Companies To Benefit From The Stationary Energy Storage Boom

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Includes: ABB, AES, AUEEF, BSWQY, BYDDF, BYDDY, CAMCF, ENIA, ENPH, ENS, ESNC, GE, GM, GRRLF, GW, JCI, LGCLF, LGORF, NIPNF, OGFGY, PCRFY, PNTZF, RDRUY, RES, RRSSF, SEDG, SHCAY, SIEGY, SMTOY, SNE, SRHYY, SSDIY, SYAAF, TSLA, UUUU
by: Matt Bohlsen

Summary

The energy storage boom - some quick facts.

Types of stationary energy storage. Hydro has historically dominated, however Li-ion battery storage is growing fast. Vanadium flow can also have a place.

Lithium-ion represented at least 97% of all energy storage capacity deployed in 2016 in the USA.

A look at some stocks likely to benefit from the energy storage boom.

Energy storage is a new disruptive trend. It basically involves storing energy that can later be harnessed for electricity to power our homes, our cars - our future. Energy storage is growing fast as it complements the renewable energy sectors of wind and solar.

For some background investors can read my 2016 article - "Energy Storage - The Dams Of Our Energy Future."

The energy storage boom - Some quick facts

  • Energy Storage News reported: "BNEF predicts 305GWh of energy storage worldwide by 2030. The Global energy storage market is forecast to grow 12-fold in the years (2016) to 2030". Note this is cumulative not yearly. See graph below.
  • Energy Storage reported: "IRENA: Batteries for energy storage could reach 250GWh by 2030."
  • IHS Markit - "The global deployment of grid-connected energy storage will grow from 1.3 GW in 2016 to 4.7 GW in 2020 and 8.8 GW in 2025." That represents about a 7 times growth just for "grid connected."
  • Citigroup forecast that "the global battery storage market (not including car batteries) will surge to 240 gigawatts (GW) and $400 billion by the year 2030."
  • Utility Dive states: "The Brattle Group concludes the United States market for energy storage could reach 50,000 MW (50GW) (over the next decade) as long as battery prices to continue their decline and state and federal policies encourage the resource. "We are not quite there yet, but as costs decline further, storage will be transformative for the power industry."
  • Utility Dive states: "The growth of energy storage is being driven by rapidly falling lithium-ion module prices, which according to IHS have fallen 70% since 2012 and will fall below $200/kWh by 2019."
  • Energy Storage Networks reported: "According to GTM Research and ESA’s U.S Energy Storage Monitor 2016 Year in Review, lithium-ion represented at least 97% of all energy storage capacity deployed in 2016."
  • Citigroup stated in 2015 - "We see lithium-ion batteries as the best option for storage batteries."

BNEF predicts 305GWh of cumulative energy storage worldwide by 2030

Source

US energy storage growing strongly and forecast to boom

Source: GTM Research

Lithium-ion battery storage is the growth area of stationary energy storage

Source: Lux Research

Types of stationary energy storage companies

There are also many new types of stationary storage options. Below I look at this briefly and some of the main companies in the sector.

1) Hydro storage

Pumped storage hydro-power historically dominates the energy sector and accounts for 99% of global large-scale storage. So clearly investors need to keep this in mind and also look to invest in hydro-electric companies. This will need to be the subject of a separate article.

2) Lithium-ion battery energy storage companies

Below is a recent graph showing the main global lithium-ion battery manufacturers. Naturally these are the source of the battery products. I discuss companies further down the supply chain in the final section on others.

Expected global market share of lithium ion battery makers in 2018

Source: Statista

Panasonic Corporation (OTCPK:PCRFY)

Panasonic Corp. is a Japanese company who engages in the development, manufacture, and sale of electrical products. Panasonic are the leading global lithium-ion battery manufacturer, and they are based in Japan. The company is also a partner with Tesla in the Nevada battery gigafactory. Panasonic predominantly supplies Tesla, but also works with Volkswagen and Ford. Investors need to remember that Panasonic is not as diversified as others, and is heavily dependent on Tesla for selling its batteries.

Panasonic has an enterprise value of JPY 3.99t (USD 38b), zero debt, a 2018 net profit margin of 2.44%, a 2018 PE of 19.9, with an analyst outperform rating with a consensus price target of JPY 1,864 , representing 13% upside.

Panasonic financials chart

Source: 4-traders

BYD Co (OTCPK, OTCPK)

Build Your Dreams ["BYD"] are better known for their electric cars as they were the global number 1 seller in the past 3 years. They are also one of the top sellers of electric buses globally. The past 2 years they have expanded into electric monorails. The company's advantage is they are a vertical integrated battery manufacturer, based in Shenzhen China.

The company has an energy storage and solar PV division. The chart below shows energy storage is not yet a significant part of BYD's revenues (does not even appear in 2016); however this is expected to grow strongly along with the sector.

BYD Co 2016 revenue breakup

Source: SaxoTrader

BYD has an enterprise value of CNY 205b (~USD 32b), a debt of CNY 36.6b, (USD ~5.7b), a 2018 net profit margin of 4.69%, a 2018 PE of 28.3, and an analyst outperform rating with a consensus price target of CNY 63.33, representing 9.6% upside. You can read more here at the company's English language website.

BYD Co financials

Source: 4-traders

LG Chem (OTCPK:LGCLF)

LG Chem Ltd. is a Korean company who manufactures petrochemicals, IT & electronic materials and energy solution materials. LG Chem's Energy Storage System Division covers cell, BMS and ESS Products (Module/Pack/Rack/Container) to support various market needs from residential, grid & commercial, around the world. You can read more here.

In recent times LG Chem has become well know as a lithium-ion battery manufacturer supplying a large number of the electric vehicle companies. Some names they supply include General Motors/Chevrolet (GM), Renault SA and Daimler AG. In 2015 it was reported that LG Chem work with "13 out of 20 global brands." Just this week India's Mahindra tied up with LG Chem to supply batteries for their EVs.

In 2018 LG Chem will open Europe’s largest lithium-ion battery factory in Poland. LG says that it will support the production of 100,000 electric cars per year from the new battery factory.

LG Chem has a market cap of KRW 25.4T, a debt of KRW 651B, a 2018 net profit margin of 7.42%, a 2018 PE of 13.1, with an analyst outperform rating with a consensus price target of KRW 483,577, representing 36% upside.

LG certainly looks like a solid choice as many of the conventional car companies (aligned to LG Chem) ramp up production. The new factory is a further positive.

LG Chem financials chart

Source: 4-traders

Samsung SDI (OTC:SSDIY)

Samsung SDI Ltd. is a Korean company that engages in the manufacture and sale of secondary cells and plasma display panels. The company operates in two business segments: Display segment and Energy segment. The Energy segment is engaged in the manufacture of batteries.

Samsung SDI supplies EV batteries to BMW and Volkswagen, as well as to the energy storage sector.

Samsung SDI has an enterprise value of KRW 11.9t (USD 11b), KRW 59.4b (USD 55m) debt, a 2018 net profit margin of 12.37%, a 2018 PE of 11.9, with an analyst outperform rating with a consensus price target of KRW 240,645, representing 41% upside.

Samsung SDI look well valued and well placed to benefit from both the EV and energy storage booms.

Samsung SDI financials chart

Source: 4-traders

Tesla (TSLA)

Tesla earns most of its revenue from electric cars; however the energy storage division has been gaining ground lately.

According to website Electek, "Tesla is now deploying about 100 MWh of energy storage per quarter." This places Tesla as one the world's largest energy storage providers.

On January 30, The Los Angeles Times reported: "Edison and Tesla unveil giant energy storage system. Tesla Motors Inc. and Southern California Edison on Monday unveiled one of the world's largest energy storage facilities, part of a massive deployment of grid-connected batteries....The facility at the utility's Mira Loma substation in Ontario contains nearly 400 Tesla PowerPack units on a 1.5-acre site, which can store enough energy to power 2,500 homes for a day or 15,000 homes for four hours."

On February 5, The Verge reported: "Tesla is helping South Australia build what will be the world's largest virtual power plant. Installation is planned for 50,000 homes across the state over the next four years. In an initial trial, which has already commenced, a 5kW solar panel system and a 13.5kWh Tesla Powerwall 2 battery will be installed in 1,100 public housing properties for free, with the sale of electricity to cover costs. Following this, an additional 24,000 public houses will receive the systems. A wider rollout for private homes is planned in 2019, depending on the success of the trial phases."

Clearly Tesla is quickly becoming a leader in lithium-ion battery energy storage, along with their gigafactory partner Panasonic.

Tesla has an enterprise value of USD 64.5b, a debt of $US8.9b. 2018 net profit margin is forecast to be negative. Tesla is forecast to be earnings positive in 2019 with a net profit margin of 1.06% increasing to 4.1% in 2020. 2019 forecast PE is 362, and an analyst hold rating with a consensus price target of USD 323, representing 2.3% downside.

Tesla financials chart

Source: 4-traders

3) Flow battery companies storage and companies

Flow batteries have opportunities in large utility and long-duration applications. Vanadium redox flow batteries [VRB] are currently leading the market for flow batteries, as vanadium flow batteries can last more than 10,000 cycles, and maintain 90% of their capacity over 20 years. So whilst more expensive in smaller scale projects they become competitive with scale.

ASDReports estimates that the market for flow batteries will grow from $230.2 million in 2018 to $946.3 million by 2023, at a CAGR of 32.7 percent during the forecast period. They state "the growth of this market can be attributed to the increasing investment in renewable energy."

In November 2017 Energy Storage reported, "Chinese government’s strategic push for energy storage to yield large flow battery projects. The 40MWh project itself is going to soon be superseded in size in Hubei by a mammoth 100MW/ 500MWh energy storage system. The China National Development and Reform Commission [NDRC] has actually called for several vast flow battery systems, of over 100MW per system, to be deployed as trials and demonstrators. In fact, a 200MW/ 800MWh vanadium energy storage project is being built already in Dalian, a city in the southern province of Liaoning, by Chinese system manufacturer Rongke Power and UniEnergy Technologies (UET). According to Robert Friedland, NDRC’s policy statement, which calls for demonstrators to be built by 2020, “will result in vanadium flow batteries revolutionizing modern electricity grids in the way that lithium-ion batteries are enabling the global transition to electric vehicles.”

Note: Robert Friedland is a chairman of Beijing company Pu Neng. Last November 2017 Pu Neng was awarded a contract to build the largest vanadium flow battery in China. That is the 40MWh project referred to above, that will be followed by a larger 100MW 500MWh energy storage project in Hubei Province.

The Energy Storage article above also says - "Flow batteries are often used in circumstances where their scalability and ability to hold longer durations of energy storage for aggressive cycling perform more favourably than cheaper lithium-ion batteries, which tend to perform better in high-power, short duration applications."
The vanadium spot price has seen terrific gains in the past year in part due to the increase demand from flow batteries. Vanadium is traditionally used in steel alloys and as a catalyst for the production of sulfuric acid.

Vanadium spot prices 2005 to end 2017

Historical Vanadium Prices - Vanadium Price History Chart

Source: InfoMine

V2O5 Vanadium Pentoxide Flake 98% Price chart - 13.70 USD/lb

Source: Vanadiumprice.com

The main Vanadium Redox Flow battery producers

Some of the main redox flow producers are Gildemeister Energy Solutions, Redflow [ASX:RFX] [GR:2RF], RedT Energy [LN:RED] (OTC:CAMCF), Schmid, Sumitomo Electric. [JP:5802] (OTCPK:SMTOY), UniEnergy Technologies, EnSync Energy Systems (ESNC), and Protean Energy [ASX:POW].

Some of the Vanadium miners

Producers

Largo Resources [TSX:LGO] [GR:LR81] (OTC:OTCQX:LGORF), Energy Fuels [TSX:EFR] (UUUU), Grange Resources [ASX:GRR] (OTC:GRRLF), Syrah Resources [ASX:SYR] (OTC:OTCPK:SYAAF) (OTC:SRHYY).

Note: Syrah Resources produce graphite and plan to soon produce vanadium.

Developers

Aura Energy [ASX:AEE] [GR:VU1] (OTC:AUEEF), Trigon Metals Inc. [TSXV:TM] (OTC:PNTZF), Triton Minerals [ASX:TON] [GR:1TG].

Explorers

Australian Vanadium [ASX:AVL], Battery Minerals [ASX:BAT], Stina Resources Ltd [CSE:SQA] (STNUF), Golden Deeps [ASX:GED], King River Copper [ASX: KRC], Neometals [ASX:NMT] (OTCPK:RDRUY) (OTCPK:RRSSF), Sabre Resources [ASX:SBR], Technology Metals Australia [ASX:TMT], TNG Limited [ASX:TNG] (TNGZF).

Note: I will be writing a dedicated article on the Vanadium miners to follow this article.

4) Power and technology companies involved in energy storage

ABB ltd (ABB)

ABB provides power and automation technologies for utility, transport, and infrastructure industries throughout the world. ABB is one of the major players in the global energy storage market for renewable energy grid integration. The company offers smart grids to optimize the grid reliability, energy efficiency, and capacity utilization. They are also involved with robotics and electric vehicle charging.

ABB has an enterprise value of USD 55.7b, debt of USD 3.25b, a 2018 net profit margin of 7.45%, a 2018 PE of 18.9, and an analyst hold rating with a consensus price target of USD 26.84, representing 11% upside. You can view a recent company presentation here.

ABB financials chart

Source: 4-traders

AES Corporation (NYSE:AES)

AES states on their website - "The AES Corporation (NYSE:AES) is a Fortune 200 global power company. We provide affordable, sustainable energy to 15 countries through our diverse portfolio of distribution businesses as well as thermal and renewable generation facilities. Our workforce is committed to operational excellence and meeting the world’s changing power needs. Our 2017 revenues were $11 billion and we own and manage $33 billion in total assets."

Essentially a power generation company, the company builds new emission control technologies, wind and solar power plants, and biomass conversions.

In 2016 Southern California Edison Co selected AES Corp. against 1,800 other offers to design and install up to 18,000 lithium ion battery packs to help replace a natural gas-burning power plant in Long Beach California that serves to supply expensive peak power. It was the first time an energy storage device had won a competition against a conventional power plant.

AES has an enterprise value of USD 27.2b, a debt of $US19.9b, a 2018 net profit margin of 4.46%, a 2018 PE of 15.4, and an analyst outperform rating with a consensus price target of USD 12.66, representing 15% upside. You can view a recent company presentation here.

My concern would be the high debt level, which the company says (on page 3 of the presentation) they are "prepaying $1 billion in parent debt in 1H 2018."

AES Corp. financials chart

Source: 4-traders

Enel SpA (OTCPK:ESOCF, OTCPK:ENLAY) - Subsidiary is Enel Green Power

Enel SpA is an Italian multinational power company and an integrated operator in the electricity and gas sectors, with a special focus on Europe and Latin America. The Company is active in the generation and distribution of energy from conventional and renewable sources. The company is has an Enel Chile (NYSE:ENIC) and an Enel Americas (NYSE:ENIA) listing. You can read more about Enel here, and Enel green Power here. Enel Green Power is a subsidiary of Enel SpA.

Enel's global operations

Source

Enel has an enterprise value of Euro 87b, a debt of Euro 38.9b, a 2018 net profit margin of 5.47%, a 2018 PE of 11.7, and an analyst outperform rating with a consensus price target of Euro 5.71, representing 20% upside. Naturally my concern here would be the high debt.

Enel SpA financials

Source: 4-traders

Siemens AG (OTCPK:SIEGY)

Siemens AG is a German company who engages in the production and supply of systems for power generation, power transmission, and medical diagnosis. The company is also well know as a global leader in wind turbine manufacturing.

On January 11 Electric reported, "AES and Siemens launch new energy storage startup to compete with Tesla Energy, will supply new world’s biggest battery project. AES and Siemens are combining their efforts to launch new energy storage startup called Fluence Energy and compete with Tesla Energy in the fast-growing, new energy storage industry. Fluence will become the supplier of AES’ 100MW/400MWh Alamitos power centre energy storage project in Long Beach, California serving Southern California Edison and the Western Los Angeles area. The 100 MW/400 MWh is expected to become the biggest in the world. AES and Siemens claim that the new startup instantly became the new world leader in energy storage with “nearly 500 MW deployed or awarded across 15 countries.”

Siemens has an enterprise value of Euro 109b, a debt of Euro 18.6b, a 2018 net profit margin of 6.93%, a 2018 PE of 14.9, and an analyst outperform rating with a consensus price target of Euro 131, representing 23% upside. A solid choice.

Siemens financials chart

Source: 4-traders

SolarEdge Technologies Inc. (SEDG)

SolarEdge is an Israel company well known for providing the inverter needed for energy storage systems. The company also sells power optimizers, storage solutions, and a cloud-based monitoring platform.

The company states on their website - "Since beginning commercial shipments in 2010, SolarEdge has shipped approximately 6.7 Gigawatt (GW) of its DC optimized inverter systems and products have been installed in solar PV systems in 120 countries."

SolarEdge has an enterprise value of USD 1.9b, zero debt, a 2018 net profit margin of 15.74%, a 2018 PE of 18.0, and an analyst outperform rating with a consensus price target of USD 50.10, representing 0.6% upside.

Plenty of growth ahead but investors should be aware the stock has already risen 245% in the past one year.

SolarEdge financials graph

Source: 4-traders

Note: I am not sure yet why the 2020 estimates are so much lower, but it may be due to guidance of shrinking margins as you can read here. Until now SolarEdge has had a competitive advantage by including a charger in its inverters, which makes them easier to install and cheaper than two separate components.

Others include Enphase (NASDAQ:ENPH), Advanced Microgrid Solutions (private), Fronius (private), Imergy (private), NEC (OTC:NIPNF), RPC Inc. (NYSE:RES), Sharp [JP:6753] [GR:SRP] (OTCPK:SHCAY), Southern California Edison, General Electric (NYSE:GE), EnerSys (NYSE:ENS), Johnson Controls (NYSE:JCI), Bosch Ltd (OTC:BSWQY), Sony [JP:6758](NYSE:SNE), Sonnen (private) and Origin Energy [ASX:ORG] [GR:ORL] (OTCPK:OGFGY).

6) Other areas of energy storage

Other areas include:

  • Lead acid battery (East Penn Manufacturing is a leader).
  • Supercapacitors (the problem has been the extra cost, as well as extra weight, and they are best suited to quick charge and discharge situations. The benefit is the fast time to charge).
  • Hydrogen energy storage.
  • Compressed air energy storage.
  • Iron flow (ESS Inc.)
  • Zinc iron flow (ViZn Energy)
  • Zinc bromide flow (Primus Power).

Risks

  • The energy storage boom may not materialize. This is looking less likely each year.
  • Technology change - New energy storage technologies may replace the current popular technologies. Definitely possible but they will need to be more cost effective and an improvement on current technologies.
  • Battery manufacturers are facing increased material costs and declining battery prices, which has potential to squeeze margins.
  • Energy storage batteries can use cheaper chemistries as weight is less of a concern. In time old EV batteries may be used for energy storage.
  • Power companies may lose customers if people choose to exit the grid.
  • Some companies discussed in this article have very large debts.
  • Investors should understand that investing early in any new disruptive technology carries much higher risks as well as rewards.
  • Liquidity risk for smaller caps. Best to buy on local exchanges.

Further reading

Conclusion

Hydro energy storage remains the most dominant source of energy storage; however lithium ion battery stationary energy storage is the big growth area gaining momentum as prices fall. To date lithium-ion storage has been focused in locations with high electricity prices (Hawaii, Australia, islands), but as lithium-ion battery prices fall this is expanding globally both in commercial and residential applications. Solar and wind farms are now using Li-ion battery storage, as are residential homes. Vanadium flow has a smaller market for now; however recent moves in China suggest it can grow to be much larger.

There are several ways investors can look to play the sector as I discuss in the article - hydro, lithium ion battery, flow battery, power and technology companies, and some others. Clearly the lithium-ion battery providers have an additional benefit from electric vehicle demand. The vanadium redox flow battery appears to be just taking off especially in China. Super capacitors have potential for breakthroughs and can potentially disrupt lithium-ion at least for some stationary energy storage applications where weight is not usually a big factor.

Within the area of lithium ion batteries there are several ways to invest. You can buy the battery manufactures (Panasonic, BYD, Tesla, LG Chem, Samsung SDI, SK Innovation etc) or the raw material suppliers (lithium, cobalt, graphite, and nickel miners). The latter group I have covered in many other articles, so I have not covered them here.

For investors wanting other ways to gain exposure to the stationary storage providers then companies such as ABB (automation, smart technology to operate and monitor systems), Enel Green Power (green power provider), AES Corp. (sustainable power generation provider including green power), Enphase, EnerSys, and SolarEdge (inverters) all have their niche areas.

For now my top pick would be Samsung SDI due to their low PE, and strong profit margins as well as a solid customer base. Next I would consider LG Chem and BYD, especially on any price pullbacks. I like SolarEdge as they have carved out a good reputation in their niche sector. Finally, I will be writing next on the very exciting vanadium miners sector.

As usual, all comments are welcome.

Note: All data presented are as of March 2, 2018, when this article was first published for Trend Investing subscribers.

Disclosure: I am/we are long BYD CO [HK:1211], SYRAH RESOURCES [ASX:SYR], TRITON MINERALS [ASX:TON], NEOMETALS {ASX:NMT],LARGO RESOURCES [TSX:LGO], TECHNOLOGY METALS AUSTRALIA [ASX:TMT].AUSTRALIAN VANADIUM [ASX:AVL].

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The information in this article is general in nature and should not be relied upon as personal financial advice.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.