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Firms to Watch in Smart-Grid Storage
This article is based in part on research from Batteries and Ultra-Capacitors for the Smart Power Grid: Market Opportunities 2009-2016 Page | 1 Improved energy storage is a key requirement for the deployment of the much touted Smart Grid. There are many reasons for this. One is that efficiently integrating solar and (especially) wind power into the grid requires buffering, since these renewable energy sources produce energy best only at certain times. Another reason is that Smart Grids are intended to be highly resilient so stored energy for times of peak demand and network outages is critical to building the new infrastructure. Faced with such opportunities a variety of firms have been piling into the energy storage business in the hope that they will make money as the new Smart Grids in the U.S., Asia and elsewhere are built. There are three groups of firms that bear watching in this regard; established battery firms, firms touting new battery technologies and supercapacitor firms. NanoMarkets' believes that within the established battery firms are those with established product lines in the UPS and industrial storage area; such firms can readily expand operations to support near-term smart-grid storage applications using existing technology. We also think that critical for these firms will be partnerships with some of the emerging start-up companies to push the envelope of lead-carbon battery technologies. Initially, it is likely that these established firms, with their large resources and tried-and-tested technologies, will be the ones who get the big orders for Smart Grid storage. However, we also see a second type of firm that will do well in the long run; firms that produce advanced lead-based technologies. These firms are all either developing a lead-carbon cell or ultra batteries (lead/lead-carbon). What these new types of batteries have to offer potentially are very high energy densities, a factor that is critical to the successful deployment of Smart Grids for cost reasons and to avoid the need for committing huge amounts of real estate to ugly battery farms. We believe that some of the firms active in this area will reap significant rewards in four or fiv e years. However, the advanced lead battery business will be like every other technology business that ever was; the next several years will see some lead-based battery technologies become

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industry standards and those that fall by the wayside. Consequently, we believe that lead batteries should be judged a risky business. The third class of firms that Smart-Grid storage watchers need to keep on their radar screens is those in the supercapacitor market. Supercapacitors offer a completely new direction in energy storage and represent a technology that is still a long way from maturity; although we believe that the long-term market potential for these storage systems is great. Page | 2

Of course, the winners and losers in the Smart-Grid storage stakes will be determined not just by their technologies, but also by all the usual business factors. We think that "seriousness of purpose," will be a key factor; that is, it is not enough for Smart-Grid storage to be just one of many technologies being considered in the lab. There is too much competition in this space for amateurs to succeed. For success, Smart-Grid storage will have to be an important part of the company's strategy, and not just one of hundreds of technologies being considered in the lab. And finally, of course, a success Smart-Grid storage firm will have to have what it takes to survive; significant financial and marketing resources in an emerging market that will take years to generate profits and where large contracts that take months to negotiate are the order of the day. Exide and Axion Exide is already one of the largest manufacturers of lead-acid batteries and has operations in over 80 countries. All this giv es it the worldwide footprint necessary to supply projected growth in grid storage. Grid storage also appears to be a key focus for Exide; the company recently formed a new division, the ReStore Energy Systems division, to focus on renewable energy and lithium-ion applications. The activities of this new division in North America and Europe will be centered on large-scale storage projects for grid-connected wind and solar farms. Clearly, Exide has both the seriousness of purpose and resources that we mentioned above. As such, NanoMarkets believes that it is a firm that should be watched closely in the Smart-Grid storage business. What is also especially interesting in this regard is Exide's work with Axion Power on lead-carbon electrode technology. Axion itself is a start-up company with no large-scale commercial products in the field, but what it does have is a key enabling technology for large-scale grid storage. The alliance between the two companies should allow the companies to expand to volume manufacturing faster than possible if they were working alone. Axion plans to keep
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manufacturing the carbon electrode used in all batteries regardless of whether the final battery is manufactured by Axion or Exide. The current target markets for this new technology are in hybrid, plug-in electric and heavy-duty transport applications, but major new applications are envisioned in the grid, where these batteries will be used to enhance power quality, load leveling and peak sharing. The combination of near-term capacity of lead-acid technologies and a roadmap to higher performance products positions Excide well to be a major supplier of advanced lead-acid batteries for smart-grid applications. Lead-Carbon and NaS Two battery chemistries that most observers believe will ultimately have a large penetration of the Smart-Grid storage business are lead-carbon and NaS. Firefly Energy is one firm that we believe bears watching in the lead-carbon space. This company's version of a lead-carbon battery uses a traditional positiv e electrode with a negative electrode based on composite graphite foam. The technical advantage that Firefly brings to the market is that its carbon foam electrode can fit into a traditional battery manufacturing scheme. It is always an advantage when a firm brings a new technology to market that it does not also have to re-engineer an entire a manufacturing process. Also working to Firefly's advantage is its partnership with C&D Technology, an established battery company, which gives Firefly the access to markets that will be important to its long-term success. To date, there is only one large-scale supplier of NaS technology; NGK Insulators Ltd. This company has done the Smart-Grid storage market a service by firmly establishing NaS technology as viable for grid storage applications; it has deployed the technology in 200 locations (160 in Japan) with over 300 MW/2000 MWh of capacity in the field. We believe it will continue to have success in this field, since it has enough capitalization to enable further production expansions and manufacturing improvements, which are needed to reduce costs. NGK's capacity has grown from 48 MW/year in 2005, to 90 MW/year in 2008, with planned capacity of 150 MW/year for 2010. General Electric's entry into the NaS battery market is also key development to watch in the NaS area and smart-grid storage in general. Obviously, GE has all the resources to make NaS happen outside of Japan, if the market permits. It also has some history with this technology - it worked on it in the 1970s - and, most importantly, it has the "seriousness of purpose" that we mentioned Page | 3

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before. Thus GE has begun building a $100-million plant in New York with capacity to produce 10 million cells/year capable of storing 900 MWh of electricity; the factory is slated for start-up in 2011. GE is also investing a tax credit of $25.5 million it has recently received as part of the 2009 American Recovery and Reinvestment Act in manufacturing facilities for NaS technology. The fact that NaS is already gaining some success is drawing other firms into the field including start-ups. An important example here is GeoBattery whose unique selling proposition is its attempt to wrap a turn-key storage solution of power electronics and software around NaS cells and target this solution to intermittent renewable energy generators (wind and solar). This concept seems quite sound in principle, and its success would be an indicator of a market for full service, turn-key storage solutions. Supercapacitors Then there are the supercapacitor firms, which, we believe should be judged by two metrics. First is the ability to reduce costs of established technology. Second is innovation both to the carbon electrodes and research into morphing current supercapacitor designs into advanced pseudocapacitor devices. Two companies that we think should be watched in this space are Maxwell Technologies and Siemens. Maxwell Technologies is already one of the best-known manufacturers in the supercapacitor field, and has been at the forefront of cost-reduction measures in the industry. Maxwell has a full portfolio of cells ranging from five to 3,000 Farad (F) and using hydroxide-based electrolytes. The company's near-term Smart-Grid revenue growth will come, we believe, from regenerativ e braking markets for light rail, but Maxwell has also successfully demonstrated Smart-Grid applications for frequency regulation of critical infrastructure (California water plant). While Siemens is a large company with many areas of focus, it already has a significant presence in the Smart-Grid space; it is involved in several Smart-Grid partnerships, demonstration projects and outreach programs. Specific to smart-grid storage, Siemens has a leadership position in integrating supercapacitors with the regenerative braking systems for trains and automobiles, mostly in Europe. An interesting twist in the technology that Siemens has implemented for electric light rail applications is to place the supercapacitors at intervals along the tracks instead of in the rolling stock. Page | 4

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Demonstrating this approach, Siemens Transportation Systems has installed supercapacitors for regenerativ e braking in its Sitras SES system, which is used in metro rail lines in the Cologne and Madrid metros. In a typical trackside implementation, the supercapacitors can absorb the braking energy from all trains within a 3-km radius. Siemens will likely expand from this base in Europe to worldwide applications of this system, and we also believe that it will eventually move into the supercapacitor market for grid quality as this market expands. We also believe that Siemens' growth in this sector, will be a bellwether of adoption and growth of supercapacitor technology by others worldwide. Some conclusions There are other grid storage companies that bear watching too. We discuss all the activ e companies in NanoMarkets' latest report on this topic. However, from the analy sis above we note that this is a market in which both giant multinationals (Siemens and GE) and start-ups can play and even cooperate. And that's one reason that makes the nascent Grid-Storage market so interesting. Page | 5

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