Less than two years after what appeared to be one of the most exciting clean-tech stock exchange listings seen in Australia, the board of battery storage developer Redflow has had to return to the market with its cap in hand and a major mea-culpa.
The Brisbane-based Redflow (RFX.AX) announced on Wednesday that it wanted to raise nearly $5 million from shareholders in an equity issue. The raising is priced at just 6c a share – a pale fraction of the $1 issue price when it floated in late 2010 and the $1.70 peak it reached in the heady days soon thereafter. The market value of the company has fallen from more than $100 million to less than $7 million.
The board of Redflow is still confident that the zinc bromine flow batteries it is developing is among the most advanced in the world and can play a crucial role in Australian and overseas energy markets – providing storage to off-grid systems, balancing renewables such as solar and wind, strengthening the outer reaches of the grid and reducing peak demand.
But the company is admitting that it got its game-plan wrong: it was way too optimistic in its predictions of how quickly its product could be brought to a commercial market, and its entire strategy was “too ambitious and complex.” It has since had to put a manufacturing deal with Jabil on hold, and had to reduce the 100-plus workforce in its Brisbane operations by more than half.
“Mistakes have been made,” recently installed chairman Howard Stack said in a letter to shareholders. “The battery module was not ready for commercial release or for transfer to offshore manufacturing when we hoped it would be. We have taken a step back and looked hard at where we were and as a consequence have refined our manufacturing and also marketing strategies.” The board has been revamped, and company co-founder Chris Winter, a former petroleum engineer who apparently developed the technology with his brother Alex in the backyard of the their Brisbane home, is now back running the company.
The capital raising is expected to replenish the coffers while the company continues its search for a strategic investor – a major international name that can underwrite the commercialisation of the battery product. Redflow has accepted that it does not have the resources to do it itself.
In a recent interview with RenewEconomy, Winter said the problem is not with the technology, but the execution of the plan, a theme taken up by Stack in his latest letter. “The technology is not the problem, and the market is not the problem,’ Winter said. “It’s about execution, and we need to get that right.”
While the commercial rollout will take a few years longer than originally thought, the company says it is in talks with parties in Europe, the US and Asia. Winter insists that battery storage will play a critical role as a “system integrator” in the energy grids of the future, and the zinc bromine flow batteries are better suited for longer term storage than the lithium-ion batteries that are presumed to be their biggest competitor.
And while costs for battery storage are not falling as quickly as many had presumed, or hoped, Winter says rising grid costs gives it a big arbitrage to play with. “If a network wants to expand its offering, it has to pay for the cost of the generation and the transmission, which is going to cost between $1,000 to $2,000 a kilowatt-hour,” Winter said. “I don’t need to build a battery that produces at 5c/kWh if the competition is $1,000 to $2,000/kWh.” He estimates, however, that Redflow will be able to produce its zinc bromine batteries at around $400/kWh, before adding in associated installation costs, and that this will fall considerably once manufacturing begins at scale.
Last month, the US research group Lux suggested there would be a $16 billion market in the US alone for batteries that could deliver at $700/kWh. And Winter offers this interesting statistic: In 2011, the world generated 22 trillion kilowatt-hours of electricity. “If one millionth of that were stored, it would create a multi-billion dollar market,” he says. “By the time I am building a billion dollars worth of battery, then I will get worrying about costs.”
The company has participated in numerous trials in Australia. One, with Queensland utility Ergon, found that one 5kW/20kWh battery installed for 6 to 8 residential customers helped reduce peak demand by up to 25 per cent, and would be ideal in rural areas with few customers and a relatively weak grid.
While those batteries were charged at night in that instance, a trial with the University of Queensland’s solar array found that a 90kW system charged during the day by solar panels could discharge energy back into the grid into the evening peaks and at night. Redflow says that as the penetration of renewables reaches 30-40 per cent then shifting energy becomes critical for the business case of wind and solar.
Another ongoing trial with Augrid in Newcastle and Scone was demonstrating how multiple distributed energy storange could be used to “buffer” electricity and reduce demand on the electricity grid at customers sites, and demonstrate that the systems could “significantly reduce” the amount of time that residents are charged for power from the grid when time-of-use metering is used.
Stack told shareholders that the company is convinced it is in “the right space at the right time”, even if he did raise some doubts about whether they were in the right country.
“Taking a new technical product to world markets from Australia is never easy, particularly when many of the end customers are conservative utilities. But the need is such that in the bigger world markets they too are willing to invest early in the products needed to satisfy the very real need for energy storage for renewables, power sharing, and upgrading ageing power grids in many markets.”
The issue is being underwritten by RBS Morgans, and the major shareholders and board members are putting their money where their mouth is, more or less. While Winter, who has a 10.8 per cent stake, and another director are only taking up part of their allocation, Stack and two other directors are taking up their shares and sub-underwriting nearly 20 per cent of the issue.