Alternative Energy Storage: Cheap Will Beat Cool." I then spent months delving into some of the more mind numbing aspects of energy storage technologies and the companies that are developing them. In the process, my core thesis that cheap will always beat cool has been diluted by gee-whiz performance claims of exotic technologies that are too expensive for 95% of potential buyers.

To help remind readers what matters in business, I've put together a simple graphic that overlays an average of the DOE's estimated current and 10-year projected cost of various energy storage technologies on a normal bell shaped curve. In this particular graphic, there is no direct correlation between the background curve and the price points in the foreground. The curve does, however, help put the projected cost differentials into the context of a normal market.



Investing would be easy if the market prices of stocks were based solely on financial statement metrics. In the real world, however, the baseline financial values are impacted by a wide variety of intangible factors that increase or decrease the value of a going concern. The factors that are typically identified as important include history and experience, existing customer and supplier relationships, human and intellectual property resources and the potential for exceptional growth and profitability.

The following table compares the market capitalizations of the companies I track with their tangible financial statement values. The purpose of this presentation is to highlight the implied market value of the non-financial assets the various companies hold and help investors decide whether they believe the intangible premiums are reasonable.

			Market	Tangible	Intangible
	Trading	Recent	Capitalization	Value	Premium
	Symbol	Price	(Millions)	(Millions)	(Millions)
Cool Emerging Group
Ener1	HEV	$6.12	$694.51	$25.16	$669.35
Valence Technology	VLNC	$2.06	$252.87	($63.08)	$315.95
Altair Nanotechnologies	ALTI	$1.26	$117.37	$37.14	$80.24
Beacon Power	BCON	$0.75	$85.93	$22.12	$63.82
Cool Sustainable Group
Maxwell Technologies	MXWL	$8.90	$200.44	$37.11	$163.33
Advanced Battery	ABAT	$3.47	$183.29	$76.12	$107.17
Ultralife Batteries	ULBI	$7.35	$124.65	$43.28	$81.37
China BAK Battery	CBAK	$2.06	$118.84	$166.91	($48.07)
Hong Kong Highpower	HPJ	$2.16	$29.36	$15.84	$13.52
Cheap Emerging Group
Axion Power International	AXPW.OB	$1.40	$49.77	$6.14	$43.63
ZBB Energy	ZBB	$1.10	$11.68	$7.08	$4.60
Cheap Sustainable Group
Enersys	ENS	$16.00	$767.61	$258.33	$509.28
Exide Technologies	XIDE	$5.45	$411.36	$285.73	$125.63
C&D Technologies	CHP	$1.80	$47.33	($37.04)	$84.37
Active Power	ACPW	$0.54	$32.65	$18.75	$13.89

The numerical average of the intangible premiums the market has attributed to the 15 companies I track is $148.5 million. While it's easy for me to justify substantial intangible premiums for companies like Enersys that have stable operating histories, global customer bases and product lines that are affordable for everybody, I have a much harder time justifying huge intangible value premiums for emerging companies that have neither stable histories nor established customers and plan to manufacture products that 95% of the population can't afford, particularly when the 5% who can afford their proposed products may not want them.

These are treacherous times in the energy storage sector. The new investors who are investigating energy storage for the first time are generally early adopters like me who instinctively focus on the right hand tail of the bell curve. We get so enamored with the technical performance claims that we tend to forget the realities of a free market where the vast bulk of potential customers don't have the economic power to choose a cool solution over a cheap solution.

Mark Twain quipped, “History doesn’t repeat itself, but it does rhyme.” Henry Ford didn’t make the best cars; he just made the cheapest cars. Microsoft (MSFT) didn’t make the best operating system; it just made the cheapest operating system. In times like these I believe energy storage investors will be well-advised to heed the philosophy of the great value investor Benjamin Graham who said,

In the short run, the market acts like a voting machine, but in the long run it acts like a weighing machine.

Otherwise, they may find that they're chasing their tails. Investors that want to develop an in-depth understanding of the issues and opportunities in the energy storage sector may want to consider attending Infocast's Storage Week in mid-July. The speakers list includes more than 80 thought leaders in the battery industry, the government, the utility and automotive industries and the research and development sector. They've even invited me to participate in three panel discussions. Hopefully I'll return from San Diego with investable insights that I can share with readers in future articles.

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 small long positions in Exide (XIDE), Enersys (ENS) Active Power (ACPW) and ZBB Energy (ZBB).

Comments

[Road Runner:]

So GE is making sodium nickel-chloride batteries and not sodium sulfer batteries as reported earlier?

May 18 09:02 AM

[John Petersen:]

Road Runner, on Saturday morning I found the following reference that clarified the battery chemistry GE will be producing:

www.comsol.com/shared/...

The sodium nickel-chloride (a/k/a Zebra battery) still requires very high temperatures of roughly 550 F., but it's a bit cooler than the NAS. The DOE's SEGIS-ES price range on Na/NiCl goes from a current price of $800/kWh to a future price of $150/kWh.

May 18 09:10 AM

[Road Runner:]

GE seems to make smart decisions as to what markets and products to pursue. This battery is just one example. They are heavy into new economy energy products like wind turbines, high-efficiency jet engines, etc. When the storm is over with the big finance side of their house, I believe their stock will do well with their vast portfolio of solid, new economy products. Looks like Jack Welch left the company with good decision makers. That is why I am an investor with them.

May 18 09:13 AM

[Road Runner:]

Thanks much John. You are a great source of information.

May 18 09:14 AM

[Windsun33:]

The big problem with any of the sodium-nickel batteries is that they are grossly inefficient compared to other common batteries. Fine for locomotives where you can carry 12 tons of them, not so hot for cars.

Various types of hydroxide + nickel batteries have been around for over 100 years, and their efficiency has never gotten much above 65%.

May 18 09:16 AM

[John Petersen:]

Road Runner, in spite of what the critics suggest from time to time I try to be accurate. Sometimes I slip like I did with the initial report of NaS chemistry, but this is far too important of a subject for me to let errors stand.

Windsun33, your point is well taken and extends far beyond NaNiCl because every battery has both strengths and weaknesses which is why I keep reminding readers that we are ultimately going to need all of them, plus a lot more that haven't been invented yet. One of the market's biggest misconceptions is that a single chemistry or family of chemistries will satisfy all of our future energy storage needs. The reality is that each market niche will be a battleground and the winners will be selected based on their performance and cost-effectiveness in a particular application.

May 18 09:34 AM

[Don Harmon:]

Well said John. I guess we need to start using this moniker for the GE batts: Na/NiCl2

Additives such as sulfur, iodide and
fluoride play a crucial role in the performance of
the system. The cost of nickel metal has
increased sharply in recent years, and this has
had a considerable impact on the economics of
the system. The cost of the metal, the potential of
the redox couple, the solubility of the metal
chloride and the formation of a passive layer that
could limit the utilization of the metal are some
of the initial factors to be considered when
designing the system.

In short, there are a lot of factors when talking about any battery chemistry and none of them are "slam-dunks". ALL of them are expensive in many ways that the average customer can't begin to comprehend.

That said - I agree we need them all and others that haven't even been invented yet is we intend as a planet to make the leap away from fossil fuels and into a new electric age.

Don Harmon

May 18 11:28 AM

[Windsun33:]

And the more you get into batteries - or any storage -, the trickier it gets. For example, some folks have predicted that if we actually go into widespread production of Li-ion batteries, that a Lithium shortage will come back to bite us. And for some renewable sources, it may end up that some type of thermal storage is the best way to go, such as liquid metal or underground super-pressure steam.


On May 18 09:34 AM John Petersen wrote:

> Windsun33, your point is well taken and extends far beyond NaNiCl
> because every battery has both strengths and weaknesses which is
> why I keep reminding readers that we are ultimately going to need
> all of them, plus a lot more that haven't been invented yet. One
> of the market's biggest misconceptions is that a single chemistry
> or family of chemistries will satisfy all of our future energy storage
> needs.

May 18 11:30 AM

[searcher:]

It's human nature to fixate on an aspect of the model of a problem. If you don't come to a personal understanding of a problem you cannot address it. Fortunately, a diversity of informed investigation is evident in all these approaches. The constraints of time and place affect all our personal motivations. Let a thousand ....

May 18 12:17 PM

[John Petersen:]

Don and Windsun, one of my pet hopes is that eventually we'll get smart enough to use the energy stored a few miles under our feet in preference to energy from a giant ball of hot gas that hangs out about 93 million miles out in space, but the learning curve will take a while. In the meantime, I'm firmly convinced that we need to wake up in the morning, go to work with the tools we have and solve our problems to the best of our ability. The best part of GE's decision was the quote from Immelt who apparently said:

"We never think small about anything we do, and we’re not thinking small about where this technology goes and the impact it can have."

It's one thing for a blogger like me to say that energy storage is going to be an investment tsunami. It's another altogether when the quote comes from the top of GE.

May 18 12:24 PM

[tireman63:]

John,
In your second paragraph above, you mentioned selling products to people making less than $200k/year. An old master or retailing said something like this a long time ago "We make our money not from the lady arriving in the chauffeur-driven limo, but from the shopgirl riding to work on the subway." The old gentleman was right.

May 18 02:00 PM

[William Taylor:]

Batteries may be developed that can serve almost any need but they all have a large carbon footprint, a feature that may drive their price higher. Shortage of materials may also drive prices up and manufacturing costs associated with materials contamination and remediation will also be a cost factor.

May 18 02:28 PM

[Old Wizard:]

Another good article, John. I caution you not to be too exuberent about GE's announcement. Immelt's stuardship at GE has not been exactly a rollicking success. The stock price, net profit, dividend, and product market share on engines, appliances, lamps and even generators to a lesser extent has decreased during his tenure while the risk in GE capital has increased leading to a downgrading of GE's corporate bonds. Deals like the one made with Warren Buffet weren't particularly advantageous for existing stock holders. The announcement, while making some sense from their new thrust into the green energy era, seems to be playing more to the politics of the country. GE management is on the Obama team and has gotten guarantees that it can go to the Fed loan guarantee window as a back up to shore up the cash requirements in GE Capital. Given the bet Immelt has made on windmill farms, electric grid management and medical record computerization, he must support the administration programs and 100m is good pr. The only problem is that demand at this point is pretty much Gov. fostered and may or may not be real, take longer to develop so that break even can be realized and not represent what the 200k or less user wants, needs or can afford. For example, what real evidence is on the table that leads us to believe that the railroads of the world want to buy and can afford hybrid electric train engines that makes the investment viable and at what point would their new batery venture coincide with a real windmill market. The Gov.'s goal is to provide 20% of todays generating capacity from wind and solar by 2030. Is the payoff from this investment going to break even in the next ten years? If I were running the ship I would be more inclined to build train engines that ran on natural gas, but my measure of performance would be nearer term and not driven by as many unpredictable dependencies such as politics, speed of windmill facility installation, development of high temperature reliable and safe batteries, and the time horizon of when effective electric grid management from wind generated electricity of any magnitude is brought on-line.

May 18 02:54 PM

[John Petersen:]

William, batteries have no greater or lesser carbon footprint than any other manufactured product and once they exist, they have no carbon footprint at all. Depending on the chemistry you're talking about, the recycling programs vary from extraordinary for lead-acid to almost non-existent for li-ion.

Old Wizard, analyzing GE is far beyond my meager powers of observations, but hybrid locomotives are an extraordinary application for recuperative braking to save energy that's currently going to waste. My excitement comes from the fact that an elephant hunter is now roaming a sector that has long been thought of as rabbit country. I can say batteries are going to be big business and the market says "OK, we'll watch and see." Immelt says the same thing and gets an entirely different level of attention.

May 18 03:13 PM

[Futurist:]

The "elephant in the room" is the U.S. dependence on foriegn oil. One year ago it was all anyone talked about and now people don't even notice the elephant. GE is simply looking down the road at products that improve their particular product line. Immelt understands that oil demand can not fall fast enough to beat the peak oil point. Therefore, if a business is to survive in the next twenty years it has to sell products that reduce oil consumption.
John is correct in looking at an industry (energy storage) for investment that is slated to grow. No new invention can come on fast enough to take away all of the new growth in this area.

At todays prices GE or any other large industrial can buy ALL of the companies John listed in this article for 4 billion dollars. That includes a 30% stock appreciation price. It won't take to much longer for the huge industrial companies to be major players in this new world.

May 18 04:14 PM

[Don Harmon:]

Futurist, let's hope the big players do come in for the sake of the small innovative companies who have really "pioneered" the new technologies and deserve some support from the likes of GE.

Don Harmon

May 18 04:21 PM

[Wisdom vs. ...:]

old wizard, wind farms are cranking out power at $0.07/kWh without subsidies, i consider that working, and distributed power works even better in china with its weak grid. i will believe that smart grid tech saves as much power as it costs when i see it, but i have not seen any researchers say it will NOT work; since we lose 50% of generated power in transportation, it makes sense. i do not buy that immelt is obama's tool, and i think it is good that he is smart enough to finance new pregrams with (IMO stupid) subsidies that ignorant voters want

May 18 04:25 PM

[John Petersen:]

Futurist, I'm a firm believer in peak cheap oil and think we are heading back into the $80 to $90 range far faster than most would think possible. Nevertheless, storage is not something that a big company can just decide to get into unless it wants to buy one of the existing players. GE spent several years and about $150 million before it decided to go forward with NaNiCl. There are a lot of strong patent positions out there that provide meaningful protection to their holders. Last week I estimated the current market valuation of the US battery industry at about $5 billion. But since most of the companies are trading at 50% to 80% off their 12 month highs, I doubt seriously that there are many battery stockholders that would be impressed unless a suitor was willing to pay a very large premium. That being said, I agree with Don that there is plenty of room in the storage sector for a number of very large and successful companies.

May 18 05:09 PM

[Don Harmon:]

If we look at the Automobile and the Airline industries what we find is eventual consolidation and eventually global consolidation which means the best of the small entreprenurial bunch will be rewarded (as they should be) with a partnership agreement with the large cap companies such as Ge and even Google if you can believe that? GE already has a stake in A123 and why do you think they do? Because Immelt and his crew recognize a nascent technology market when they see one and they are the best at seeing one. When GE makes a move the market sits up and takes notice.

The forerunners in this new market are ripe for being now included in the big cap portfolios of companies that they will support and ultimately deliver returns on for their stockholders.

Look for some major plays in the energy storage market in the near future! I sure am.

Don Harmon

May 18 05:22 PM

[billp37:]

A handful of US battery makers is scrambling for government support ahead of a deadline this week as the US struggles to win back lost ground from Asian competitors in one of the world’s next important technologies.

The race is also the first test of how the administration will use the near-$190bn in stimulus money earmarked this year to support “green” technologies, from alternative fuels to energy-efficient building materials.

Advanced batteries are seen as a strategic technology, given their importance to electric and hybrid vehicles, and their military applications.

www.ft.com/cms/s/0/ef8...

We are becoming more convinced that there is a BTU in problem with what goes into energy storage.


Gasoline, regular unleaded, (typical) gallon 114,100 BTU = 1.00 gallon (typical)

Q How much does a gallon of gasoline weigh?

A 2.69 to 2.91 kg (5.93 to 6.42 lbs), depending on temperature, type and blend

114,100/ 5.93 = 19,241.15 and 114,100/6.42 = 17,772.59 which means that gasoline contains about twice as
many BTUs per pound a coal.

May 18 05:44 PM

[Don Harmon:]

Thanks for that link, bilup 37.

Don Harmon

May 18 06:31 PM

[billp37:]

No problem Don Harmon

from a graduate [fossil] of a class of 1959.

home.comcast.net/~bpayne37/whitman59/w...

May 18 06:56 PM

[billp37:]

Whoops.

Link got screwed up.

home.comcast.net/~bpayne37/whitman59/w...

regards
www.google.com/search?...=

May 18 07:07 PM

[Ed C.:]

John, Is there a good reason why low-speed flywheels aren't getting more attention as a possible grid storage solution for intermittent wind & solar? Both Sandia and your graph have clearly pointed out that low-speed flywheels are cheaper than every single battery except lead-acid batteries - and flywheels have the advantage of high efficiency and decades-long service life. Yet everyone seems to dismiss flywheels as too expensive. What am I missing here?

Thanks for the great columns, by the way.

May 18 07:10 PM

[billp37:]

We may getting hit by the OPPOSITION.

Let's try link again.

home.comcast.net/~bpayne37/whitman59/w...

We are dealing with heavy hitters.

www.prosefights.org/nm...

May 18 07:13 PM

[billp37:]

I am giving up.

But here is the first part of the link

ttp://home.comcast.net...

Add an h.

From us senior techies.

www.google.com/search?...=

May 18 07:17 PM

[John Petersen:]

billp37, for reasons that I can't explain, the links you provide to your blog get screwed up by the "~" symbol. Everything to the left is treated as link and the material to the right gets truncated, which turns everything into a guessing game.

Ed C., the primary issue with flywheels is discharge duration. They're wonderful for instant response and a discharge window measured in terms of a few minutes (which is enough time to get back-up generators up and running) but they can't provide power for hours. On the other end of the spectrum, some flow batteries can't discharge their entire load in less than 3 or 4 hours. So it really is a question of finding the right storage device for each application. That's why I keep saying we need them all because some will do what others can't.

May 19 12:55 AM

[JayWen:]

John:
The Infocast Storage Conference looks like a good venue to get a sense of the breadth of the energy storage market potential and investment opportunities. While most of the technologies in your article are distributed electrical energy storage, I am curious as to your thoughts on thermal energy storage systems as potentially the least cost most environmentally friendly enabler of intermittent clean renewable generation. It appears that the Infocast conference has several panels where TES will be discussed. Do you see TES playing a significant role in the cleantech industrial revolution energy storage market? If so are there any interesting investment opportunities? It seem TES has been around for a while where there are established niche providers and one very new manufacturer, none are currently publicly held that I am aware of.
I appreciate the thoroughness of your investor opportunity perspective.
Best regards

May 19 12:59 PM

[John Petersen:]

JayWen, I'm a huge fan of thermal storage because it seems most likely to be cost effective for ultra-large scale systems. My problem in talking about the subject is twofold: first, there aren't many pure play opportunities that people can invest in today; and second, the analysis of a physical generating plant has little or nothing in common with the analysis of a manufactured device like a battery or flywheel. It's difficult enough for me to stay current and accurate on my favorite little sub-niche. It would be almost impossible for me to do a good job on the entire sector.

The Milunovich cleantech report that I link to regularly suggests that overall cleantech investments could dwarf IT investments by two orders of magnitude (simple translation - add two zeros). If he's even close to being right, this will be the biggest investment wave in history and endure for decades.

I'm excited about the Infocast conference because it will get me back together with some old friends and give me a chance to make some new ones. Hopefully I'll come back with something worth sharing.

May 19 01:18 PM

[JayWen:]

I lost you with "the analysis of a physical generating plant has little or nothing in common with the analysis of a manufactured device like a battery or flywheel". I am starting from the perspective that a building TES system attached to the air conditioning system is equivalent to distributed battery storage devices with a limitation of applicability to peak summer time periods which, in most areas of the US, defines system peak capacity requirements. Is there an issue with this statement of equivalency as TES is not storage that results in charging electrons and therefore is not part of this industry?

From a utility generation capacity resource planner's perspective, I would think that any type of storage that has the effect of reducing peak generation requirements and can address renewable intermittentcy issues would be on the same playing field as battery storage.

Perhaps I have missed the boat here, please comment.
Best regards


On May 19 01:18 PM John Petersen wrote:

> JayWen, I'm a huge fan of thermal storage because it seems most likely
> to be cost effective for ultra-large scale systems. My problem in
> talking about the subject is twofold: first, there aren't many pure
> play opportunities that people can invest in today; and second, the
> analysis of a physical generating plant has little or nothing in
> common with the analysis of a manufactured device like a battery
> or flywheel. It's difficult enough for me to stay current and accurate
> on my favorite little sub-niche. It would be almost impossible for
> me to do a good job on the entire sector.
>
> The Milunovich cleantech report that I link to regularly suggests
> that overall cleantech investments could dwarf IT investments by
> two orders of magnitude (simple translation - add two zeros). If
> he's even close to being right, this will be the biggest investment
> wave in history and endure for decades.
>
> I'm excited about the Infocast conference because it will get me
> back together with some old friends and give me a chance to make
> some new ones. Hopefully I'll come back with something worth sharing.

May 20 10:09 AM

[Teutonic Kn...:]

John -

I always like your substantive and credible articles, well researched, well argued, and well-written, and I am a faithful follower, inasmuch I also like your rapid response to the comments, which make the dialog interesting and sometimes even intriguing. Thanks, we need more authors like you.

Well, your reference to grades in your article tickled me, not so much I am grade hungry. As a sidettrack, according to your scale of value, an A = $0.25; B = $0.10; and C = $0. Would this metric be applicable to the undergraduate program only? What about the graduate program? My take was, for graduate program, an A = $15; B = $0. What is your take? Speaking in general terms only, we know that Harvard has that summa com laude, magna cum laude (3 levels), and so on.

Teutonic

May 20 10:10 AM

[Teutonic Kn...:]

Sorry for the typo - "A = $15 would be A = $0.15".


On May 20 10:10 AM Teutonic Knight wrote:

> John -
>
> I always like your substantive and credible articles, well researched,
> well argued, and well-written, and I am a faithful follower, inasmuch
> I also like your rapid response to the comments, which make the dialog
> interesting and sometimes even intriguing. Thanks, we need more authors
> like you.
>
> Well, your reference to grades in your article tickled me, not so
> much I am grade hungry. As a sidettrack, according to your scale
> of value, an A = $0.25; B = $0.10; and C = $0. Would this metric
> be applicable to the undergraduate program only? What about the graduate
> program? My take was, for graduate program, an A = $15; B = $0. What
> is your take? Speaking in general terms only, we know that Harvard
> has that summa com laude, magna cum laude (3 levels), and so on.
>
>
> Teutonic

May 20 10:12 AM

[John Petersen:]

JayWen, from an operator's perspective storage is storage and each alternative will rise and fall on its own merits. From the analytical perspective of a blogger who is trying to identify publicly traded investment opportunities, thermal storage is much closer to a generating technology than a storage technology. With a battery, you pay the capital costs once, put electricity in and take electricity out. The only ongoing involvement the owner has is periodic maintenance if necessary. Most thermal systems have a much higher level of owner involvement and ongoing operating costs that make the operation more of a business.

Teutonic Knight, actually those numbers were only supposed to work for elementary school in the late 50s to early 60s. The folks always figured we were on our own by high school. The biggest kick I ever got was when the law school sent my first grade report to my parent's house and my mother duly sent it back with the right count of quarters and dimes.

May 20 11:04 AM

[JayWen:]

John:
Thanks for the clarification to the distinction drawn between thermal and battery storage in the context of investment opportunities. The distinction is important as I saw the participation of Ice Energy Inc. on several panels at the Infocast Storage Week conference. Ice Energy has a packaged TES system that plugs into standard packaged rooftop AC systems; sort of pre-engineered TES in a box that looks more similar to a battery than traditional one-off engineered TES systems. Although not publicly traded, the company has the look and feel of a future IPO. Hope you have an opportunity to investigate and comment at the conference.
Best regards.

May 20 01:12 PM

[GSS:]

John: I know your thoughts on Li ion are well articulated in many of your articles. One data point that I haven't seen is the cost curve data for the Li ion batteries used in notebook PCs and similar application - i.e., the small Li ion cells like the 18650. If I missed that, please let me know.

The current costs for these small Li ion batteries are about $.25-.35/Wh at the cell level and $.60-$.65/Wh at the pack level (i.e., with electronics etc.). Also these costs have followed a pretty steep downward cost curve as volumes/applications have ramped up. See slide 3 of the DOE presentation below:
ornl.gov/sci/sp/Pres/D...

Today's large format Li ion cells are anywhere between $1 and $2 per Wh in costs - and that, probably, has a lot to do with the yield and volume for the new form factors. But it is not a huge stretch to theorize that they will get down to the same levels as the notebook battery costs... as volumes ramp up??

Also it is important to realize that "Li ion" is a catch all for many different types of Li ion batteries. There are some very interesting cathode/anode variations which give you drastcally different battery properties like specific energy, shelf life, cycle life etc.

Guru

On May 20 01:12 PM JayWen wrote:

> John:
> Thanks for the clarification to the distinction drawn between thermal
> and battery storage in the context of investment opportunities.
> The distinction is important as I saw the participation of Ice Energy
> Inc. on several panels at the Infocast Storage Week conference.
> Ice Energy has a packaged TES system that plugs into standard packaged
> rooftop AC systems; sort of pre-engineered TES in a box that looks
> more similar to a battery than traditional one-off engineered TES
> systems. Although not publicly traded, the company has the look
> and feel of a future IPO. Hope you have an opportunity to investigate
> and comment at the conference.
> Best regards.

May 21 11:07 AM

[marketquant:]

There is a paper published in IEEE Transactions on Power Delivery Oct 2008 by AEP which I think explains why AEP sometimes refers to *distributed* energy storage as a "game changer". If you are into lots of equations then go read it, but if you aren't then you may just want to hear some of the conclusions: (1) that distributed energy storage may increase overall efficiency by about 10% to 13%, (2) multiple smaller installations are more effective than the equivalent storage at one site, and (3) the price impact of the savings may be 2X or more.

These benefits would not accrue to non-distributed energy storage. For item 2 in the above list, AEP says that 4 sites at 2.5MW would be 205% more effective than 1 site at 10MW. The stored energy enjoys off-peak T&D loss rates while the on-peak energy benefits from improved T&D loss rates. Storage must be adjacent to load.

The results are not readily generalized, but this paper, combined with AEP's real world experience, and the value of other benefits (which are mentioned but not included in the calculation) indicate that the benefits of DES are far from being fully recognized.

May 21 12:00 PM

[John Petersen:]

GSS, the most recent data I've been able to find from the government is $1,333 per kWh current price and $780 per kWh 10-year projected price. That being said, I've been in touch with Argonne and they've told me that they plan to release an updated cost study this summer.

Marketquant, we are on the same page when it comes to distributed energy. Learning more on the subject is one of my primary reasons for accepting the invitation to Storage Week. My sense is that like most human endeavors the requirements of distributed storage installations will follow a bell shaped curve that leaves ample room for several classes of technology with different performance characteristics. This is exciting stuff!

May 21 12:23 PM

[GSS:]

John: It is important to distinguish cost data along a couple of dimensions:

1) Size of the cells. The consumer electronic Li ion batteries use the smaller cells - like the 18650 cells I mentioned above. Those have followed a steep downward cost curve, especially in the last 10 years (as the slide I mentioned shows), and are at $.25-$.30/Wh at the cell level. At the battery pack level, they are at ~$.60-$.65 level. The numbers you have below - from DOE, Sandia etc - are for the larger form factor Li ion batteries (with larger cells). These are not in the mainstream yet; EVs (and other stationary applications) will get them into the mainstream.

2) Chemistry (of anode/cathode/electrol... Consumer electronics batteries uses mostly Lithium Cobalt oxide (cathode) and graphite (anode). Cobalt is relatively expensive. The bigger cells (for EVs and stationary applications) use cheaper materials like Lithium Manganese oxide and others (cheaper than Lithium cobalt oxide).

An astute observer might ask: If the smaller cells are cheaper already why not assemble a big battery with a lot of small cells?

Actually there is an example already - the Tesla EV battery; it uses 6,831 small Li ion cells (18650) to get to a 53 kWh battery. And it supposedly costs around $35k ($660/kWh).

Only issue: Probably not a scalable solution - as the chances of a few cells out of 6,831 going bad is too high for comfort; in other words too many potential points of failure.

Anyway, my point being, hype will always get ahead of reality - no denying that there is a lot of Li ion hype (but so is the hype around others like flow batteries, Sodium etc). But... the possibility of getting Li ions costs down to $250/kWh (cell level) is not too far fetched; consumer electronics Li ions are already there (even with the expensive Li Cobalt electrode).

Guru

On May 21 12:23 PM John Petersen wrote:

> GSS, the most recent data I've been able to find from the government
> is $1,333 per kWh current price and $780 per kWh 10-year projected
> price. That being said, I've been in touch with Argonne and they've
> told me that they plan to release an updated cost study this summer.
>
>
> Marketquant, we are on the same page when it comes to distributed
> energy. Learning more on the subject is one of my primary reasons
> for accepting the invitation to Storage Week. My sense is that like
> most human endeavors the requirements of distributed storage installations
> will follow a bell shaped curve that leaves ample room for several
> classes of technology with different performance characteristics.
> This is exciting stuff!

May 21 01:29 PM

[John Petersen:]

GSS, the best number we have right now is $780. Argonne will update that number soon. There is no Moore's law for chemistry and unless you believe in a commodity price fairy that will slash the 80% of call costs that go for materials, anything significantly below the Sandia number is rank speculation. Remember, we are not dealing with fundamentally different chemistries, we are dealing with larger versions of the same batteries people are already making in a smaller format.

May 21 02:21 PM

[GSS:]

Yes and no, John.

Yes - on the fact that we are just dealing with larger versions of the same (i.e., Li ion) batteries. So the costs should be similar (in $/kWh) once the volumes ramp up for the bigger cells. In other words they should get closer to where the (smaller) consumer Li ion batteries are - which is about $250-300/kWh.

No - on the chemistries being the same. Almost all consumer electronics batteries use Li cobalt oxide for cathode, which is the most expensive; they do that, despite the safety issues (flaming laptops), because it has the highest energy density (and so can keep our cell phones/ipods small). As you know almost all the big size cells use other chemistries - Lithium iron phosphate (eg., A123), Lithium manganese oxide, NCA etc. These materials are cheaper than cobalt based ones.

I am not sure that Moore's law is relevant here - just economies of scale.

Guru

On May 21 02:21 PM John Petersen wrote:

> GSS, the best number we have right now is $780. Argonne will update
> that number soon. There is no Moore's law for chemistry and unless
> you believe in a commodity price fairy that will slash the 80% of
> call costs that go for materials, anything significantly below the
> Sandia number is rank speculation. Remember, we are not dealing with
> fundamentally different chemistries, we are dealing with larger versions
> of the same batteries people are already making in a smaller format.

May 21 05:28 PM

[marketquant:]

John,
Here is a comparison of AEP's numbers (from their paper) to one of the charts that you've referenced here:

a) Electricity Price Arbitrage: $200/kW to $300/kW

b) AEP's real world arbitrage (including the measured T&D efficiency previously overlooked by "a" above): $320/kW

c) AEP's calculated (parametrized) range $57/kw to $445/kW

That low end $57 number is pure efficiency, no arbitrage value. Again, AEP stated that multiple smaller installations would be even more effective. Also, a basic parameter is that the battery lasts 15 years at 360 cycles per year.

Lastly, distributed energy storage would capture the benefit of Transmission upgrade deferral, Distribution upgrade deferral, and Generation upgrade deferral which have benefits far larger than the arbitrage alone.

May 21 05:43 PM

[John Petersen:]

marketquant, I included a 2004 graphic from Sandia that showed the potential demand in California for 15 or 20 applications at capital costs running from T&D congestion relief (<$70 kW) at the low end to distribution deferral (>$1,000) at the high end. The chart is a bit dated and I suspect the break-point and potential demand numbers are higher now, but the cumulative implied national number approached 1 terra-watt hour at $700 per kW.

seekingalpha.com/artic...

May 22 12:47 AM

[Tom FoolNC:]

just an FYI on some research
www.renewableenergywor...

May 22 10:46 AM

[John Petersen:]

Tom, thanks for the heads-up. I do my best to try and keep up on developments in the research laboratories because we truly need better battery solutions than the ones we have today. It's also a good idea to remember that the average time lag between a laboratory result and a product is 7 to 10 years in the battery sector. Sooner or late some genius in a garage is going to come along and change everything, but until that happens I'll continue talking about what is instead of what might be.

May 23 01:08 AM

[PowerMarket...:]

Greetings John,

I am a regular reader of your column and concur that that cheap always beats cool over time.
What puzzles me is your insistence on lead-acid and lead-carbon, which do have low initial capital costs but less than stellar capital costs by cycle (you have already seen this I am sure: electricity.ehclients....)
Utilities really look at the later, while not ignoring the former mind you.
With recent advances in life duration for lithium (and subsequent reduction in cost per cycle) does it really deserve the disdain you bestow upon it? I am surely missing something, please enlighten me at your convenience.

Jun 01 04:50 PM

[bartpr:]

i jsut sold out of xide because of its near dismal sales with the auto industry in the tank. holding this now has too much downside risk compared to the length of time the alternative energy storage is in play. first there has to be a start of buildout of alternative energy in this country before any question of storage is important.

other countries have not had to concern with alternative energy storage, at least on the surface because it does not appear in any discussion to my knowledge.

i will keep on top of developments in this field though, but for now the risk is too great.

Jun 06 01:37 PM

[John Petersen:]

PowerMarketMover, I'm sorry I didn't see your question until today. Finding the right storage solution for a particular application is always tough because different inputs yield different results. Lead-acid is not generally a good choice for heavy use applications, but there are a lot of applications that do not fall into the heavy use category. A great example is transmission and distribution upgrade deferral. There are lots of areas in the U.S. that are prone to power loss on 20 to 50 days per year. An inexpensive lead acid backup system in those locations that costs a few hundred thousand dollars may allow the utility to defer a multi-million dollar transmission line upgrade for 5 to 10 years, which means that the lead-acid system can pay for itself several times over.

Lead-carbon is another story altogether. Unlike lead-acid which is good for a couple hundred deep cycles, the available lead-carbon data shows cycle lives in the thousands. For a more complete discussion of the testing results see:

seekingalpha.com/artic...

Most of us tend to think of extreme examples when we think about energy storage. The truth is the mundane applications are far more commonplace in the every-day world than exciting ones. As long as that dynamic remains unchanged, there will be greater revenue potential in serving mundane needs than exotic needs.

Jun 07 04:14 AM