Alternative Energy

Energy Storage revisited

Posted on by S Klamp

Source: BCG, Revisiting Energy Storage (Feb 2011)

Boston Consulting Group released a research update on energy storage.

In this report, the team suggests that Compressed-Air Energy Storage or CAES could be a strong intermediary technology for stationary energy storage. This based on the assumption that the current costs for batteries are still relatively high. CAES offers lower upfront CapEx. However, the technology is somewhat dependent on fossil fuel, provides low efficiency and its operational flexibility is questionable. For the time being, Utility providers can still absorb the relatively low variability of supply from wind power (which makes up only 2% of the US energy mix today) and thus CAES is a viable interim solution. Should the variable component of the energy mix raise to 20% or thereabout and energy supply from those sources renewable sources outstrip demand, grid operators will face significant risks. (see Rachel Johnson’s article ‘Energy Storage: enabling a shift away from baseload generation‘ on ifandp.com)

Interestingly, the BCG team sees Hydrogen Storage Tech as the tech-app that will super seed CAES in the medium term (post 2020). The business case is simple. Today, 100 gigawatts of pumped energy storage exists globally. ‘More than 1GW of stored power relies on technologies such as CAES or batteries, and an additional 4GW of electricity storage projects have been announced.’

The global market demand for energy storage solutions is likely to scale as Renewable Energy becomes more widespread amongst the energy mix. The addressable market is estimated to be €1bn today, increasing to €2-3bn pa until 2015 after which this could steadily rise to €4-6bn annually to 2020. After 2020, BCG sees the global market at €10bn per annum and possibly more.

So how should we play it? Where is the investment opp? Firstly, VC and PE firms alike see significant value in the electricity segment which is probably no news. Yet, capitalizing on the opportunity appears harder than at first glance. In a nutshell, the investment case is simple from a utility perspective as ultimately the market will end-up as ‘coupon-clipping’/ bond like investment model. As we have pointed out on a number of previous posts, lithium-ion battery technology companies are worthwhile having a look at.  Obviously, the pure-play investment would be into the raw-material market, i.e. investment in commodities. The price volatility may not be for the faint hearted, however.

Source: ThompsonReuters, US CleanTech 2010

The electric vehicle market is probably closest to the consumer and is in itself another interesting and very contested market with significant fragmentation at this stage. This should enable the savvy investor to earn a substantial return if one is able to estimate which firm will end up grabbing a significant market share. ‘Independent’ electric vehicles producer have certainly grabbed headlines in the past few years but whether they have the business execution capabilities, global distribution, and marketing competence remains to be seen (we think of Tesla, Th!nk City et al). For our part, we monitor what the global middle-class car manufacturers including Mitsubishi, Peugeot, Renault and Volkswagen are up to. General Motors appears to have found a new footing by refocusing their efforts on the E-segment and is likely to have the distribution power that will be needed to pay for the CapEx and OpEx required to succeed in the race to E-Vehicle glory. On the marketing side, BMW has recently unveiled that it will call its E-fleet ‘BMW-i Born Electric‘ analog to Apple’s iPhone, iPad etc series. We will have to wait and see whether BMW can live up to consumer expectations.

BCG further suggests that manufacturers of components linked to energy technology could be an interesting play. Examples include, pumps, compressors, turbines, inverters, switchgear. We agree, yet at this stage clear segment leaders have yet to emerge whilst process design is still emerging and efficiency in all design steps are still being developed. Technology start-ups are sitting in the starting blocks to either receive Series A funding or indeed are waiting for re-ups after the trough periods 2009/2010. We continue to focus on energy storage as one of the most viable ways to make money in renewable energy for investors.

Bloomberg News: Lead-Battery Demand for cars to increase 2.6% on China, India

Posted on by S Klamp

Source: Johnson Controls

It is great to see that battery demand is on the up. Yet the YoY growth rate, as reported by Bloomberg below, appears relatively modest. Lithium-ion battery supply is only modestly raising. We have yet to hear a statement from EV manufacturers how they deal with input prices. Passing those costs on to the consumer and/ or fleet operators may slow down the S-curve of pick-up demand.

For now, we continue to favour Johnson Controls as a play on the sector as the firms overall revenue stream is well diversified.

Bloomberg News
Lead-Battery Demand for Cars to Increase 2.6% on China, India

Feb. 25 (Bloomberg) — Global demand for lead-acid batteries may rise 2.6 percent this year amid increased car sales in China, India and Southeast Asia, said an executive at GS Yuasa Corp., the world’s third-biggest producer.

Demand for car batteries will rise to 390 million units from 380 million in 2010, Hiroharu Nakano, general manager at the Kyoto, Japan-based company, said in an interview yesterday. GS Yuasa forecast demand will climb to 400 million units in 2012.

Johnson Controls Inc. and Exide Technologies, both based in the U.S., are the biggest producers. GS Yuasa has a 7 percent share in the automotive battery market and has partnerships with Honda Motor Co. and Mitsubishi Motors Corp. to make lithium-ion power cells for electric and hybrid cars.

“Demand from China, India and Southeast Asian nations has been leading global growth and this will continue for the time being,” Nakano said in Tokyo. Battery demand for new vehicles has increased in those countries, while worldwide replacement demand has risen moderately, he said.

In 2010, actual demand was expected to exceed the company’s forecast of 380 million units by about 5 million units following higher-than-expected car sales in China and other emerging markets, he said.

China’s vehicle sales will grow 10 percent to 15 percent this year after jumping 32 percent to 18.06 million vehicles in 2010, the China Association of Automobile Manufacturers forecast.

China Demand

Demand in China will increase 9 percent to 49 million units in 2011 and then 54 million units in 2012, while consumption in India may climb to 14.5 million units in 2011 and then 16 million in 2012 from 13 million last year, Nakano said.

Lead for immediate delivery was unchanged at $2,500 a metric ton on the London Metal Exchange at 1 p.m. in Tokyo. The price has gained 16 percent in the past year, touching $2,712.75 on Jan. 6, the highest level since May 2008.

Demand for lithium-ion batteries will jump to 3.8 million cells in 2015 from 1 million cells in 2012, he said.

Nakano said the lead-acid battery market will not be affected by growing demand for lithium-ion cells. Battery demand for new idling-stop systems, which consume more lead, has also been increasing, he said.

GS Yuasa plans to produce 30 million units this year, up from 28 million units last year, and 32 million in 2012, Nakano said. The company produces about 70 percent of these overseas.

The company plans to increase its share in China to 11 percent or 6 million units in 2012 from 9 percent or 3.8 million units in 2009. It also expects to raise its share in Southeast Asia to 45 percent or 9.4 million units from 43 percent or 7.5 million units in 2009, and 10 percent or 1.6 million in India from 5 percent or 0.6 million.

To contact the reporters on this story: Jae Hur in Tokyo at jhur1 Ichiro Suzuki in Tokyo at isuzuki

To contact the editor responsible for this story: James Poole at jpoole4

Green opportunities for storage-battery production

Posted on by S Klamp

China Daily reports an interesting story on Energy Storage, aka Batteries, today. (see: Green opportunities for storage-battery production)

According to the paper, China account for about 25% of global lead-acid storage batteries. These batteries are widely used in Electric Vehicles. The export growth has been a staggering 23% p.a. CEEIA estimates that annual growth is likely to continue with a rate of 15% p.a. for the next five years.

As we highlighted in our China’s 12th 5-year plan piece, the government is keen to promote green technologies and has earmarked the renewable sector as part of its Magic-7 industries.

VC land a coup & A123 loses its CFO

Posted on by S Klamp

Black Coral Capital, Flybridge Capital Partners, Stata Venture Partners landed a coup when they announced that A123 CFO Michael Rubino was going to join their venture backed firm Digital Lumens.

A123 – The consequence
This move may be a blow to A123 but a great opportunity for Digital Lumens. We wrote about ‘The Past, the now and the future of A123‘ earlier this year. With Michael Rubino leaving we feel that A123 has a lot to answer for. A123’s share price is down some 40% since IPO and the future path is somewhat in limbo. Losing a senior executive certainly adds to the uncertainty. Thus it is not surprising that Wunderlich Securities downgraded the stock. The new target price stands at $6! Now, for a company that was never profitable $6 may be considered good (remember those dot.com valuations?) but it certainly does reflect that the growth trajectory and EV/PHEV adoption curve is likely to be slower than anticipated. Arguably, we could see the stock trade lighter than current levels. However, at some point we would think that some large automotive players East (SAIC) or West (VW, Daimler – Smart) may have an interest in looking at the company.

The hard facts are bleak: A123 posted a loss of some $44m, with revenues at $26m. A turnaround seems still some quarters away.  A $6 share price doesn’t sound too bad when compared to our dot.com friends who may have had similiar costs but nowhere near as interesting revenues.

How does A123 business success relate to the EV sector? One of the interesting electric vehicles we have looked at is Th!nk, the Norwegian EV producer. (A HBR case study can be found here; paid content.) In May 2010, Think  presented an update on its business. It essentially announced that another $40m of equity was provided by the existing shareholder base. Moreover, the company projects that it will be cash-flow positive by 2011. A123, Enerdel (promo video) and Zebra will provide batteries ranging from 18 Kwh to 28 Kwh.

Think and Deutsche Bank provide a chart (see above) that summarized EV model releases over the next few years. So is A123 depending on the speed up model ramp up or are EV manufacturere depending on battery capacity? The interdependence is obvious and securing battery supply has long been a key battle ground.

Digital Lumens – Opportunity in the LED & SSL space
Digital Lumens operates in the energy efficiency segment which we consider is more attractive in the near term than betting on technology backed companies alone. Rather, the opportunity to replace existing stock with better materials seems obvious and makes both commercial and ‘green’ sense. LED lighting in particular appears to be attractive for its energy savings potential. The Department of Energy (DoE) has set up the Solid-State Lightening initiative (SSL) that proposes that it can cut US energy lighting usage by 25%. In March 2010, the DoE published a Muli-Year Program Plan for SSL. The report states that ‘[t]he global lighting fixtures market is expected to reach $94 billion by 2010, and SSL is expected to play a substantial role in the market by that time. Sales of high-brightness LEDs (HB–LEDs), the technology associated with LEDs for lighting applications, were $5.3 billion in 2009.” Siemens‘ Osram’s Sylvania program notably focuses on SSL.

Khosla Venture and General Catalyst have both been active in the LED space: both funded LumenZ, a Boston based University start-up. Checking on Khosla’s website, we fail to find it in their Portfolio section. However, in a presentation delivered in 2009, it is still in the portfolio. Highland Capital Partners made an investment in QD Vision. QD’s pitch is interesting ‘QD Vision is developing quantum dot solutions for efficiently backlighting mobile phones and other mobile displays, as well as LCDs for desktop and notebook computers and LCD television screens. These initial applications alone represent an addressable market exceeding $2 billion by 2014 for quantum dot-based components’. According to some news sources, QD Vision has raised a total of US$33m to date.

Overall, as costs of LED is coming down the adoption curve is likely to increase significantly. For now, technology hurdles, costs, and general consumer/ commercial acceptance are issues that need to be addressed.

Clean.Invest – RSS Feed for our Cleantech & PE/VC Fund and Company Blog

Posted on by S Klamp

We have reached 50,000 readers on our blog – we are surprised about the level of interest and like to thank our readers for the continued support. If you haven’t subscribed to our RSS feed yet, you may want to consider to add https://cleaninvest.wordpress.com/feed/ to your RSS feed either in MS Outlook, netvibes.com or any other news/content aggregator. Alternatively, you can click on the link on the left navigation pane to subscribe.

We have also enabled the tweets, email, facebook and print functionality for all our content. Use it if you think others may be interested in the same stories and research.

Again, many thanks for your support. If you have any suggestions for topics, insights or critique, please feel free to get in touch. We welcome your thoughts.

Acquamarine Power gets funding – Atlantis Resources charging ahead?

Posted on by S Klamp

Acquamarine Power, an Edinburgh based business, received another £11m in funding. One of its Investors, Scottish and Southern Energy wrote an investment case study that is worth taking a look at. Some details on the technology concept can be found here. Another key investor is Edinburgh based Sigma Capital Group.

The Press release can be found on Clean Edge’s website.

A company to watch is Atlantis Resources, Singapore and London HQs. They are backed by Morgan Stanley. The company is targeting China and India. From an investment perspective it is worth following their progress we think. The firm presented at the Offshore Engineering Society. Earlier in 2010, Atlantis raised $14m with Statkraft leading the round and Morgan Stanley upping on their existing investment. We wrote about Stafkraft’s Osmotic Energy Plant in the past. From where we sit, we believe that Statkraft has the background and capabilities to see through the risks associated with investments in this segment. Thus worth noting what they are up to.

The NY Times Green Blog recently wrote an update blog on the outlook for Tidal Power. Although the author is not making any judgments it follows the European Energy Association suggestion that Tidal Power could yield 5x current global electricity needs.

We think that the concept is intriguing but returns are still a long way off.

Water Purification IPO landscape

Posted on by S Klamp

HaloSource‘s $80m IPO on London’s AIM market marks another interesting listing. Origo Partners and Masdar Clean Tech Fund are among some VC funds that were able to orchestrate a nice (partial) exit in this difficult economic period. Net proceed raised are some £28.9m. Other selling shareholder include Unilever Swiss Holdings AG, Britannia Holdings Ltd, and Washington Research Foundation.

We like to look back on the thesis for the water industry in general and with regards to Water Treatment and Purification in particular. Arthur D Little published a report back in 2008 title ‘The Water margin: How strategic management of water can grow business value‘.

ADL’s report cites Foster’s brewery in Australia. Foster’s embarked on a programme to minimize water consumption per unit of output without compromising quality. ‘Foster’s Yatala Brewery, the most water efficient brewery in the world, uses just over 2 litres of water for every litre of beer which is less than half the international standard of 5 litres.’ Moreover, the brewery doubled its capacity but water consumption only increased by 10-15%. The key observation that is drawn is that ‘water management needs to be embedded throughout the organization. This may require behavioural change, process innovation, systems innovation, skills development and more.’

We agree and would add that any change is difficult and the cultural backdrop important. Australian’s have learned to adopt to their natural water supply levels whereas many Western Europeans and Americans are still ignorant and lavishly use water. As this example shows, corporates do worry about water efficiency and addressing it itself leads to a competitive advantage. Whilst the West is concerned with efficiency, the company HaloSource is concerned about getting clean water to people in the first place.

Thus HaloSource addresses different markets. Markets that notoriously are challenged to get access to safe and clean drinking water. We note that the firm’s revenue mix is somewhat concentrated and water clarification is currently the firms core product accounting for some 87% (YE2008) of group revenues. Core clients are Eureka Forbes and Pool Corp, which represent 28% of group revenues.

The latter firm mainly operates in the seasonal swimming pool business whereas Eureka enhances the life of many poorer communities especially in India. We consider Eureka be a risk factor as product substitutes are ample. The question is whether there will be any margin pressure on HaloSource going forward. Euraka is owned by Shapoorji Pallonji Group. Pool Corp. business is very seasonal and we could not make out whether HaloSource is hedging this business with derivatives to reduce the likely volatility in revenues.

To date, HaloSource has accumulated operating losses of $46m whilst revenue are growing at a reasonable rate. With 2009 gross profit of around $5.8m there is likely to be a significant J-curve before HaloSource will ever be profitable. The business risk is still significant as the order books is still relatively dependent on a few core buyers. Should anyone switch product this could materially affect the performance of HaloSource.

To conclude, HaloSource is a company worth watching. We have seen big corporates buying up assets in this space and HaloSource may become a target for one larger player if it can proof to be profitable in medium term. Previously we reported on Zenon which was snapped up by GE for a reported $650m. Other players that are active in this market are Dow Chemical and 3M.

Liquid Assets – Media Update

Posted on by S Klamp

We just saw CNBC’s Liquid Assets – Big Business of Water (opens CNBC video, 42:43min). Although very US centric, the overall message is pointing in the right direction. The cost of water is simply too low. As Peter Gleick puts it: “An oil tanker filled up with oil may be worth $200m – $300m. The same tanker filled with water would be worth just $400’000 – $500’000.”

Another CNBC report looks at Water stocks. Debra Coy is giving her views (opens CNBC video: 04:00min). The discussion briefly touches on water rights also. Two companies mentioned are Cadiz Inc. and Pico Holdings.

Water – Where is the money?

Posted on by S Klamp

Deutsche Bank’s piece on the Water sector (World Water Markets, pdf) presents an interesting read. Following on from our research Water Scarcity – An investment Opportunity, Deutsche Bank echoed some of our thoughts. In particular, two areas stand out.

First, the agriculture sector plays a vital part within the water value chain. We maintain our view that ‘water efficiency‘ remains the primary factor in extending the use of fresh water. Further, the challenge with respect to putting a price on water is discussed in the DB paper although no clear recommendations are being made how to overcome the conundrum.  We previously looked at tradeable water rights, Full Cost Recovery, and Polluter Pays Principle and suggested areas for thought how to establish a market mechanism.

Second, Deutsche Bank raises the issue of how to find credible investments in the water sector. KPMG, also, put out a research report that looked at private investments in water infrastructure (2008, pdf). Although the primary investment focus in both reports is on water infrastructure, we are not comfortable with the likely returns that may be earned in this space. Specifically, the requirement for sewage plants may be interesting but the returns to be earned will likely mimic utility and/or project finance like returns. The high up-front capex is something we normally shy away from. Rather, we look at the technology side of the investment theme and focus on efficiency plays. Deutsche agrees: “A large range of technologies is needed. The demand for efficient irrigation technologies, seawater desalination and sewage treatment facilities, technical equipment (e.g. pumps, compressors and fittings), filter systems or disinfection processes (e.g. using ozone or ultraviolet light) and efficient sanitation facilities will probably pick up sharply.”

Another area that we explored a while back are the business and management issues for companies based in India and China that lack access to fresh and/or clean water. For investors who like to look at the state of the Chinese Water sector and how to potentially participate, we recommend KPMG’s report ‘The Water Business in China – Looking below the Surface.’ In a nutshell, the report explores ways to participate in the urbanization and how to invest in Joint Ventures at the Municipal level. JPMorgan explored business risks associated with water access in their report ‘Watching Water – A Guide to Evaluating Corporate Risks in a Thirsty World‘ which extends our thoughts from our Water Scarcity piece above. We mentioned a glass and pharmaceutical company which admitted that they were accessing ground water deeper and deeper under ground every year. At which point, does this become a clear cost and business risk issue?

We note that Fidelity Investment Managers has put a note out on the their take on the water sector; better late than never one might say. There isn’t anything new or jaw-dropping in the report, Fidelity lists the usual investment ideas such as Veolia, Hyflux, Doosan Heavy Industries, Jain Irrigation Systems, General Electric, HaloSource (recently IPO‘ed) and RusHydro as potential investment targets. We previously eluded to the fact that although GE only generates a single digit portion of their group revenues from water, in absolute terms these revenues ($2.5bn+) still rank them as a Top 10 water investor and supply chain player in the world.

Update: A list of some water ETFs can be found here.

Chinese 12th 5-year plan – New Energy, New Energy Cars

Posted on by S Klamp

Are the days counted for China’s top-down macro economic decisions and for its state-owned monopolies? The next 5-year plan proposed by the Chinese Government focuses its attention on new energy and clean-energy cars. According to China Daily the government intents to ‘speed up new energy development and promote clean and efficient use of traditional energy, develop hydroelectric and nuclear power, and increase strategic oil reserves’.

Alongside new materials, high-end manufacturing, next generation information technology, and biotech,  these industries form part of the “new magic 7” emerging strategic industries. (The old magic 7 consisted of national defence, telecom, electricity, oil, coal, airlines, and marine shipping.) It appears that the new magic 7 are more focused on bottom-up drivers and allow companies to use their ‘innovation’ process to drive capital allocations.

Ahead of the Chinese party conference, HSBC published a report titled ‘China’s next 5 year plan – what it means for equity markets‘ which investigates the new proposal in some detail. Specifically, the overall objective of the 12th five year plan (2011-2015) lies in the pro-rate increase in domestic demand to total demand and secondly, and as importantly, the overall reduction of the carbon footprint (CO2) by 40%-45% by 2020.

Source: HSBC, China's 12th 5-year plan, New Magic 7

Further, the proposal projects that urbanisation will march on. HSBC estimates that a further 200-300m people could be urbanized over the next 20 years. If the hukou or registration simplification process moves in line with this shift, the projection suggests that consumption should increase significantly. The caveat here is that the property market development should ensure that the property bubble itself can be contained and price movements are more gradual going forward.

More importantly, there appears to be a continued drive to allow private capital to compete in what once were state monopolies or controlled industries. This should be great news for China focused private equity funds. From our view, there are still many low hanging fruits to be harvested by the largest funds in the region, including John Zhao’s Hony Capital for example. The investment pace has slowed a little since 2007 but funds are still putting capital to work. We need to wait and see whether some assets were overpriced and IRRs for Investors will be meaningful. Our views is that funds that put money to work throughout business/ macro cycles will do well for the time being.

We also note the drive to reduce high pollution and high energy consuming industries. For one, any energy price subsidies should be reviewed to allow a ‘fairer’ market price. Regrettably we feel that this process will take longer than currently proposed. We see a risk that some local producers/ polluters input cost competitiveness may be at risk on the global stage. In particular, pharmaceutical, the glass and other high water/power consuming sectors could lose some of their appeal. Can the government afford this – yet?

Source: HSBC, China's 12th 5-year plan, Roadmap

Certainly, the governments objective to double or indeed triple per capita income can only be a welcomed target. With that, domestic consumption levels should raise dramatically allowing for more propensity to consume (let’s hope little will be used for gambling!). Overall, the plan is intriguing and we look forward to seeing particulars.

To sum up, the China Council for International Cooperation on Environment and Development (CCICED) suggests four scenarios for a low carbon economy until 2050. Although not that specific yet, it demonstrates the authorities focus on renewable energy and commitment to cleantech. The four scenarios proposed split into four categories: (i) BaU (business-as-usual) under high growth rate (BaU), (ii) Low Carbon Scenario under high growth rate (HCL), (iii) Enhanced Low Carbon Scenario under high growth rate (HELC), (iv) Low Carbon under high growth rate (LLC). See the link above for more details.

China’s Pathway Towards a Low Carbon Economy

China’s Pathway Towards a Low Carbon Economy