Energy Storage Stocks: Performance, Cost and Bell Shaped Curves 25 comments
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For the last few weeks, I’ve been writing a weekly article on energy storage, a long-neglected industrial sector that most consider boring but I believe will be the next major investment trend. While I’m bullish over the prospects for almost all of the storage companies I know about, I will always pick the “best affordable technology” over the “best available technology” because that’s exactly what consumers will do when they make buying decisions.
My fundamental premise is that every energy storage decision will ultimately boil down to a cost-benefit analysis where (a) the cost of the original energy inputs plus (b) the fully loaded cost of storing the energy must be less than (c) the value of the energy delivered to an application. As long as the basic equation balances, energy storage is a rational decision that’s required the laws of economics. But if the equation doesn’t balance we leave the day-to-day world of paychecks, budgets and monthly bills and enter a fantasy world where performance trumps cost.
The leading battery technologies in increasing order of cost and performance are lead-acid batteries, advanced lead-acid batteries, nickel metal hydride batteries, lithium ion batteries and supercapacitors. Flywheels, pumped hydro, compressed air and other mechanical storage technologies will also be important. Each of these technologies has a critical role to play as the energy storage market grows from $20 billion to $100 billion per year. But as investors, we need to remember that the energy storage markets, like most other human endeavors, can be graphically described by a normal bell-shaped curve.
There will be substantial markets for extreme performance technologies like NiMH, Li-ion and supercapacitors, just as there are substantial markets for luxury cars. But the bulk of the volume under any normal bell shaped curve is never at the extremes. It’s in the middle! I see no reason to believe that different rules will apply in the developing energy storage markets. The companies at the performance extremes may get an undue share of the press and glory, but the companies that offer a cost-effective alternative to the average consumer will almost certainly book the lion’s share of the future revenues and profits.
The current sex, blood and glamor in the battery industry are focused on emerging companies that concentrate on extreme performance technologies like NiMH, Li-ion and supercapacitors. In the process, established companies that manufacture lower performance mass market products, the markets with the greatest potential for long-term growth, are treated more like redheaded stepchildren. I have to believe that market perceptions are very seriously distorted when an emerging Li-ion manufacturer like Ener1 (HEV) carries a market capitalization of $720 million while a well-established multi-billion dollar lead-acid manufacturer like Exide Technologies (XIDE) carries a market capitalization of $774 million. Likewise I have to wonder why research stage companies like Beacon Power (BCON) and Altair Nanotechnologies (ALTI) carry market capitalizations that are two or three times the market capitalization of a transition manufacturer like Axion Power (AXPW.OB) that is getting ready to introduce a cost-effective storage solution for the mass market. While I hate to sound like a luddite, the only real opportunity I’ve been able to identify in the extreme performance battery sub-sector is Hong Kong Highpower Technology (HPJ), an established NiMH manufacturer that has $73 million of annual sales and a lead-acid class market capitalization of $55 million.
Over the next few months, I expect the distorted market perceptions to reach an extreme level as A123 Systems completes a high-profile IPO and finally draws substantial market attention to the energy storage sector. As PHEVs and HEVs are introduced to the market, on-road performance fails to live up to the forward-looking hype and the basic cost-benefit issues become crystal clear, I expect the pendulum of market perception to begin moving back toward the center as it always does. Over the medium- to long-term, I expect the relative market valuations of the lead-acid and advanced lead-acid manufacturers to increase significantly while the relative market valuations at the extreme performance end of the spectrum fall from their current lofty heights.
While I believe fundamental market drivers will result in sustained growth across the entire energy storage sector, I’m convinced the real stars will be the manufacturers of mass-market products that can do the required work at a reasonable cost.
For traders, speculators and other adrenaline junkies, exotic battery technologies will probably be the most attractive sector for the next year or so.
For long term investors who want to buy cheaply and hold for substantial long-term gains, I think established lead-acid manufacturers like Exide, Enersys (ENS) and C&D Technologies (CHP); emerging advanced lead-acid manufacturers like Axion; and new market entrants like Hong Kong Highpower are the only sensible choices.
Disclosure: Author holds a long position in AXPW and is a former director of that company.
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This article has 25 comments:
- that's the 2nd time you've pumped AXPW. And why not, since you're a former DIRECTOR and CURRENT SHAREHOLDER of that company! Do you REALLY have to 'WONDER'???
After the last article...you started to make real sense...but, here you go again touting, reasoning, being blatantly passionate about a company of which you ONCE sat on the Board of Directors, and admit that you own shares of this company that's not even listed on any major stock exchange.
SHAME ON YOU!
Exactly, please tell me, how many shares do hedge funds own of your Axiom?
I can tell you that 12.9% of Ener1 (HEV) is owned by hedge funds. That figures (@ $7.00/share) to be nearly 100 MM.
Further, you have absolutely no idea what Ener1's 600 pound battery is going to sell for. You have intimated that it will sell for 75K, based upon some (arcane) formula that is based upon the price of a probably outdated A123 battery. Just for kicks, let's say Ener1's bat sells for way less. Then what does that do to the metrics of your "energy storage sector equation?"
Then, completely laughable, you intimated that those who are investing in lith side of this sector are in it for the, "adrenaline junkie" rush. That's hilarious! And ridiculous.
Let me give you a little investin' lesson. You establish a base of shares of stock at a great entering price. Then, you add more shares when the stock goes down, and then you sell when the stock goes up. After a few of these transactions, suddenly, you're playing with house money. And you still have your base shares.
Further, who in their right mind wants to own your Axiom that has shown no growth (down 18% in the last year) based upon your "inside knowledge" that's something cool is going to happen!
Repeat: Can this Axiom stock even get onto a major exchange?
Lastly, you completely disregard the tremendous and mind numbing logrythimic growth in R&D in this sector. Money is pouring in! But not into Axiom.
You have no idea of what is going on in today's marketplace. For instance, Ambac (ABK) is trading nearly 90% of it's outstanding shares pretty much every day. That's incredible! This market is a day-trader's dream. And so (although not daily) is Ener1. You wait, you pounce, you grow.
And so it is also with this sector. You just have to pay attention. The reward is owning a stock with house money; not owning a stock that's turtleing along down 18%!
Let's just see what Ener1 and China Bak (CBAK) do in the next month, six months, and to one year from, compared to the lead acid experts of Axiom and Exide!
Good day, Sir!
Forgetting about Axion for a moment, what exactly is it that gives ALTI and BCON market valuations that, depending on the day, approach the market valuations of companies that actually manufacture and sell products like CHP, ULB and CBAK?
Forgetting about Axion for a moment, what exactly is it that gives HEV a market valuation that is within spitting distance of SAFT and XIDE?
These are not unreasonable questions and I think they're questions an investor who is looking at the storage sector for the first time needs to ask. I don't believe my musings are going to change the market price of Axion's stock because they haven't done so to date. I also don't believe my opinions are going to change the minds of folks who are already committed to lithium cool-aid. But they may give a newcomer reason to read carefully and think twice before placing a buy order.
I am very careful to review the SEC disclosure materials filed by all companies that I talk about. I personally adhere to the quirky idea that every stock purchase should be preceded by careful due diligence of regulatory filings rather than blogs and message board posts.
Read the SEC filings for all of the companies then try to answer my reasonable questions. But don't criticize me for asking a question that you know you can't intelligently answer.
Your points are valid. We've seen this whole scenario played out before with Ballard and the other Fuel cell companies. Reality sets in and people will buy what is affrodable, practical and the least pain in the you know what. We're conveniently green as a society.
Perhaps even your Axion technology could be a giant heater for Beacon's flywheel plants this winter? Just Kidding! Redundancy for small power glitches might be a worthwhile looksee though.
For full disclosure, I do hold a small number of BCON shares.
The Axion website lists lots of potential markets for their batteries. Do you have an idea where they will focus first? Do they have a particular battery size to produce first and do they have a spec sheet for that size? Has management shared its vision regarding particular customers, e.g. end users or partners who will put their technology into the partner's assembly line? Your insight may help me better understand when and how and by whom PbC technology will be used. That could help me understand the time horizon for profitability for the company and for investing in the stock. Thanks
Dear Sir:
Today we are hard at work building flywheel systems that will soon connect to the grid. Shortly after that happens we expect that they will begin generating revenue from regulation services. When we accomplish this it will be the first time anyone has ever done it. Doing so should prove that there is a clean, sustainable, high performance way to provide regulation, superior in many aspects to fossil-fuel plants. They will add stability to the grid and offer a far better alternative to conventional methods.
There have been very few breakthroughs in energy technology in recent decades. We believe that our technology has this potential, and we know there are many industry and government officials who support the idea. You can be sure that when it happens, the world will hear about it. One would expect such news to go a long way toward restoring investor confidence.
Thank you for your continued support of Beacon Power.
Kind regards, Gene Hunt
Director of Corporate Communications
Beacon Power Corporation
65 Middlesex Road
Tyngsboro MA 01879
office: 978-661-2825
fax: 978-694-9194
email: hunt@beaconpower.com
For the HEV fans: You had a 300% gain last year. Your market cap is within sneezing distance of SAFT, a French Li-ion producer that has a binding contract with a real manufacturer (Mercedes). I believe the probability HEV will book another 300% gain in the next 12 months is exceedingly remote.
With respect to Axion, I've always disclosed my position and interests, and while I do mention Axion as a new entrant in the lead-acid sector, my postings are far more restrained than they could be. The most optimistic estimates I've seen for the Li-ion market forecast total demand in the $7 to $10 billion range. The estimates for the entire storage market are $70 to $100 billion. I see no future in trying to pick the winner of the battle for the 10% market share that will ultimately be spread among a dozen Li-ion companies. I care very much about the $40 to $60 billion that will go companies serving the the middle of the bell shaped curve - a half dozen lead-acid producers and Axion. I believe Axion is undervalued, but only because I believe the entire lead-acid sector is undervalued. We all lust after the supermodels, but we commit our lives, our fortunes and our futures to the girl next door.
In an earlier post you mentioned that Axion was at 10 batteries a day, will soon be at 100 a day and by next year at 1000 a day. My question is 1000 a day of what? What size battery for what application? Who is the customer? Do they have any customers? What price will the batteries be and what are the spec's? I can find all this at Firefly or other battery manufacturers. If I am to invest in Axion I would like to know what I am investing in. Simple as that.
Axion has been turning away customers for years because it was unwilling to sign contingent contracts and wanted to keep its options open. The easiest application will probably be small-scale wind and solar systems and other heavy use industrial applications that have to replace their LAB batteries with painful frequency. I would expect Axion to carefully manage its product placement across a range of applications in order to get as much real-world performance data as possible from as many customers as possible.
Pricing will probably represent a modest premium to a high-end LAB, but I can't estimate the range. If we assume a sales price in the $250 per unit range, we'd be looking at something in the range of $50 million in annual revenue from product sales. I'm confident that Axion will provide full details on these key business issues as decisions are made.
industry.bnet.com/ener.../
Ener1 Chief Executive Charles Gassenheimer says that each dollar of capital expended at its automotive battery subsidiary EnerDel would return between $4.00 and $6.00 in annual revenues. A significant claim- - as Ener1 has generated minimal revenue to date, for its battery technology is still in development.
Axion has demonstrated that its carbon electrode assemblies can be used as plug-and-play replacements for standard lead-based negative electrodes. After the second generation electrode fabrication line is installed in the first quarter of next year, Axion plans to ramp up electrode production as required to (a) fully-utilize its capacity in New Castle, and (b) sell electrode assemblies to other battery companies that want to make PbC products.
If things proceed according to plan, Axion will ultimately follow the Intel model where it manufactures carbon electrode assemblies and established industry partners handle the capital and manpower intensive work of manufacturing and distributing batteries.
If the PbC batteries are even moderately successful in any of the initial target markets, rapid capacity expansion will be essential.
Your question related to earnings and potential stock price 3-5 years out and while I think $50 million in annualized revenues by the end of 2009 is not an ambitious target, I expect sales to ramp up rapidly once Axion starts delivering PbC units to customers and those customers have enough time to collect their own data and compare PbC product performance to the standard lead-acid batteries they're using today.
Every competitor in the battery space has to build new fabrication plants to increase capacity. All Axion has to do is install 2 additional electrode fabrication lines to take production capacity at New Castle to 3,000 units per day. From there, it can either acquire additional battery manufacturing plants or simply enter into supply and co-branding agreements with major battery manufacturers who already have suitable manufacturing plants.
However, rather than asking your audience to presume that passing the Bar in Texas allows you to extrapolate your legal training into passing judgment on the comparative energy-storage efficiencies of batteries over Beacon Power's flywheels, perhaps you and your audience might wish to at least consider the countervailing opinion of John Bzura, principal engineer of research and development for National Grid USA, a major utility company, who has worked closely with Beacon Power engineers on Beacon's planned 200-MW Stephentown, NY, project.
As you can read in the following "Boston Globe" article of 9.15.08, Bzura says that Beacon's flywheel system could be 85-to-90% efficient, ensuring that little electricity would go to waste, adding: "It's about the highest percentage of efficiency of any energy-storage system that I know of. . .much better than batteries, for example."
Source: "Reinventing The Flywheel"
Giant Electricity Storage And Generation Units Might Help Power Grids Run More Smoothly
From "Boston Globe," by Hiawatha Bray, "Globe" staff, 9.15.08
EVEN ELECTRIC UTILITIES can use a little extra power now and then. Usually, they get it by burning more coal, oil, or gas. Beacon Power Corp. says it has a better idea: massive rotating flywheels that store power like giant alkaline batteries, spinning at twice the speed of sound.
"At the end of the day, it's a box of energy," said Bill Capp, president of the Tyngsboro company.
The idea is to fill it up when power demand is low, by using electric motors to spin the flywheels. Then, the whirling wheels are connected to generators to release the power when it's needed.
Publicly-traded Beacon Power has been around for 10 years and has invested $150 million in the concept, with hardly any revenue to show for it, so far. Now, the company is building its first large-scale commercial system, capable of storing and releasing 5 million watts of power.
ISO NEW ENGLAND (New England Independent System Operator), made up of utilities in the region, is launching a Pilot Program to test new ways to regulate power on the grid. Beacon Power was the first company to offer technology for the test, expected to begin in November, pending approval by Federal regulators. The company is also awaiting final approval to build a 20-million watt system In Stephentown, NY, just west of the Massachusetts state line.
Beacon Power's flywheels are complex to build, but simple to understand. If you spin a bicycle wheel with your hand, you're feeding energy into it. The wheel keeps spinning until the energy is absorbed by friction with the air or the wheel bearings. Now, imagine a very heavy wheel. It takes far more energy to move it, but all that energy is stored in the spinning wheel. If you eliminate nearly all sources of friction, the wheel will store the energy for a long time.
Beacon Power flywheels are 2500-pound cylinders made of carbon fiber and fiberglass, and bonded with epoxy. Each is mounted on bearings that generate a magnetic field to support the flywheel, so it floats inside its steel casing. Friction is almost nonexistent. When the flywheel is spun to its full speed of 16,000 revolutions per minute, it can store the energy for hours with little loss.
"The surface speed on this thing would be Mach 2," or twice the speed of sound, Capp said. But, these flywheels don't generate a sonic boom, because they operate in a vacuum to reduce friction even more.
At the base of each flywheel is a motor-generator system like those found in hybrid cars. When electricity is added to the system, it acts as a motor, speeding up the rotation. To release power, the system acts as a generator, translating the rotation to electric power and feeding it into the grid.
Each flywheel can store enough power to run a typical U.S. home for a full day. But, they cost $200,000 apiece, and while Capp hopes to cut the cost to $100,000, they're still far out of the average consumer's price range.
INSTEAD, BEACON POWER hopes to address a constant nuisance for electric utilities--precise regulation of power.
The U.S. power grid is supposed to deliver electricity at 60 cycles per second. Any substantial variation could cause malfunctions in millions of electrical devices. But, surges in electrical demand can cause unwanted frequency variations. Managers of regional electric grids rely on a handful of generators (powered by coal, gas, or oil) to vary their output and regulate grid frequency.
However, that causes plants to emit more air pollution, and subjects equipment to extra wear and tear. "The life of a generator is reduced by one year when you put it on regulation," Capp said.
A flywheel-based regulation service neatly sidesteps those problems. Beacon Power plans to build storage arrays, with dozens of flywheels buried underground, inside vaults made from concrete sewer pipes.
A standard shipping container stuffed with computers and power cables controls the array, and links it to the electrical grid. When there's extra power available, Beacon Power would buy it and use it to spin the flywheels. When the grid needs an extra burst of juice, the flywheels can convert the stored energy back into electricity, which is re-sold to the power network.
"You can almost think of it as recycling electricity," said Gene Hunt, company spokesman. Beacon Power would make its profit by charging a fee for its power-regulation service.
ISO New England is awaiting approval from the Federal Energy Regulatory Commission (FERC) for a plan to test alternative methods of power-frequency regulation. Beacon Power plans to participate, using a 5-megawatt flywheel array under construction in Tyngsboro.
Meanwhile, the company also plans to build a array of 200 flywheels in Stephentown. Regulators have approved construction of the facility, which would provide 20 megawatts of backup power, enough to run 200 homes for one day. The project awaits final approval from managers of the New York power grid.
JOHN BZURA, principal engineer of research and development for National Grid USA, a major utility company, has worked closely with Beacon Power engineers on the Stephentown project. Bzura said the flywheel system could be 85-to-90% efficient, ensuring that little electricity would go to waste.
"It's about the highest percentage of efficiency of any energy-storage system that I know of," he said. "Much better than batteries, for example."
Beacon figures a 20-megawatt system would cost $25 million to build, and bring in $9 million a year in power-regulation fees, at today's prices. That means the installation would earn back its construction cost in less than three years. The flywheels have a 20-year life expectancy.
Capp expects to cash in on surging demand for alternative energy sources. Consider a wind farm that's cranking out lots of megawatts on a Sunday morning, when nobody wants the juice. Beacon Power could capture the electricity with its flywheels, then use it later to balance power demands on the grid.
As a user of various battery technologies for distributed generation applications I would like to clarify a few things. I happen to be very familiar with the technologies from both Axion and Beacon Power (and A123, and Saft), and they all have their strength and weaknesses with respect to cost of usage (capital cost + efficiency) divided by service life, ability to charge and discharge rapidly, and the amount of energy that can be stored in the device.
Likewise, there are several revenue models for energy storage in the electrical grid ranging from regulations (measured in seconds) to load shifting (measured in hours).
A good introduction to both topics can be found in: www.electricitystorage.../
Beacon Power's flywheel is basically a mechanical super capacitor, which can not store a whole lot of energy, but it can be charged and discharged very rapidly. This is why the company is addressing the regulation market. It is also why they can NOT address the load leveling market indicated in the previous comment and store excess wind energy on a Sunday morning.
Axion's PbC technology has significant higher energy density than the flywheel, but not as high as a lead acid battery at this point. However, its high life expectancy makes it a good candidate for use in applications that needs energy storage from minutes to hours, and in this application it should be very cost competitive to the lithium ion batteries from i.e. A123 and Altair. You just have to look at the commodity cost of the raw materials going into each technology, and you will find that is very difficult to compete with lead and carbon.
For sake of full disclosure, I currently do not own stock in Axion, Beacon, or any other battery company. I used to work in them, and I know how difficult it is to get to the 10% net margin mentioned above.
biz.yahoo.com/bw/08091...
That is why they have a market valuation exceeding your company!
They have products running. Perhaps they have better known directors and investors too? Your company is only valued 50% of what BCON is as a market cap. If you pull off sales and apply to be on NASDAQ, perhaps your company can double in a year?
BCON on the other hand is a service provider to regulating the power that flows into and out of everyone's homes and businesses. It seems like a stable long term income source and growth plan to me. (20 + years of income per unit installed based on service life expected)