Beacon Power: No Need to Panic - Yet

I wrote about Beacon Power Corp (BCON) a little while ago. It's down nearly 22% on its week-ago closing price; the recent drop in share price is due in large part to the fact that last Friday, Dec. 29, Beacon announced a glitch at one of its testing facilities in Massachusetts. This was followed by an analyst at Merriman Curhan Ford downgrading the company from Buy to Hold. Almost immediately, the stock began experiencing strong downward momentum at high volumes. 2.44 million shares changed hands yesterday – compare that to a 3-month average of around 426,000.

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I poked around but was unable to find much substantive information that would allow me to properly appraise the problem. Maybe some of you have info that you could share with the rest of us?

So far, Beacon’s tests in California and New York have gone well. As I told a reader who asked about this earlier, I think it is a tad early to panic and I haven’t dumped any of my stocks yet. I’m still long 2,500 shares bought at different points between $1 and $1.20. Nonetheless, I wouldn’t buy any until I know more about the exact impact this problem will have on the company’s plans to begin generating revenue from its flywheel-based grid regulation system. Beacon hopes to begin offering its grid regulation services on a commercial basis in the second half of ’07.

The company’s technology appears to have been well-received by California's regulators, and, as I mentioned in my last post about them, this could be a five-year affair saddled with volatility. Overall, however, I still buy their story, and I think the increasingly rapid deployment of renewable energy in California and other U.S. states will create strong demand for Beacon’s applications. Anyone who's experienced rolling blackouts or brownouts in the past few years knows that grid regulation will be a big deal going forward.

DISCLOSURE: I am long Beacon Power