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Microgrids - A Potentially Explosive Growth Market For ZBB Energy 67 comments
Microgrids - A Developing Growth Market
A journey of a thousand miles begins with a single microgrid, and so commences the transition from a twentieth (20th) century electric grid to the ever elusive twenty-first (21st) century "smart grid." The sheer size and complexity of the grid, and the daunting task of developing a smart grid requires a measured approach. To that end, key decision makers and utilities have taken a methodical approach by focusing on incremental steps, i.e. demonstrations, demonstrations and more demonstrations. As such, changes will not occur overnight, but rather, as an amalgamation of many small steps before any future concept of a smart grid develops.
In the early 2000's, the microgrid appeared as an alternative mechanism by which to accomplish energy security, and move the grid forward one localized step at a time. Upon my initial research into microgrids, I was not very impressed with the concept as a potential investment vehicle. In fact after considering complicated regulatory hurdles, I found it difficult to imagine how this solution could ever gain traction to reach meaningful sales. See Slide 22 - IEEE Draft Standard 1547.4. Apparently bearing my thesis out, in 2008-2009, there was very little investment in the microgrid concept. However, SBI Energy reported that worldwide 2010 revenues of $4 billion significantly eclipsed 2009 revenues with institutional and campus microgrids capturing upwards of 45% of the market.
In February 2010, a Forbes article prophesized that all the smart meters, rooftop solar panels and other "nodes" on the edges of the grid will require much more robust communications and controls along the "middle mile" of distribution substations and feeder lines to operate effectively. Further, the Vice President and General Manager of Siemens Energy's North American transmission and distribution division, Dave Pacyna, foresees microgrids as a natural part of the evolution of the smart grid. Specifically, Pacyna stated:
As a corollary, this discussion reminds me of the "last mile" discussion, when JDS Uniphase and Digital Lightwave were working with fiber optics to run broadband to every house in the neighborhood. Any investor that followed that market knows what happened to the market capitalizations of those companies when the build out eventually took shape.
What is a Microgrid?
While concepts and definitions vary, microgrids are essentially smaller versions of the larger electric grid and are designed to serve localized electric loads. Microgrids incorporate distributed energy resources (DER) such as photovoltaic, wind, and micro-turbines in parallel with the grid. These energy resources allow the microgrid to run in islanding mode, and thus, the microgrid and the loads they serve are protected from disturbances in the larger grid. Islanding mode occurs when a microgrid disconnects from and runs completely independent or autonomous from the larger grid. The end result is hyper electric reliability by creating an "island of energy self-sufficiency." See also, Curbing Energy Sprawl with Microgrids, pp. 559-579.
Microgrids are much smaller than the larger grid, but at the same time, they are comprised of all the same components of the larger grid - power generation, transmission and distribution, and energy storage. Consequently, as each new microgrid comes online, they can be interconnected to form a much larger distribution entity, and thereby become the building blocks of what will eventually become known as the "smart grid."
Most current microgrids are locally-owned and not subject to the regulatory restrictions of utilities. Therefore, it is easier and less expensive to deploy technology, and as microgrid regulatory barriers are resolved and new engineering protocols implemented, new technologies can be swiftly selected. Peter Asmus, a senior analyst at Pike Research, recently stated:
Therefore, in effect, the implementation of microgrids has gone from problematic to potentially beneficial to all stakeholders.
Estimates of Future Growth
Over the last few years, Pike Research, the cleantech market intelligence firm and leading microgrid research house, has consistently increased its market expectations for microgrids. Specifically, on January 30, 2012, while acknowledging the regulatory hurdles, Pike forecasted that microgrid capacity worldwide would experience a compound annual growth rate of 22% over the next five years, reaching 4.7 gigawatts in 2017. If growth were to match Pike's estimate, the microgrid market would see $17.3 billion in annual worldwide revenue by 2017 in an average case scenario.
To understand the significance of this growth in terms of capacity, Pike Research estimated in 2010 that in the U.S., microgrids accounted for approximately 450 megawatts of commercial and industrial capacity, and another 322 megawatts of campus and institutional capacity for a total of 722 megawatts. As such, Pike estimates that the capacity of microgrids will increase six-fold by 2017.
Microgrids have been developed for a number of reasons. In a September 2011, Microgrid White Paper, Siemens set forth the following types of markets that microgrids currently serve:
Over the last year, the adoption of military microgrids has rapidly escalated and is self-evident in the number of technical conferences the military complex is holding.
Technology Adoption Cycle
For the last couple of years, smart grid investing has been akin to paint watching paint dry. As described above, modernizing the national grid is a very large and complex undertaking. Nevertheless, what began in the mid 2000's as a small push has slowly gained steam over the last few years. This push culminated in the Federal Electricity Regulation Committee ("FERC") demand response ruling last summer and the implementation of the non-binding IEEE 1547.4 interconnection standard. For further rapid development, the various stakeholders will have to push through the tendency to resist change. As a consequence, a number of trade groups have been pushing standardization and communication protocols forward. Notably, the FERC ruling and 1547.4 interconnection standard were defining moments and signified a monumental shift in attitudes. As a result, I believe the gathering momentum that has taken five (5) to ten (10) years to build is now coming to the cusp of the Technology Adoption chasm, and over the next two (2) to three (3) years, the microgrid market will leap across this divide.
In August of 2011, Siemens Energy published the Business Case for Microgrids: the new face of energy modernization, wherein Siemens outlined its vision to integrate energy efficiency, renewable generation, power monitoring and control systems into microgrids that will connect with the larger grid and disconnect or island when necessary.
Recognizing the explosive growth about to take place in the microgrid market, a number of large corporations have begun jockeying for position. Evidencing this sentiment, Mr. Asmus has stated that:
While investing in some of the larger entities listed would certainly allow a play on this exciting growth market, unfortunately, most of the smaller pure play companies are non-public and not available for public investment at this time.
However, I have identified one publicly traded small cap pure play company in the power control electronics and energy storage space: ZBB Energy. ZBB is quietly building a portfolio of advanced power control electronics which may be utilized as control "nodes" in the CERTS Microgrid Concept. Additionally, ZBB has developed a flow battery which has proven its mettle in energy (Kwh) storage applications. As a consequence, ZBB is implementing these solutions in numerous microgrid demonstrations and deployments around the world.
Ultimately, the centerpiece of the power control platform is the EnerSection which is an energy storage agnostic power control platform/node. This system utilizes a Grid Isolation Disconnect (GID) to 'lock out' the grid connection if the utility power supply fails, and then, restart safely in an 'island' or Grid Independent mode. The EnerSection provides power to site loads by optimizing energy inputs such as the grid, diesel generation, photovoltaic, wind, and energy storage through a single power control platform.
For investors who want to benefit from the microgrid trend but cannot divine an appropriate strategy, a portfolio focused on the large established firms identified above would properly mitigate excessive risk. However, these large companies would not allow for a pure play in the microgrid/storage industry. After a year of watching this space, my power control electronics favorite is ZBB Energy. Nevertheless, while I believe ZBB has a bright future, it will have to overcome financing concerns, demonstrate solid execution, and show the ability to move product out the door before it will warrant a much better valuation.
Disclosure: I am long ZBB.
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This post has 67 comments:
An observation to consider. One might also consider AXPW a pure play in the energy storage market with substantial exposure/opportunity in the microgrid market.
However, I think the power control electronics are already cost competitive.
As a result, I have largely focused on this side of their offering because I believe the power electronics will be their bread and butter until they can get the cost of the flow battery down far enough to be cost competitive. I have heard that prices are still currently north of $500 per Kwh.
I might be the only shareholder left that feels good about what ZBB has accomplished in building its partner base. But nevertheless, having the relationships with companies that can help a little fish succeed in a a lake full of big fish is not a bad idea. Especially when you have a product the big fish want.
"I might be the only shareholder left that feels good about what ZBB has accomplished in building its partner base."
I feel very good about ZBB's partner base and their offering. However, I don't think this market is going to blow up overnight. As such, I hope to see them focusing on at least breakeven while they build a strong position in their markets. The last thing I want to see is dilution after dilution as they chase a not quite there yet market.
I think that after the Fukushima nuclear disaster that Japan would prioritize the redesign of its grid into a series of micro-grids creating a distributed power generation and distribution network. In addition, Germany appears to have adopted a strategy to move away from its top-down centralized nuclear generation approach.
I would love to see you add further articles covering the early innovator countries and perhaps breaking ZBB's US from their International markets.
Along the Fukushima disaster lines, here is a story about a Japanese microgrid that just wouldn't quit after the Tsunami.
http://bit.ly/InKvMY
Came across this article in the EE Times India about 1547.4 and microgrids in India -
http://bit.ly/KosLvD
It is has been suspected for some time and alluded to in ZBB's annual report that they are looking for a strategic partner in India. I would not be surprised to see some action on that front some time this year.
-Ryan
Nailing down costs is an elusive endeavor indeed! My understanding is that the Sandia reports are not necessarily accurate b/c one category is based a number of different companies estimates and many companies are understandably not very forthcoming with this info. As a result, you get the old garbage in garbage out ...
ZBB is scheduled to go to a couple military conferences in May. Their schedule is here.
http://bit.ly/K6zM3v
I would be interested to hear what you learn.
I echo that thought. I wold be very glad to hear what information was passed at the conference. Thanks in advance for sharing.
I'm happy to. I'll also be at ESA next week as well, so I'm looking forward to hearing what both Dan at ZBB and Vani (Axion) have to present. It's an exciting time for grid storage and microgrid, and both ZBB and Axion are two of the most promising (mostly) pure plays out there.
http://bit.ly/Iy55u4
Well written and concise. Should be good background reading for anyone interested in the sector.
I want to mention another public company that I think is not quite a "pure play" - more involved with (CPST). A part of their product line manages micro-grids and even aggregates them to provide dynamic dispatching for micro-grids under their control to respond to events in other micro-grids under their control in the network.
Greenvironment PLC. Illiquid here, trading on the Greys as GIVZF.
They were severely hampered by the financial crises but subsequently recovered and may do well if the current Eurozone crises doesn't nail them again.
I wouldn't recommend any U.S.-only investors yet, but folks that trade on European exchanges may find something to like. On the Frankurt Stock Exchange.
Here's a link to their web site.
http://bit.ly/J0eJB2
A good starting place to investigate more, from Bloomberg is here. The interactive chart there (select 1 year view) shows how their share price continues to be pummeled.
http://bloom.bg/JIjUJI
Depending on one's view of the future in the EZ, the current price may present a very *speculative* opportunity.
HardToLove
I did not know that they had anything with microgrids in the works. I wonder if their control system is more software based such as Viridity or Encorp or hardware based?
Let's hope better information is available on their web site.
HardToLove
http://bit.ly/IBi0IF
Slide 4 discuses:
Types of microgrids:
• Facility/building
• Multiple Facilities/Campus
• Regional
My understanding is that ZBB EnerSection focuses on the facility/building type of microgrid.
http://yhoo.it/IEA7jU
This also issued a press release regarding a placement of convertible notes:
http://bit.ly/K9PRvB
http://bit.ly/J4ppks
I see this as a good sign.
http://bit.ly/K5D1M0
I'm sure many companies provided similar presentations for their products. Everyone has certain benefits that no one else has.
In the long run cost will be the driving force ( assuming reliability is the same). Hopefully, ZBB can continue to drive the cost of the flow battery down. In the meantime, the open archetecture concept for the enersection provides quite a market opportunity.
Futurist, these are basically my sentiments exactly. And in the meantime, I would like to see ZBB get to breakeven or a minimal cash burn (as previously projected) on $25-35M in revenues while their pilot projects prove themselves and the storage market continues to develop.
http://on.mktw.net/KeMiBp
-Ryan
ZBB terminates Socius arrangement -
http://yhoo.it/KOcjHc
ZBB will present at Baird in two days -
http://yhoo.it/KOcjHe
If I recall correctly, you said that you were going to attend the ZBB presentation at ESA. If you have any general thoughts or impressions about the conference, I would love to hear them.
Unfortunately, I missed Dan's presentation in person. However, I did meet with them one-on-one. Coming away from that meeting I'd say that ZBB is very well positioned in the microgrid market (DoD especially). Not only have they found a solid niche for their product, but their application/solution expertise was a pleasant surprise as well; I'm now convinced Chris Kuhl (engineer) is a major part of their "secret sauce" too. Very knowledgeable and sensible. It's no wonder they've won the storage components of three high profile DOD microgrid demonstration projects in the last year or so (Fort Sill, San Nicholas Island, and now SPIDERS phase 1): Chris's fingerprints are all over them.
Nothing would make me happier than to see ZBB chart a strategy that consistently under promises and over delivers.
Incidentally, we may have seen this strategy taking shape when Chuck Stankiewicz outlined their manufacturing ability to get to 1MWH per month last qtr, which is now 1.3MWH per month on their way to 1.5MWH per month. It will be interesting to see if they ultimately overshoot this mark by a small margin.
Thanks for posting your thoughts on Axion Power Host 96.
Stephan,
I was reading a quick blurb on ZBB's financial. A 700% gain in revenue. Backlog still growing. Negative cash flow still hurting the stock.
Axion is two years away from break even. At least one more cash raise needed. Whether that can occur at a higher price than now is to be seen. A big light at the end of the tunnel.
ZBB on the other hand. Huge increase in revenue. No decrease in cash burn. If they could escalate revenue another 500% it would provide 50 Million in revenue with 10 million in net profit. This could be EBITA cash flow breakeven. I'm just not sure what could happen to make enough projects to garner that much revenue. The statement was that ZBB has 30 Million dollars worth of projects "in the pipeline". Many of those are sales that have not closed. Many will not be closed. Most projects started now will not close within one year.
I certainly hope that this company can generate a significant sale of size, in order that the next sale of stock will not decrease the stock price.
I plan to re-listen to the CC this evening and if time allows put together a more thoughtful piece in the next couple days. However, I wanted to briefly comment on your thoughts.
With respect to Axion, I believe that with S/S and NS, Axion already has clear visibility into multi-billion dollar markets (JCI predicting huge markets for S/S) and JP has an army of investors waiting on the sidelines for confirmation to jump on the bandwagon when the train starts leaving the station. As a result, I think when departure time comes, Axion will shoot out the gate like a bat out of hell. Hopefully, a couple small production contracts will come and validate the S/S market for Axion before another raise is necessary.
ZBB is a very exciting company. However, the visibility with respect to markets is a little less clear (maybe b/c I don't have JP to dumb it down for me). They are a manufacturing company that just went to production and is attempting to ramp sales. As a result, I expect their cost structure to be cost heavy until they get people trained and start moving product out the door. However, I don't think we can expect 500-700% gains going forward because the base sales from which this number came was so low.
Nevertheless, I do get a true sense of excitement about the EnerSection and its capabilities and its ability to make the overall value proposition of an EnerSystem with an EnerStore better than a package from multiple vendors.
In my statement of the obvious, ZBB will have to raise money and publicly stated that it intends to do so with its shelf registration in June. Interestingly, however, in the same breath they terminated their agreement with Socius that required Socius to buy stock from ZBB when ZBB needed money. My view is this was done b/c Socius had been forcing the stock back into the market immediately after being required to buy. Nevertheless, this was a pretty bold move to terminate a financing arrangement that could come in handy in the event of a crisis. What I take from that, is that ZBB already has the financing it needs in place - it will still likely be painful though.
The way I would like to see things progress would be a steady 25%-50% per qtr ramp in sales with continual cost reduction and focus on putting an excellent product out the door. Such a ramp rate would seem to put them at their goal of EBITDA breakeven in the next two years.
A look back at their announcements over the past year, shows a company with many design wins - now these pilot projects just need to prove themselves out.
I still like the China contract ( I am the only one that does).
I like the South Korean connection.
I like the way the US sales are ramping.
I like the management team although its a little top heavy.
Sales revenue is what is needed. I can stand 20-50% each quarter but it will not be a steady ramp. More like a hit or miss. Large orders, small orders.
A fun stock to watch. A killer to own. Patience is a virtue.
Thanks for sharing with us.
HardToLove
http://bit.ly/J06dAc
http://bit.ly/ICu22W
"North America continues to be the world’s most promising market for grid-tied microgrid projects, with more than 50 new projects coming to light since the last tracker update. These projects boosted overall planned capacity in North America to 1,550 MW in 2Q 2012, up 51% from 1,026 MW identified in our 4Q 2011 update. Second, Pike Research finds that the remote microgrid segment is the best long-term bet in the sector. As supporting evidence for this conclusion, the region boasting the largest growth in this edition of the tracker was “Rest of World”, with planned capacity in these countries rising from 76 MW to 391 MW. Many of these projects are in the very early planning stages."
"... with more than 50 new projects coming to light since the last tracker update" sounds like ~ 8 new projects per month assuming the reports were six months apart.
Thanks for those!
HardToLove
http://bit.ly/JZIapA;FilePath=012>;File...
Link is acting kind of funny - available under SEC filings
http://bit.ly/J3fyaG
http://bit.ly/IMdDI3
"At present, smart grid technologies such as demand response, virtual power plants, and microgrids represent revenues of over $3.8 billion. The technology that dominates the smart grid renewable energy integration market revenue picture today is microgrids, capturing more than $3 billion in economic activity or 81% of the total pie."
http://bit.ly/KjnWU0;pdf=
It appears to be a firm offering of 22,000,000 shares, but the price has not been determined.
5/8/12 under SEC filings ...
http://bit.ly/MobRBc
The title of the article is -
"Honam Petrochemical Enters Secondary Battery Market"
http://bit.ly/Kv9U8n
check out slide 25 ...
http://yhoo.it/KXAAP9
If I recall correctly, in the last CC, they forecasted break even by approximately 4th quarter 2013, which would be this time next year.
I would like to see what the financials look like after this quarter, but if they pay back the bridge loan from these funds, then it is probably inevitable that they will have to do another raise before the year is out.
Interestingly, it has a section that states -
Restriction on Registrations
The underwriting agreement provides that for a period of 12 months, we may not file any registration statements, other than those on Form S-8 for compensatory plans or on Form S-4 in connection with a merger or acquisition or their successor forms, with the SEC for any purpose, including capital raising purposes for the benefit of the Company and for resale by issued and outstanding securities without the prior written consent of the underwriter.
Lock-Up Agreements
All of our officers and directors have agreed that, for a period of 90 days from the date of this prospectus, they will not sell, contract to sell, grant any option for the sale or otherwise dispose of any of our equity securities, or any securities convertible into or exercisable or exchangeable for our equity securities, without the consent of the representative except for exercise or conversion of currently outstanding warrants, options and convertible debentures, as applicable, and exercise of options under an acceptable stock incentive plan. The underwriter may consent to an early release from the lock-up periods if, in its opinion, the market for the common stock would not be adversely impacted by sales and in cases of a financial emergency of an officer, director or other stockholder. We are unaware of any officer or director who intends to ask for consent to dispose of any of our equity securities during the relevant lock-up periods.
~ "Elephant hunting ain't easy"
Now off to go catch the Heat/Thunder game!
http://bit.ly/zpI7Cj
You are correct, I meant to say management and the board increased their holdings ... and then Marathon who is a 10% holder increased their position to over 8 million shares.
The interesting thing about the timing of the Form 4s was that ZBB management and directors reported their purchases on Form 4 before the secondary closed.
http://1.usa.gov/KauJjw
Appears to be a 2012 summation of a very old demonstration.
The last section entitled Public Benefits to California appears to show the value of the system.
http://bit.ly/WIHI5i
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