After a rather delightful sojourn to see friends and family in London, and then on to a couple of Greek Islands (including the one of Chios, where we got to enjoy a friend’s traditional Greek wedding), OM and Mrs. OM are back from their summer vacation.
It goes without saying that we arrived back (on Friday 27th August) just in time to see the portfolio’s worst daily performance since inception (-1.35%) as a combination of a good GDP downgrade (!) and a Bernanke speech helped buoy the markets and setback the grinding lower of Treasury yields. While not a vast amount happened in terms of price action while we were away (equities were mildly lower and even with Friday’s widening, Treasury yields had compressed marginally) it does seem that the incremental macro data points that have been coming out are slightly more negative. With the month having just ended, I’ll save more information on performance until the monthly review.
However, since I’ve spent much of the last few days catching up on reading (via my Google Reader) here are some of the interesting stories that caught my attention:
- Japan and the Ancient Art of Shrugging: Some thoughts on Japan’s lost decade(s) impact on the younger generations (Norihiro Kato, NY Times)
- Bernanke’s Blind Spot: My favourite economist’s critique of the Fed Chairman’s Friday statement (Steve Keen, Business Spectator)
- Friedrich Hayek’s Nobel Prize Lecture in 1974: it shows a prescient understanding of his profession’s failings. (Friedrich August von Hayek, Nobel Prize Website)
- The Magic of Procrastination: A Behavioural Finance Professor’s way of solving the behavioural biases/issues regarding when students’ do the work they have to turn in. (Dan Ariely, his blog!)
- Roads Gone Wild: About Hans Monderman, who’s leading the charge to turning 80-years of traffic engineering on its head and taking advantage of behavioural biases in doing so (Tom McNnichol, Wired)
- On the Shoulders of Giants: Could Spain, if it embraces structural reform, be the next Germany? (Edward Hugh, Credit Writedowns)
Tuesday, August 31
Friday, August 13
NCAV Q2.0-10
While second quarter 10-Q’s haven’t all been filed with the SEC yet, I am disappearing off on holiday tonight with Mrs OM, so it made sense to run a NCAV screen before I departed. Another will be run in September, to make sure we catch anything that might have slipped through the net.
The disappointing news is that there were no new stocks to add to the portfolio, though existing holding BXG passed the screen (with updated Jun-10 data) and hence it’s sell-by date is extended. Five other existing holdings passed the screen (AVTR, LTON, QXM, TWMC and XING) but in all cases the Financial Statements were stale and as such their sell-by dates are unchanged. As a reminder, the sell-by dates represent 12-months from when a company last passed the screen (with up-to-date data) and is when the holding will be sold should none of the other “sell rules” come into effect before then. The current sell-by dates for the existing holdings are:
1st April 2011: AVTR
7th May 2011: CNTF, LTON, TWMC, XING
12th August 2011: BXG
The following stocks also passed the screen but were rejected for qualitative reasons; FMD, MYRX, NINE, NUHC and NCTY were all rejected due to stale Financial Statements (largely as they were using December 2009 Financials) and PCC & STU was rejected as 'Financial Companies' (i.e. the screen used total assets, not current assets, to calculate the Net Current Asset Value).
Given that I’m away for the next couple of weeks, expecting posting to be non-existent barring a major move in the markets.
The disappointing news is that there were no new stocks to add to the portfolio, though existing holding BXG passed the screen (with updated Jun-10 data) and hence it’s sell-by date is extended. Five other existing holdings passed the screen (AVTR, LTON, QXM, TWMC and XING) but in all cases the Financial Statements were stale and as such their sell-by dates are unchanged. As a reminder, the sell-by dates represent 12-months from when a company last passed the screen (with up-to-date data) and is when the holding will be sold should none of the other “sell rules” come into effect before then. The current sell-by dates for the existing holdings are:
1st April 2011: AVTR
7th May 2011: CNTF, LTON, TWMC, XING
12th August 2011: BXG
The following stocks also passed the screen but were rejected for qualitative reasons; FMD, MYRX, NINE, NUHC and NCTY were all rejected due to stale Financial Statements (largely as they were using December 2009 Financials) and PCC & STU was rejected as 'Financial Companies' (i.e. the screen used total assets, not current assets, to calculate the Net Current Asset Value).
Given that I’m away for the next couple of weeks, expecting posting to be non-existent barring a major move in the markets.
Energy Storage – Lead Acid Batteries: Part B
Following on from our introduction to Lead Acid & Lithium-Ion batteries and the overview of how batteries fit into the Energy Storage theme, now is a good time to go into greater depth.
When we’re talking about batteries, for vehicles or energy grid storage, we’re really talking about “battery packs”. In lead-acid world this is typically six cells in the same hard plastic box (think your car battery). For Li-Ion (or NiMH, as used in the Prius) the basic building block is the battery cell that you have in your cellphone or camera. These cells are strung together depending on what you’re powering; 12 or so for a laptop battery pack, 75 for an electric bicycle, 1,000 for a hybrid electric vehicle (HEV) and somewhere around 5,000 for an Electric car. It’s useful to know this as it helps us put into context two things that matter when considering batteries; volume/weight and price.
Volume/Weight
I’ll touch on volume/weight first, since it’s the smaller of the two issues; while lead-acid batteries have been prevalent in our vehicles for a long-time, their volume and weight were the reason they never made it to our handheld devices. In essence, they couldn’t provide the power that was needed in a small and light enough form to be useful in hand held devices. The best estimates suggest that for a full hybrid car, a Li-Ion battery pack would weigh around 75-100lbs and take up about 1 cubic foot less than the necessary Lead-Acid battery pack. While this is a clear advantage, it shouldn’t be a determining factor when deciding which technology to use as a car weighs around 3,000lbs and the boot space (as we Brits call it) is 10-12 cubic feet.
Price
Unlike in existing applications (from cars to cellphones), the price of the battery actually has a material impact on the price of a hybrid car. The proposed fully Electric Vehicles, such as the Nissan Leaf and Chevy Volt are both priced at well over $30K (before any government rebates), in part because their battery packs cost somewhere between $12.5-$18K. More generally, there is a lot of argument over the costs of production given that none of batteries are produced on mass scale. As such, I’ve gone with Sandia National Laboratories who in a July-2008 report for the Department of Energy estimated the current cost of battery packs at $500/KWh for Advanced Lead Acid Batteries and $1,333/KWh for Li-Ion batteries. This would imply the following cost structure:
In the context of the typical $15,000 to $20,000 cost of a regular car these numbers should have some impact, even given the likely dominance of mild/micro hybrids in the coming years.
However, things are not so simple and a major point of contention is that the Li-Ion manufacturers claim that they can reduce the price per KwH “substantially” or “once the batteries are in mass production.”
Unsurprisingly, it’s a fairly big argument over in battery-world and given it’s entirely about forecasts there isn’t yet a right answer. My thoughts are as follows:
- The don’t currently: No US listed public company has managed to get to even get to the mass production stage, and the $1,333 number is a reasonable estimate of their current price (e.g. using A123’s latest 10-K shows its cost of production (excluding all R&D, let alone any profit) was around $1,250/KWh).
- Raw materials: If you speak to the companies (or listen to the calls, read their presentations, etc) there is a clear belief that raw materials won’t be a problem for them on the cost side. Logically, this seems strange. Let’s make some really generous assumptions; over the next 5 years, Li-Ion use in hybrids (like the Prius and assuming no sales of any plug-in vehicles) captures a mere 15% of the US market (and nothing abroad!) and the US car sales stay at c10mn (i.e. no increase from 09-10 numbers). That would be 1.5mn battery packs that would be sold per year; the equivalent of 1.5bn cellphones/year (currently c1.25bn/year sold) or 125mn computers/year (currently 300mn/year sold). Given Lithium mines don’t start overnight, and the growing demand for Lithium in other battery-operated products (like Mrs OM’s shiny new iPad), I would think there would be some price impact from a new industry suddenly stepping in with big demand.
- Physics Envy: This is the most interesting but the least considered problem, largely because it’s behavioural (some might say obtuse) in nature. A core of the argument for Li-Ion’s ability to reduce future manufacturing costs as production increases is because we’ve seen it before. More specifically, our recent experience with technology and computers has shown us that it’s possible to increase production, innovate and reduce price…all at that same time. For example, our computers are far better than they were 1, 3, 5 and 10years ago yet they cost less. This has been Physics’ gift (more specifically Moore’s Law) to the world over the recent decades. Given that most analysts who cover Li-Ion battery companies come from the Technology world, it’s not surprising that there’s acceptance that progress in batteries can be similar to that seen in computing. There is one major flaw in this belief; batteries produce energy through chemical reactions, thus the ability to get more energy from them is likely to follow the laws of chemistry, not physics! These laws most assuredly operate differently, they won’t prevent existing technologies from being improved, or new one’s found, but they likely will prevent small tweaks to existing technologies from creating huge and continuous leaps forward.
- Safety & Lifespan: While these two issues are largely ignored in the discussion over Li-Ion batteries, they are the great unknown. Safety questions over Li-Ion batteries flared up again last year (after causing a fire on a plane) and as anyone who’s ever used an electronic device knows, lifespan is always an issue (think how your cellphone battery loses its ability to charge fully and then imagine that happening to your car battery). Simply put, we just don’t know if a Li-Ion battery pack can attain a 15-year life (and the 1000’s of cycles that entails) that is currently standard for a car battery or whether they will function effectively in various conditions (inclement weather, etc) as required.
As such, you can see some of the reasons for my skepticism that we will see Li-Ion battery packs in our mild/micro hybrids in the immediate future (though I’m sure we’ll see them in expensive ego-cars or gimmicks, which the car companies have more interest in talking about than mass producing).
Advanced Lead-Acid Batteries
The observant amongst you will notice that I didn’t compare the Li-Ion batteries with the traditional Valve-Regulated Lead Acid (VRLA) batteries, but instead with Advanced Lead-Acid (largely Carbon-enhanced Lead-Acid) batteries. While they’re not sexy or cool, like their Li-Ion counterparts, they are a technological jump from existing VRLA batteries that look like they can fulfill our vehicular needs (potentially all the way up the hybrid chain). There are a number of companies working on Advanced Lead Acid Batteries, including Firefly (spun-off from Caterpillar), C&D Technologies, Furukawa/CSIRO and Axion Power. I’m going to focus on the last 2, since I know them the best and their efforts appear the most promising.
Australia’s national science agency, CSIRO, developed the Ultrabattery and has licensed it out to their partner Furakawa (a Japanese Company, who sub-licensed it to East Penn. Manufacturing for the NAFTA area). Interestingly, Furukawa successfully tested prototypes of the Ultrabattery in a Honda Insight hybrid back in 2007/8, confirming the viability of the project. They also submitted the UItrabattery to Sandia, where it was tested alongside other batteries in a DOE Storage Systems Research Program. The key graph is this one:
As you can see the Ultrabattery’s performance was a significant improvement on the VRLA battery and comparable to a Lithium-Ion battery, again suggesting that the technology is viable.
Axion Power began making and testing a Carbon-Enhanced battery (called a PbC battery) back in 2003. One of their early aims was to try and create a technology that could easily be implemented in the existing Lead-Acid battery plants around the globe, with minimal capex required. It’s a project they’ve been working on, at their own lead-acid battery plant in New Castle. They also began testing, initially with a large battery pack (called a Power Cube) at a NYSERDA-funded program to store energy from a solar power system at CUNY College. However, in the last year or so things have progressed quickly and they have also moved to test their battery in vehicles, signed a worldwide supply agreement with Exide (the 2nd largest Lead-Acid battery maker for vehicles) and received a joint DOE-grant with Exide for the production of PbC car batteries.
Next time: While we have 2 interesting new technologies (Li-Ion and Advanced Lead-Acid), and an incumbent technology (VRLA), it all means nothing for an investor without looking at valuation. As such, in what’s probably the final part of this series, we’ll take a peek at how the companies are valued.
When we’re talking about batteries, for vehicles or energy grid storage, we’re really talking about “battery packs”. In lead-acid world this is typically six cells in the same hard plastic box (think your car battery). For Li-Ion (or NiMH, as used in the Prius) the basic building block is the battery cell that you have in your cellphone or camera. These cells are strung together depending on what you’re powering; 12 or so for a laptop battery pack, 75 for an electric bicycle, 1,000 for a hybrid electric vehicle (HEV) and somewhere around 5,000 for an Electric car. It’s useful to know this as it helps us put into context two things that matter when considering batteries; volume/weight and price.
Volume/Weight
I’ll touch on volume/weight first, since it’s the smaller of the two issues; while lead-acid batteries have been prevalent in our vehicles for a long-time, their volume and weight were the reason they never made it to our handheld devices. In essence, they couldn’t provide the power that was needed in a small and light enough form to be useful in hand held devices. The best estimates suggest that for a full hybrid car, a Li-Ion battery pack would weigh around 75-100lbs and take up about 1 cubic foot less than the necessary Lead-Acid battery pack. While this is a clear advantage, it shouldn’t be a determining factor when deciding which technology to use as a car weighs around 3,000lbs and the boot space (as we Brits call it) is 10-12 cubic feet.
Price
Unlike in existing applications (from cars to cellphones), the price of the battery actually has a material impact on the price of a hybrid car. The proposed fully Electric Vehicles, such as the Nissan Leaf and Chevy Volt are both priced at well over $30K (before any government rebates), in part because their battery packs cost somewhere between $12.5-$18K. More generally, there is a lot of argument over the costs of production given that none of batteries are produced on mass scale. As such, I’ve gone with Sandia National Laboratories who in a July-2008 report for the Department of Energy estimated the current cost of battery packs at $500/KWh for Advanced Lead Acid Batteries and $1,333/KWh for Li-Ion batteries. This would imply the following cost structure:
However, things are not so simple and a major point of contention is that the Li-Ion manufacturers claim that they can reduce the price per KwH “substantially” or “once the batteries are in mass production.”
Unsurprisingly, it’s a fairly big argument over in battery-world and given it’s entirely about forecasts there isn’t yet a right answer. My thoughts are as follows:
- The don’t currently: No US listed public company has managed to get to even get to the mass production stage, and the $1,333 number is a reasonable estimate of their current price (e.g. using A123’s latest 10-K shows its cost of production (excluding all R&D, let alone any profit) was around $1,250/KWh).
- Raw materials: If you speak to the companies (or listen to the calls, read their presentations, etc) there is a clear belief that raw materials won’t be a problem for them on the cost side. Logically, this seems strange. Let’s make some really generous assumptions; over the next 5 years, Li-Ion use in hybrids (like the Prius and assuming no sales of any plug-in vehicles) captures a mere 15% of the US market (and nothing abroad!) and the US car sales stay at c10mn (i.e. no increase from 09-10 numbers). That would be 1.5mn battery packs that would be sold per year; the equivalent of 1.5bn cellphones/year (currently c1.25bn/year sold) or 125mn computers/year (currently 300mn/year sold). Given Lithium mines don’t start overnight, and the growing demand for Lithium in other battery-operated products (like Mrs OM’s shiny new iPad), I would think there would be some price impact from a new industry suddenly stepping in with big demand.
- Physics Envy: This is the most interesting but the least considered problem, largely because it’s behavioural (some might say obtuse) in nature. A core of the argument for Li-Ion’s ability to reduce future manufacturing costs as production increases is because we’ve seen it before. More specifically, our recent experience with technology and computers has shown us that it’s possible to increase production, innovate and reduce price…all at that same time. For example, our computers are far better than they were 1, 3, 5 and 10years ago yet they cost less. This has been Physics’ gift (more specifically Moore’s Law) to the world over the recent decades. Given that most analysts who cover Li-Ion battery companies come from the Technology world, it’s not surprising that there’s acceptance that progress in batteries can be similar to that seen in computing. There is one major flaw in this belief; batteries produce energy through chemical reactions, thus the ability to get more energy from them is likely to follow the laws of chemistry, not physics! These laws most assuredly operate differently, they won’t prevent existing technologies from being improved, or new one’s found, but they likely will prevent small tweaks to existing technologies from creating huge and continuous leaps forward.
- Safety & Lifespan: While these two issues are largely ignored in the discussion over Li-Ion batteries, they are the great unknown. Safety questions over Li-Ion batteries flared up again last year (after causing a fire on a plane) and as anyone who’s ever used an electronic device knows, lifespan is always an issue (think how your cellphone battery loses its ability to charge fully and then imagine that happening to your car battery). Simply put, we just don’t know if a Li-Ion battery pack can attain a 15-year life (and the 1000’s of cycles that entails) that is currently standard for a car battery or whether they will function effectively in various conditions (inclement weather, etc) as required.
As such, you can see some of the reasons for my skepticism that we will see Li-Ion battery packs in our mild/micro hybrids in the immediate future (though I’m sure we’ll see them in expensive ego-cars or gimmicks, which the car companies have more interest in talking about than mass producing).
Advanced Lead-Acid Batteries
The observant amongst you will notice that I didn’t compare the Li-Ion batteries with the traditional Valve-Regulated Lead Acid (VRLA) batteries, but instead with Advanced Lead-Acid (largely Carbon-enhanced Lead-Acid) batteries. While they’re not sexy or cool, like their Li-Ion counterparts, they are a technological jump from existing VRLA batteries that look like they can fulfill our vehicular needs (potentially all the way up the hybrid chain). There are a number of companies working on Advanced Lead Acid Batteries, including Firefly (spun-off from Caterpillar), C&D Technologies, Furukawa/CSIRO and Axion Power. I’m going to focus on the last 2, since I know them the best and their efforts appear the most promising.
Australia’s national science agency, CSIRO, developed the Ultrabattery and has licensed it out to their partner Furakawa (a Japanese Company, who sub-licensed it to East Penn. Manufacturing for the NAFTA area). Interestingly, Furukawa successfully tested prototypes of the Ultrabattery in a Honda Insight hybrid back in 2007/8, confirming the viability of the project. They also submitted the UItrabattery to Sandia, where it was tested alongside other batteries in a DOE Storage Systems Research Program. The key graph is this one:
Axion Power began making and testing a Carbon-Enhanced battery (called a PbC battery) back in 2003. One of their early aims was to try and create a technology that could easily be implemented in the existing Lead-Acid battery plants around the globe, with minimal capex required. It’s a project they’ve been working on, at their own lead-acid battery plant in New Castle. They also began testing, initially with a large battery pack (called a Power Cube) at a NYSERDA-funded program to store energy from a solar power system at CUNY College. However, in the last year or so things have progressed quickly and they have also moved to test their battery in vehicles, signed a worldwide supply agreement with Exide (the 2nd largest Lead-Acid battery maker for vehicles) and received a joint DOE-grant with Exide for the production of PbC car batteries.
Next time: While we have 2 interesting new technologies (Li-Ion and Advanced Lead-Acid), and an incumbent technology (VRLA), it all means nothing for an investor without looking at valuation. As such, in what’s probably the final part of this series, we’ll take a peek at how the companies are valued.
Friday, August 6
I hope you've had your Wheaties...
As a brief addendum to the recent portfolio update, one thing I failed to mention as part of my willingness to carry the extra put exposure is Wheat. It’s not normally something I look at, but the recent news and moves on wheat are certainly worth considering...
The long-term bull story for Agricultural products is very well known, and relatively simple – world population is growing rapidly (see graph below) and hence both demand and expected future demand for grains/food are rising. Historically, technological advancements such as dwarf wheat (for which the late Norman Burlaugh won a Nobel Prize) along with other genetic modifications to crops (e.g. to be able to resist pesticides, etc) have helped supply keep pace, but there are signs that this is meeting headwinds and slowing.
In the short-term, a drought in Russia that has led to reduced production there and a Russian ban on wheat exports has caused a big spike in Wheat prices (n.b. remember this when we see future headline inflation numbers). What’s interesting, in the longer-term, is this spike has caused prices to break out from the large base that has formed since late-2008.
If this current drought’s impact on prices proves to be a temporary (which it should) then wheat’s likely to fall back to that base. For the technicians amongst you, that could form a bullish flag or a rising wedge, which would be the time to buy for the long-term. If this was accompanied by a change in the global wheat stocks to usage ratio (i.e. there were signs of a shortage of wheat) in addition to the long-term bull story then things might getting really interesting!
However, as the graph above shows, we’re clearly not there yet. Nonetheless, while it’s something that’s hard to execute efficiently (GRU - appears the best bet, and even it is <50% direct exposure wheat) for those (like me) who don’t have a commodities account, it’s definitely something to keep in the back of your mind as with the charts as well and long-term/short-term fundamentals threatening to line up it could prove spectacular!
The long-term bull story for Agricultural products is very well known, and relatively simple – world population is growing rapidly (see graph below) and hence both demand and expected future demand for grains/food are rising. Historically, technological advancements such as dwarf wheat (for which the late Norman Burlaugh won a Nobel Prize) along with other genetic modifications to crops (e.g. to be able to resist pesticides, etc) have helped supply keep pace, but there are signs that this is meeting headwinds and slowing.
In the short-term, a drought in Russia that has led to reduced production there and a Russian ban on wheat exports has caused a big spike in Wheat prices (n.b. remember this when we see future headline inflation numbers). What’s interesting, in the longer-term, is this spike has caused prices to break out from the large base that has formed since late-2008.
If this current drought’s impact on prices proves to be a temporary (which it should) then wheat’s likely to fall back to that base. For the technicians amongst you, that could form a bullish flag or a rising wedge, which would be the time to buy for the long-term. If this was accompanied by a change in the global wheat stocks to usage ratio (i.e. there were signs of a shortage of wheat) in addition to the long-term bull story then things might getting really interesting!
Tuesday, August 3
Portfolio Update
This is the first portfolio update since May, a reflection of how quiet trading time has been for the book over the summer. A couple of trades today; increasing the size of the SPY 100 strike with Dec-10 expiry put and adding two more market hedge (SPY 100 Dec-11, SPY 65 Dec-11).
The moves reflect a couple of things which have different time horizons. They reflect a rolling over the market hedges (from Dec-10 expiry to Dec-11) as was discussed in the recent Portfolio Thoughts. However, the roll isn’t complete as not only have I retained the pre-existing SPY put (strike 100, Dec-10 expiry) rather than sell (and thus complete the move) but I’ve also added to it today. Whereas the rolling of the hedges can be thought of a strategic move (essentially paying a cost for lengthening maturities), the retention and addition to the existing hedges is tactical. There reasons are manifold but it reflects my belief that there are a number of technical resistance points near here (1,140-1,150 range), that the expectation of a double dip is underpriced (e.g. JPM amongst others, expect the first revision to Q2 GDP to come in at 1.7% vs. 2.4% originally reported), and that stocks remain overvalued (on long-term measures, like CAPE or Tobin’s Q).
The moves reflect a couple of things which have different time horizons. They reflect a rolling over the market hedges (from Dec-10 expiry to Dec-11) as was discussed in the recent Portfolio Thoughts. However, the roll isn’t complete as not only have I retained the pre-existing SPY put (strike 100, Dec-10 expiry) rather than sell (and thus complete the move) but I’ve also added to it today. Whereas the rolling of the hedges can be thought of a strategic move (essentially paying a cost for lengthening maturities), the retention and addition to the existing hedges is tactical. There reasons are manifold but it reflects my belief that there are a number of technical resistance points near here (1,140-1,150 range), that the expectation of a double dip is underpriced (e.g. JPM amongst others, expect the first revision to Q2 GDP to come in at 1.7% vs. 2.4% originally reported), and that stocks remain overvalued (on long-term measures, like CAPE or Tobin’s Q).
Sunday, August 1
Energy Storage Theme: How Lead-Acid Batteries Fit in…
On reflection, Energy Storage as a broader title for this theme is appropriate as it is a better indication of where I see the opportunity in the long-term, with Lead-Acid Batteries likely to be the most effective way to express the theme in the short-to-medium-term.
Energy Storage broadly encompasses all of the ways that we can store energy for future use, for example through batteries, supercapacitors, and flywheels. There are 2 main areas that I think about as the primary uses for Energy Storage;
- Vehicles, where people are looking for a move from an internal combustion engine to a battery as the primary driver of propulsion. This is something I expect to happen using baby steps (i.e. lots of mild/micro-hybrid cars soon) as opposed to a giant leap (Plug-in Electric Vehicles tomorrow). This is one of the reasons that I think the incumbent technology (Lead Acid Batteries) is being under-rated.
- Power Storage (meaning Electricity grid-related storage, and Industrial-related storage). Unlike in vehicles, there are far more storage options in play here and most will find some role in what will be a massive market. As I’ve not talked much about this before, I’m going to spend the rest of this post talking about Energy storage and the power markets.
Why Energy Storage is becoming more important in the power markets
The easiest way to describe is to think through it aloud. First-off, our demand for electricity is pretty variable. Yes, it follows patterns both daily and seasonal, but it is variable around these broad patterns meaning that while an electricity company has a good estimate for the power they’re going to need to deliver in 30mins/60mins/4hrs/etc they don’t know exactly how much. Electricity’s also pretty binary; your TV can’t show half the picture, it’s either on and working or it isn’t! Hence when the electricity company can’t supply enough power, you get black-outs or brown-outs…which are no fun, and pretty unpopular. Thus, in the energy company tries to supply a tiny bit more power than is actually required at any given minute, and needs some easily accessible reserves if there’s a spike in demand.
On the supply side let’s consider that the vast majority of electricity is still being generated from fossil fuel power plants. Again, while the capacity that these plants are running is controllable, either the plants are running (at the desired capacity) or they’re idle. Now compare this to the alternative sources that have started to become more prevalent over the last couple of years, like wind and solar. The power these plants produce is far more variable and less controllable by man; after all is it suitably windy/sunny, how windy or sunny is it, what happens if there’s a cloud or a gust of wind, etc. Given the variability of these production methods, and how poorly electricity travels via the grid, it is clear that there’s a need to be able to store energy efficiently and to be able to supply it quickly and efficiently from this storage. Furthermore, in the case of solar, the electricity is being generated (during the day when it’s sunny) at a time when it’s not generally being consumed (the evening) thus there is additional need for storage.
As such, you can see how Energy Storage is considered by some as being an important part of the broader Clean Technology “revolution” that is underway.
Different Types of Storage/Needs in Power
An important thing to consider when talking about the power grid and energy storage is the need for different types of storage and delivery. This is due to the different time horizons for the power to be stored, and the differing speeds at which it might need to be delivered from the storage to the grid. For example, the storage and delivery periods for something attached to solar power plants might be hours (i.e. the storage device would be required to store the power for hours, the deliver it over a period of hours), whereas for other things the delivery period may be seconds (e.g. to smooth out the power sent to the grid), with everything else in between. This is important as those electricity providers only want to provide a tiny amount more energy than people need in order to maximize their profits. Furthermore, those technologies that are great at storing lots of energy are not so good at delivering it quickly (i.e. batteries can store a lot but don’t providing it quickly, hence there’s an opportunity for multiple technologies to play a role.
Given this there are other types of Energy Storage systems that we might look at in more-depth in the future, such as Flywheels (likely compete with Li-Ion/Lead-Acid batteries), Supercapicitors (likely will dominate the segment that requires power delivery in seconds), Other-type of battery (e.g. molten sulphur batteries, which can store/deliver power over a longer time period that Li-Ion/Lead Acid batteries) and Compressed-Air Energy Storage (which can deliver power over many hours, much longer than Li-Ion/Lead Acid batteries). However, I expect that Li-Ion and/or Lead-Acid Batteries in addition to being the only real players in the Vehicle space and will be amongst the major players here in the Power space. As such, that’s why they’re the logical first step for us to consider an investment.
Energy Storage broadly encompasses all of the ways that we can store energy for future use, for example through batteries, supercapacitors, and flywheels. There are 2 main areas that I think about as the primary uses for Energy Storage;
- Vehicles, where people are looking for a move from an internal combustion engine to a battery as the primary driver of propulsion. This is something I expect to happen using baby steps (i.e. lots of mild/micro-hybrid cars soon) as opposed to a giant leap (Plug-in Electric Vehicles tomorrow). This is one of the reasons that I think the incumbent technology (Lead Acid Batteries) is being under-rated.
- Power Storage (meaning Electricity grid-related storage, and Industrial-related storage). Unlike in vehicles, there are far more storage options in play here and most will find some role in what will be a massive market. As I’ve not talked much about this before, I’m going to spend the rest of this post talking about Energy storage and the power markets.
Why Energy Storage is becoming more important in the power markets
The easiest way to describe is to think through it aloud. First-off, our demand for electricity is pretty variable. Yes, it follows patterns both daily and seasonal, but it is variable around these broad patterns meaning that while an electricity company has a good estimate for the power they’re going to need to deliver in 30mins/60mins/4hrs/etc they don’t know exactly how much. Electricity’s also pretty binary; your TV can’t show half the picture, it’s either on and working or it isn’t! Hence when the electricity company can’t supply enough power, you get black-outs or brown-outs…which are no fun, and pretty unpopular. Thus, in the energy company tries to supply a tiny bit more power than is actually required at any given minute, and needs some easily accessible reserves if there’s a spike in demand.
On the supply side let’s consider that the vast majority of electricity is still being generated from fossil fuel power plants. Again, while the capacity that these plants are running is controllable, either the plants are running (at the desired capacity) or they’re idle. Now compare this to the alternative sources that have started to become more prevalent over the last couple of years, like wind and solar. The power these plants produce is far more variable and less controllable by man; after all is it suitably windy/sunny, how windy or sunny is it, what happens if there’s a cloud or a gust of wind, etc. Given the variability of these production methods, and how poorly electricity travels via the grid, it is clear that there’s a need to be able to store energy efficiently and to be able to supply it quickly and efficiently from this storage. Furthermore, in the case of solar, the electricity is being generated (during the day when it’s sunny) at a time when it’s not generally being consumed (the evening) thus there is additional need for storage.
As such, you can see how Energy Storage is considered by some as being an important part of the broader Clean Technology “revolution” that is underway.
Different Types of Storage/Needs in Power
An important thing to consider when talking about the power grid and energy storage is the need for different types of storage and delivery. This is due to the different time horizons for the power to be stored, and the differing speeds at which it might need to be delivered from the storage to the grid. For example, the storage and delivery periods for something attached to solar power plants might be hours (i.e. the storage device would be required to store the power for hours, the deliver it over a period of hours), whereas for other things the delivery period may be seconds (e.g. to smooth out the power sent to the grid), with everything else in between. This is important as those electricity providers only want to provide a tiny amount more energy than people need in order to maximize their profits. Furthermore, those technologies that are great at storing lots of energy are not so good at delivering it quickly (i.e. batteries can store a lot but don’t providing it quickly, hence there’s an opportunity for multiple technologies to play a role.
Given this there are other types of Energy Storage systems that we might look at in more-depth in the future, such as Flywheels (likely compete with Li-Ion/Lead-Acid batteries), Supercapicitors (likely will dominate the segment that requires power delivery in seconds), Other-type of battery (e.g. molten sulphur batteries, which can store/deliver power over a longer time period that Li-Ion/Lead Acid batteries) and Compressed-Air Energy Storage (which can deliver power over many hours, much longer than Li-Ion/Lead Acid batteries). However, I expect that Li-Ion and/or Lead-Acid Batteries in addition to being the only real players in the Vehicle space and will be amongst the major players here in the Power space. As such, that’s why they’re the logical first step for us to consider an investment.
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