Alternative Energy Storage Is an Investment Tsunami

by: John Petersen November 30, 2008 | about stocks: ABB / AES / ALTI / AXPW.OB / CHP / ENS / HEV / SGPEF.PK / XIDE    

John Petersen

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Alternative Energy Storage: An Investment Tsunami

Change often comes as a surprise because it develops while we’re focused on other issues and by the time we notice the change, it’s already history. In a recent presentation attended by Eric Wesoff of Greentech Media, clean-tech venture capitalist Vinod Khosla reportedly said, “500 million people on earth enjoy a lifestyle that 9 billion people will want in 2050.” Actually, it would be more accurate to say that 6.2 billion people already know how the other 500 million live and every single one of them wants his piece of the dream. The trick will be finding a way to raise the standard of living in developing economies without crushing the standard of living in developed economies. For that to happen without catastrophic conflict and horrific environmental consequences, the world must find relevant scale solutions for persistent shortages of water, food, energy and virtually every commodity you can imagine.

I’m an incurable optimist who believes that “In America we get up in the morning, we go to work and we solve our problems” (from The Lost Constitution by William Martin). But we can’t solve persistent shortages of water, food, energy and commodities without first minimizing waste. We also can’t wait for miraculous new technologies to painlessly solve urgent problems. We have to go to work today with the toolbox we own and be ready to replace our tools with better ones when they become available.

When I started this series of essays, I was confident that energy storage would become a major investment trend over the next several years because cost-efficient storage can substantially reduce waste while enhancing the reliability of many alternative energy technologies. Since then, the fundamental market drivers have developed far faster than I imagined and what I initially described as a rising tide is now looking more like an investment tsunami as a handful of micro-cap and small-cap companies gear up to compete for $50 to $70 billion of rapidly developing annual demand for large format energy storage systems. Important developments over the last few weeks that hint at the magnitude of the coming tidal wave of change include:

October 27th

C&D Technologies (CHP) entered into a manufacturing partnership with Firefly Energy for the commercialization of a microcell foam electrode developed by Firefly that can almost double the run time and cycle life of lead acid batteries used in long-haul trucks and off-highway equipment.
October 27th

Ener1 (HEV) bought an 83% interest in Enertech International, a Korean manufacturer of lithium-polymer batteries that it had previously used to fabricate prototype battery packs for plug-in electric vehicles that Norway’s Th!nk plans to introduce next year.
November 6th

Exide Technologies (XIDE) bought Mountain Power, a Canadian developer of large capacity lithium-ion batteries for the communication, utility, medical, military and industrial markets.
November 12th

Axion Power International (AXPW.OB) showed its shareholders a modular system that will use its PbC batteries (an advanced lead-carbon battery/supercapacitor hybrid) to provide on-demand power for a substation support and upgrade deferral project funded by NYSERDA.
November 19th

Beacon Power Corporation (BCON) received provisional regulatory approval from ISO New England for the commercial use of a modular system that uses an array of high-speed flywheels to provide on-demand power for frequency regulation.
November 19th

A123 Systems delivered a modular system that will use lithium-phosphate batteries to provide on-demand power for frequency regulation projects managed by AES Corporation (AES).
November 21st

Altair Nanotechnologies (ALTI) received regulatory approval from the PMJ Regional Transmission Organization for a modular system that uses lithium-titanate batteries to provide on-demand power for frequency regulation projects managed by AES.
November 25th

A123 Systems filed a third amendment to the registration statement for its planned IPO, which tells me that the offering will probably go forward in December despite the most uncertain market conditions in decades.
November 25th

France’s Saft Batteries (SGPEF.PK) and global infrastructure giant ABB (ABB) announced the joint development of a modular system that uses lithium-ion batteries to provide on-demand power for frequency regulation and other utility applications.

The trend toward reduced waste through energy storage is not going to develop over a period of years like I predicted – the tsunami has already hit the beach and washed away my fantasies of fame and glory as a prophet of the new energy age. But after three months of extreme market turbulence, there is still a good opportunity for astute investors to position their portfolios for an unprecedented growth surge in an established industrial sector that has historically carried rust belt valuations but will very likely graduate to something approaching clean-tech valuations.

Unlike most clean-tech writers, I have nothing complimentary to say about the economic potential of plug-in electric vehicles, at least as currently proposed. Installing a 5-pound battery pack on a 35-pound bicycle to reduce strain on the rider makes sense. So does installing a 20-pound battery pack on a 175-pound motor scooter to boost city-driving mileage into the 180-MPG range. But using 1,000-pound battery pack to power a 3,500-pound family car at highway speeds is the epitome of arrogant extravagance. I have little doubt that a small market will develop among technical dilettantes like me that have nothing better to do than spend $40,000 to $150,000 for a souped-up golf cart. But there isn’t a snowball’s chance in hell that plug-in electric vehicles will ever be cheap, reliable or safe enough for regular guys. EVs provide easy sound bites for the politicians who supported the egalitarian ideal of home ownership for all through the magic of sub-prime mortgages, but the mirage fades immediately when the auto industry’s proposed plug-in electric vehicles are subjected to even a cursory cost-benefit analysis.

Notwithstanding my criticism of lithium-ion technology for plug-in electric vehicles, I’m delighted to see a broad-based drive to introduce lithium-ion technology in the utility sector because utilities have a unique ability to take full advantage of the long cycle lives, fast recharge rates and high overall efficiency of the technology. I’m even happier to see the key players in the bulk storage sector take a modular approach to their products which will make it easier for utilities to mix and match storage products to fit the needs of a particular installation. While single technology installations are possible, my understanding of basic utility needs leads me to believe that multiple layers of energy storage using a variety of different technologies will ultimately be the norm.

Last week’s edition of Forbes included a good introductory article on grid storage entitled "Hold that Electron", which explained some of the storage options available to utilities, but didn’t address how those technologies can work together to satisfy day-to-day operating requirements. The following table is my effort to add a little more detail and give readers a better idea of how utility scale storage system will likely be configured.
Capital Cost
Storage Category
$/Watt
$/kWh
Key Applications
Discharge Interval

Flywheel systems
$2.50
$10,000

System stability & power quality

0 to 30 seconds

Lithium-ion batteries
$4.25
$1,750

Power quality & regulation

0 seconds to 15 minutes

Advanced lead-acid batteries
$2.20
$540

Regulation and spinning reserves

0 seconds to 1 hour

Sodium sulfur and flow batteries
$3.00
$500

Spinning & replacement reserves

0 seconds to 4 hours

Compressed air & pumped hydro
$1.25
$10

Replacement reserves

10 minutes to 8 hours

Because of the incredible transformation that is currently sweeping through the storage sector I remain very bullish on the short to medium term prospects for most companies in the sector. While Altair is overvalued compared to its peers, the only stock that really worries me is Ener1 because its business model depends on the success of plug-in electric vehicles, its market capitalization is exorbitant when compared with every other company in the storage sector and it does not compare favorably with A123 Systems using established valuation metrics. So I have to reach the same conclusion as Lux Research in its recent report on Energy Storage for Electric Vehicles:

Investors should be wary of EV-related business plan claims. Particularly when it comes to pure EVs, every expectation ever set by a start-up company has slipped – and the audacious goals of Project Better Place look effectively unachievable in anything like the time frame it has proposed. Many of these businesses offer real opportunity for long-term enterprise value creation, but to make sound judgments, investors from venture capitalists to project financiers should take every timeline they see in the EV field and stretch it out by a factor of 2x to 3x.

Disclosure: Author holds a large long position in Axion Power International (AXPW.OB), has recently bought small long positions in Exide (XIDE) and Enersys (ENS) and may make additional storage sector investments in the future.

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This article has 50 comments:

  •  
    Nov 30 08:14 AM
    All alternative energy are too expensive.
    Reply | Link to Comment
  •  
    Nov 30 08:30 AM
    Is the author unaware of the use of hydrogen as a medium to store energy?
    Reply | Link to Comment
  •  
    Nov 30 08:38 AM
    Hi John:

    I agree with storage at the utility level , which is key. Nice to catch up with you again . I'm in ENER1 , ZBB, looking at others. Thanks for these ideas !
    Reply | Link to Comment
  •  
    Nov 30 08:40 AM
    GNE, Freezing in the dark is more expensive.

    Chi, I am aware of the potential of hydrogen, but nobody's economically making or storing hydrogen on a commercial scale today and heaven only knows when they will. But I'll be thrilled to have a new energy storage tool available when somebody develops one that makes economic sense.
    Reply | Link to Comment
  •  
    Nov 30 09:01 AM
    Wow, great chart of the cost per Watt and per kWh. Thank you, John!
    Reply | Link to Comment
  •  
    Nov 30 09:08 AM
    Sub, the first three columns were a direct lift from the Forbes article, I just added some detail about what the various technologies do.
    Reply | Link to Comment
  •  
    Nov 30 10:04 AM
    futuregen (mattoon IL) was intended to make hydrogen but the project was killed by the emperor george dubya administration.
    > jack
    Reply | Link to Comment
  •  
    Nov 30 10:05 AM
    www.vrbpower.com/index...

    What happened to this Co. ?
    This $ Criisis is hurting many....
    Reply | Link to Comment
  •  
    Nov 30 10:08 AM
    If you could buy gasoline at $0.75/gallon today, but had to pay $10K more for the car, would you do it?

    If you could buy a car that cost $6K less than comparable models and got a "per-mile" contract that was 30% cheaper per mile than gasoline-fueled vehicles, would you do it?

    Those are the choices consumers will have shortly. Whether via offerings like the Think, or the innovative business model (first introduced by Ford and Edison) being pursued by BetterPlace, electric options are inevitable. Todays' market conditions make the EV tsunami inevitable.

    The only guys on the other side of the argument are the auto manufacturers, who have vast investments in the factories to make internal combustion engines, and think those investments give them competitive advantage. "Any damn fool can bend metal," said one exec; "it takes guts and brains to make great engines." Today a factory tooled to make V8s is a subprime toxic asset, and the guys who built them are asking taxpayers to bail them out for their stupidity.

    A transition to EVs could actually put US auto manufacturers back on top; in a higher oil cost world, long-distance transport of cars becomes a significant part of the vehicle cost.

    But as they say, you can lead a horse to water but you can't make him think.
    Reply | Link to Comment
  •  
    Nov 30 10:36 AM
    WWEI - Welwind energy is IMO a sleeper stock. They are in a joint venture with a company in China to complete a wind farm in China.
    Reply | Link to Comment
  •  
    Nov 30 10:39 AM
    If any of those things were possible using Li-ion batteries I probably wouldn't be so critical. But I would still question your justification for taking 200 electric bicycles or 50 to 100 hybrid scooters off the road in Asia so that you can drive a 3,500 pound electric car in North America. Remember there are 6.2 billion people who are ready, willing and able to compete with you for every imaginable commodity? How long do you think you will be able to out-bid them when they need a little and you need a lot?
    Reply | Link to Comment
  •  
    Nov 30 11:30 AM
    Based on your analysis, it seems clear that utilities (facing increasing licensing problems for new coal plants) have no other option but to invest heavily in new renewable energy projects, combined with pumped hydro storage/compressed air and new transmission capacity.
    The U.S. has enough geothermal, solar, wind, water and potential gravity to supply all its needs with a reliability of 100%.
    An underestimated benefit of solar panels for utilities is that they reduce peak load and the need for new generating capacity.
    The latest direct-drive (less maintenance) windturbines produce electricity more cost-effective then a coal-fired powerplant.
    Invest in publicly listed solar PV companies, geothermal, windturbine manufacturers, cement and concrete, water/air pumps and transmission line manufacturers and related services.

    Why smooth such phases in a larger system (the grid as a whole) which is about to crumble for entirely different reasons?

    Battery technology is capital intensive and risky.
    The only renewable battery technology is zinc-air because zinc-oxide can be recycled into zinc in solar ovens.
    Reply | Link to Comment
  •  
    Nov 30 11:34 AM
    Many years ago when I was in Asia I used to see boats propelled by one cylinder diesel engines with a heavy flywheel to smooth out the power. They'd run a week on a gallon of diesel. I'd love to see a power plant like that turning a generator in an ultralight weight car.

    If the DOT didn't have a million rules, tinkerers would put some really interesting things on the road.
    Reply | Link to Comment
  •  
    Nov 30 11:48 AM
    I agree that this market will be in the billions!!.
    Reply | Link to Comment
  •  
    Nov 30 12:05 PM
    If you can't make a hybrid or EV that is affordable to the masses ($12,000 or less) then what's the use?
    Reply | Link to Comment
  •  
    Nov 30 12:07 PM
    Alti recently had a successful test with KEMA for AES (KEMA is a third party testing company). The batt is currently in PA. and working on the grid. There were no negitives and the test were better than expected. The batt is capable of handling the requiremnets of wind and solar frequency changes in miliseconds.
    They also have developed a 140 mile batt on a single charge for vehicals. See http:phoenixmotorcars.com web site for more details.
    The writer holds shares in Alti - which you should share in the Tsunami.
    Reply | Link to Comment
  •  
    Nov 30 12:16 PM
    John: Averill is buying on the open market again.
    Reply | Link to Comment
  •  
    Nov 30 01:23 PM
    John - OK, so the rich buy pure EV's; good. The masses will go for normally priced vehicles called hybrids and 200-300% increases in economy with unlimited range which you don't seem to dis as much as expensive pure EV's with better economy but limited ranges; and the rest buy scooters and bikes, or in addition to the others.

    But, again, as for storage on the demand side of the equation, which you don't wish to address vis-a-vis generation and inbetwix surge storage capicity, EV's may provide some demand sponge flexibility, but something like commercial and industrial refrigeration using insitu storage permitting significant flexible demand at point of use is being overlooked (not unlike making ice or additional cold salt, etc., when excess power is available, and "melting" the ice when demand power is peaking). Do that all over the US in major ciites and industrial complexes, the same places that create the demand. That's just refrigeration. Now look at other demand loads that can be shuffled accordingly. Try heating. HVAC? Things where we don't even lose the inefficiencies of charging/discharging that batteries, flywheels and other stored enery devices inherently contain (internal resistances, overcharging and unrecoverable disassociation of gases, etc.).

    Now, you may say that those or enough of those systems cannot be turned on and off quickly enough (shut down and started up too much), which may be true currently (no pun intended), but with the advent of the applied computer/communication... technologies and ability to monitor and control millions of systems in a variety of ways, utilities will be able to not only reach in and turn off residential refrigerators as well as commercial and industrial loads in a fashion that no one will notice, but not even the refrigerator or the other loads will find it strange.

    We have computers controlling the turning off and on of up to 18 harmonic phases of 3-phase motors, and the motor doesn't care. In fact, that control ability makes a 20hp motor deliver the low speed torque of an 80 hp motor. That's good. Point being, the computer controls the number of phases turned on and off for a 60hz motor. Is that fast enough for your repsonse times? Frequency regulation?? Within 60hz? At the final load, the end user.
    Reply | Link to Comment
  •  
    Nov 30 01:59 PM
    Don't know if JPs posit of an either/or trade off in transportation modes is accurate but the underlying assault on our sense of entitlement hubris is on point. Even if most, if not all, modes of energy production/harvesting, storage, distribution and final user options are employed they will require a retrenchment of our expectations for the status quo in our relative profligacy. This is not a call for hair shirts, however, just for a broader view of future demand and supply.
    Reply | Link to Comment
  •  
    Nov 30 02:09 PM
    1. You don't consider NiMH, the battery of choice in all plug-in cars and all-electric EVs.

    2. The price is whatever we make it; Nickel is recycleable, the cost can be minimial. NiMH lasts longer than the life of the car.

    3. There EXISTS an all-electric practical and fun family and work car: the Toyota RAV4-EV, you can see it on SealBeach.org

    Doug Korthof
    562-430-2495
    to visit and drive in the Toyota RAV4-EV, powered by the sun
    Reply | Link to Comment
  •  
    Nov 30 02:12 PM
    It's incredible, people like this author writing what they think is important stuff, but in ignorance of the facts.

    Has this author NEVER HEARD of the EV1, HondaEV, Toyota RAV4-EV, which use NiMH batteries??

    Lithium is used by GM to delay the introduction of EVs; no one has ever made a successful Lithium EV that's lasted more than 50,000 miles without significant battery degradation.

    Study, and don't speak about stuff before!
    Reply | Link to Comment
  •  
    Nov 30 02:46 PM
    Aqua, a common urban legend is that variable sources will cancel each other out. The precise opposite is true. Variability + variability = more variability. Historically batteries have been too expensive. With fuel costs at current levels, battery storage is finally getting more cost effective than gas. So the change is working and can only accelerate.

    Naked, you may be able to use PHEV and EV to soak up excess night-time power, but when you unplug you vehicle to go to work it is no longer part of the grid and until somebody tells me they are going to have a plug at every parking space (when pigs fly) all those PHEV's and EVs will do nothing for grid stability. Beyond that, I'll be happy to add new solutions to my toolbox when they're developed. But that won't keep me from waking up tomorrow and working to solve my problems.

    Searcher, I've spent enough time in Asia to worry about American high school graduates (like my youngest daughter will be this year) who don't have the fundamental skills I was taught at that age. It's going to be a nasty wake up call for a big portion of the population.

    Douglas this is my 20th article since July. I've never had a single bad thing to say about NiMH and probably never will. But there are no pure storage companies in that space and these articles are directed toward people who are interested in investing. For HEV use I think NiMH is a far more reasonable solution than any of the proposed Li-ion products. If you asked me to describe the best currently achievable HEV solution, it would be a high efficiency diesel or CNG with either NiMH or lead-carbon.
    Reply | Link to Comment
  •  
    Nov 30 03:19 PM
    The good thing is that so many people who are investors recognize the need for an alternate energy future to keep us afloat as a nation.  The the investment ideas are secondary in the reader responses.  
    (It appears that the last administration was unable to grasp the significance of these problems.) 

    As to the cost effectivness of alternate energies, subtract the subsidies from oil and the economic viability of alternatives is instant, not future. Remember, you and I paid for the subsidies to big oil through our tax dollars.

    Thanks for this important article.
    Reply | Link to Comment
  •  
    Nov 30 03:39 PM
    Timely article. Is it even remotely possible that the hydro storage the US currently has will ever be allowed by the US Corp or land owners to fluctuate enough to act as a viable storage system? Your analysis is on the mark in my opinion.
    Reply | Link to Comment
  •  
    Nov 30 03:57 PM
    Yeah, but what if, and it is a big what if, EESTOR and Zenn Motors come through with a viable product? The world will change in a very big way and some out there will become very wealthy.
    Any more thoughts on this John?
    Reply | Link to Comment
  •  
    Nov 30 05:25 PM
    John - with all the other variable and flexible demands during the day one does not need the demand that EV's provide off peak.
    Reply | Link to Comment
  •  
    Nov 30 05:30 PM
    John - right on re. response to Doug with diesel hybrid and the cheapest longest life (lowest life cycle cost) batteries.

    I only dream of the biodiesel injected burner with no moving parts and solid state waste heat recovery devices directly powering the Chorus Motor with the only on-board stored energy device being a GRASS TANK. Two manybe three years away.
    Reply | Link to Comment
  •  
    Nov 30 05:36 PM
    As for pumped hydro, take a look at Banks Lake and Grand Coulee Dam; existing for years. Also take a look at Hawk Creek and Lower Crab Creek in WA state as pumped hydor storage possibilites. What lands do you think the BLM have been buying for years?
    Reply | Link to Comment
  •  
    Nov 30 06:53 PM
    Are you aware of any work being done at the Max Planc institute on the storing of Hydrogen by Magne