Tuesday, April 18, 2017
Getting Into the Flow with Vanadium
The previous post “Off the Grid” introduced a series of articles on flow batteries for grid-scale energy storage. Investors focused on renewable investments should at least consider the implications of storage requirements in evaluating renewable energy technologies even if storage developers are not considered portfolio-worthy. Owners of grid-connected solar and wind power systems must design a network that can meet the highest peak load of the year even if a large part of the generating capacity sits idle for extended periods. Storage technologies convert electrical power into chemical or mechanical energy and then send it to the grid when as needed.
Batteries, of course, fall into the category of chemical solutions. According to the Department of Energy about 20% of the energy storage solutions in place today rely on batteries. Total capacity is just over 300 megawatts. Lithium ion technology represented the vast majority of this installed battery capacity. Fast response time makes lithium ion batteries popular. Unfortunately, they do not hold up well under repeated charge and discharge cycles. Lithium ion batteries must be replaced frequently, increasing cost of operation.
The deficiencies of lithium ion battery technology have opened a door for flow battery technologies. Flow batteries have a long battery life and tolerate as many as 10,000 charge and discharge cycles. Additionally, the liquid electrolyte can be replaced, making it possible to extend the life of the battery through a refurbish cycle that delays expensive replacement.
Flow batteries are composed of two chemical components dissolved in liquids and separated by a membrane. The liquids or electrolytes are pumped through a stack of electrochemical cells thereby converting chemical energy into electricity. Ion exchange occurs through the membrane as the two liquids circulate in their respective cell. This provides for the ‘flow’ of electric current. Energy capacity is determined by the electrolyte volume and the surface area of the membranes.
There are several flow battery developers that are using vanadium material - a hard, silvery metal - for the electrolyte. Vanadium is attractive to battery developers because it oxidizes into four different valence states, all four of which can be used for a flow battery. On its own vanadium is tough to find. It is almost always a by-product of another mining or minerals process. China and Russia extract vanadium from slag produced by steel smelters. It is also a by-product of uranium mining.
Most of the companies using vanadium materials for flow batteries are private. Imergy and UniEnergy Technologies are two examples that cast something of a harsh light on the challenges of an early stage industry.
Indeed, Imergy’s story already has an ending and it is not a happy one. In July 2016, the company filed for bankruptcy and is liquidating its assets, including the flow battery intellectual property. Imergy’s success was in part the beginning of its end. In 2015, the company has been tapped by SunEdison to provide vanadium flow batteries for an ambitious rural electrification project in India. Unfortunately, Imergy only installed two systems before SunEdison’s own financial problems forced it to declare bankruptcy. Having already extended its operations to meet the demands of a large order, Imergy was unable to land on its feet with the loss of that customer. Venture capital backers abandoned Imergy and it was forced to close its doors. There has been no public report of what entity might have gained control of Imergy’s flow battery technology.
UniEnergy Technology has managed to find success AND stay in business. The company targets multiple markets, including utilities, microgrid, commercial, and industrial applications besides renewable energy systems. The company differentiates itself from the other flow battery suppliers with a small footprint and user-friendly controls. Perhaps the most compelling competitive advantage that UniEnergy has is its longevity and experience. UniEnergy has licensed flow battery technology originally developed over a decade ago at the Pacific Northwest National Laboratory run by the Department of Energy. UniEnergy has been adding additional improvements in design since its inception in 2012, culminating in a demonstration project in 2015. Most recently the company installed a 8-megawatt hour system on the grid in Snohomish County in Washington State. While small in comparison to some lithium ion battery systems, the Snohomish system is the largest containerized flow battery system in the world.
On the other end of the spectrum there are very large companies in the flow battery space. Through its subsidiary Gildemeister Energy Solutions, DMG Mori AG (GIL: GE or MRSKY: OTC) offers vanadium-based flow batteries in 130 kilowatt and 200 kilowatt capacities. Scalable systems of various sizes can be assembled through parallel connections of multiple CellCube units. Gildemeisters has successfully installed several of its systems, but its financial profile is buried so deep in the financial reports of Gildemeister’s parent company DMG Mori, it is not clear if it is a profitable venture.
A DMG MOri gives the investors so much more than vanadium-based flow batteries. The company is one of Germany’s largest manufacturers of cutting machine tools, shipping its lathes and milling machines all around the globe. The company converts almost 5% of its sales to operating cash flow, which helps support an ample dividend. That said, the forward dividend yield is an attractive 1.7%.
Publicly traded American Vanadium (AVC: TSX or AVCVF: OTC) gives investors a chance for a pure play in the flow battery market. The company has been the master sales agent in North America for Gildemeister’s CellCube. The company has its origins as a vanadium materials producer with a focus on the battery market. The company had mineral claims on a vanadium deposit in Nevada up through the end of 2016. After working for years to develop a market for its vanadium materials, the company has integrated forward into batteries. The move has the potential to capture more value from the shift in energy to renewable sources as well as the disaggregation of power systems from large grids to into smaller distributed systems.
American Vanadium made headlines with the installation of a CellCube system as a demonstration for the Metropolitan Transportation Authority in Manhattan, New York. In early 2016, American Vanadium even made bid to buy the CellCube assets from Gildemeister, but was unable to raise sufficient capital and had to retract the offer. Since then the company has even suspended marketing efforts in an effort to conserve its remaining capital.
Clearly along the vanadium arm of flow battery technology there are few options for investors. A position in the healthiest company is more a stake in machine tools than flow batteries, albeit an attractive one with a regular dividend check. The only dedicated vanadium flow battery developer is more ‘played out’ than ‘pure play’.
Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.