Globally, energy storage mandates are on the rise. Countries like Japan, China, India and Germany in addition to the US have all issued storage targets and commenced development projects aiming to support the growth of their electric energy needs as well as balance the variability of load on their existing generation assets. Nationally, California's 1.3-gigawatt grid storage mandate along with new regulatory frameworks in New York, Texas, and Washington has captured the attention of corporate and venture capital investors alike. Similarly, these aggressive mandates and regulatory frameworks have also spurred increased competition among companies looking to commercialize and deploy technologies aimed at meeting these initiatives.
While interest and investment dollars in the area of energy storage have been growing over the past year, investors still remain cautious due to the fact that most of these companies haven’t produced revenue. Further, to avoid the recent bankruptcies of companies like A123 Systems and Xtreme Power, energy start-ups must clearly demonstrate a functional business model showing that their products solve a customer’s problem, answering the question ‘How they get cash’. Additionally, these companies must also demonstrate that (1) the technology itself is cost competitive across a number of different metrics like cycle life and efficiency, (2) the technology is safe and reliable and (3) the existing regulatory environment is conducive to the technology being deployed on the grid.
One of the biggest problems that A123 Systems encountered was that a large part of its revenue rested on Fisker and its ability to bring its Karma sedan to market in time. When Fisker started facing set-backs and additional delays it cut back orders for batteries forcing A123 to lay off workers and shut down some of the production at its plant in Livonia, Michigan. Further before some of these setbacks at Fisker occurred, A123 produced flawed batteries that needed to be recalled and re-issued in an initial rush to scale-up production.
A123’s problems more generally reflect the challenges that start-ups within the energy space face. The process of scaling up, commercializing, and proving a newly spun-out technology is costly, risky and unpredictable. Like many others, the company’s technical progress and market development were somewhat out of their own control. They were chasing and building for an EV market that failed to arrive within an expected period of time, despite analysts’ best predictions. Again, like many others, A123 said it could become profitable if they can raise enough money to keep going until their outstanding supply contracts begin. Today, in an effort to get around the sentiments of the past start-ups in energy storage are hedging their bets creating a number of different types of business models and revenue streams that are aimed at reducing the risks that are typically associated with commercializing early-stage energy technologies.
Focused Development
The early stage companies creating the most excitement are aware of these issues and are addressing them directly in the early stage formation of their business models. It’s easy for companies to not get caught up in perfection when good enough is ok for initial market adoption. It’s also easy for the opposite to occur in which companies become completely entrenched with cell level perfection due to challenges arising at the module and pack integration level. The key objective for companies is to keep their eye on what the customer really needs and what they will actually pay for.
Flow battery companies in particular have been extremely effective at leveraging their low operating costs to create new paths to market and new revenue streams. As a whole, flow batteries and related low cost technologies have been effective at attracting major investment from venture capitalists. Over the past two years, companies like Eos, Primus Power, and Aquion Energy have attracted over $150Mil in investment because of their ability to produce low-cost, modular solutions that can be safely deployed and used at grid scale.
Energy storage companies are constantly striving to differentiate themselves on the basis of improved safety and reliability, increased overall efficiency and decreased operating costs. Together, these metrics often serve as the basis for competitive assessments that investors use to assess technologies that serve the same application. One of the main ways that companies strive to make improvements in these key metrics is by making alterations on their existing chemistry and underlying formulations.
Ambri, the company started by Don Sadoway out of MIT, first began with a prototype involving antimony and magnesium and required an operating temperature of 650 degrees Celsius. While the cost of input materials and high operating temperatures made the overall battery less competitive as compared to lithium ion and lead acid, the team was able to successfully prove and demonstrate the concept of a molten metal battery. A second iteration of Sadoway’s molten metal battery was recently published in Nature and it showed that a new formulation involving lithium salts, lead, and antimony was able to operate at lower temperatures and maintain a roundtrip efficiency comparable to that of existing flow battery technologies. Additionally, Sadoway’s team estimated very low raw material input costs, undercutting many of the existing flow technologies. This difference in price makes Ambri’s battery significantly more competitive if they are able to scale the technology and have it be deployed on the grid.
Further, there are also early-stage and start-up companies that specifically target battery components like the anode, cathode and electrolyte materials rather than attempting to construct the entire battery. For component producers and others like them, the main goal is typically a license agreement with or an acquisition by a larger firm. Usually these larger firms have access to lower costs of capital which greatly help to lower the market facing barriers and enable them to more readily get their technology to market. Companies like Bess-Tech are specifically tackling the anode component. With IP licensed from two universities in Upstate NY, they are seeking to dramatically improve battery performance in consumer electronics. Their anode formulation allows batteries to hold more energy, charge faster and be charged for a greater number of times than anodes currently used in lithium ion batteries.
Resources for Focused Commercialization
One of the key takeaways from both the successes and failures across the energy storage space is that developing and commercializing technology is expensive. Researchers and entrepreneurs are keenly aware of the opportunities in energy storage however investors and other necessary partners are risk averse and see greater opportunity in investing in other industries. This divide has led to both good and bad results for the growth of the space. The good being that entrepreneurs are now forced to definitively prove their technology and business model earlier on and the bad being that it is now harder and takes more time investments to be made, increasing the time to get to market.
To address the prevailing issues and enable companies to develop in ways that are conducive to receiving outside investment, accelerators, incubators, proof-of-concept centers (POCC) and testing and commercialization centers have all emerged offering insight and guidance. POCCs like Nexus-NY, accelerator programs like The Cleantech Open, and incubators like NYC-ACRE all aim to help grow companies and advance the market-readiness of technologies through customer development and customer acquisition. The NY-BEST Testing and Commercialization Center in Rochester brings independent testing expertise to companies enabling their product offering to be fully vetted, reducing the time and barriers to get to market. In the world of attracting outside investment, contracts and customers are key.
Photo Credit: Focused Future on Energy Storage/shutterstock
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Authored by:
Matthew Windt
Matt is passionate about commercializing technology and bringing products to market. He is part of the inaugural MBA class at Cornell-Tech focusing on entrepreneurship. As part of the program, he is also an InSITE Fellow and a Dorm Room Fund Partner working specifically with early-stage companies. Additionally, he also works in the R&D group at the New York State Energy and Research ...
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