Advanced Batteries: The Next Ethanol? (ALTI, ACPW, BCON, XIDE, ENS, CHP, AXPW)

There’s a fair amount of interest from green energy market watchers in the battery market. Many see this as the next big thing for energy investors.  There are allowances for advanced battery technologies in the new stimulus package.  Some of the companies involved in this are established players and some are very speculative.

Some of the companies we have looked at in this sector are Altair Nanotechnologies (NASDAQ:ALTI), privately held A123 Systems Inc., Active Power Inc. (NASDAQ:ACPW), Beacon Power Corporation (NASDAQ:BCON), Exide Technologies (NASDAQ:XIDE), EnerSys (NYSE:ENS), C&D Technologies Inc. (NYSE:CHP), and Axion Power International, Inc. (OTCBB:AXPW).

Certainly the interest in hybrid electric cars has generated publicity about battery and fuel cell development. The financial stimulus package before Congress includes $2 billion in grants for advanced battery development. For the transportation sector, advanced batteries need to be lighter and last longer. Current lithium-ion technology, though state-of-the-art, is hampered by the rising cost of the raw material and the relatively short life span of Li-ion batteries. Altair Nanotechnologies (NASDAQ:ALTI) and privately-held A123 Systems Inc. are both working on improving Li-ion performance.

By focusing on batteries for transportation applications, the stimulus package ignores a potentially more important use for advanced batteries: storage for electricity generated by wind and solar power plants.

If solar-generated power created during daylight hours could be stored and put on the grid during non-daylight hours, the impact of large solar installations would essentially double. Similarly, if wind-generated power could be stored for use when the wind isn’t blowing its popularity would soar.

Such batteries would need to be very large and able to respond to requests quickly to meet peak generation demand. Much of the development of this type of battery has been in the uninterruptible power supply space. For example, Active Power Inc. (NASDAQ:ACPW) uses a flywheel technology to build systems that provide up to 3600 kVA as a bridge to firing up a stand-alone generator in the event of a power failure. The flywheel technology can be scaled up to 2000 kW of storage, but that’s at least an order of magnitude too small to be useful in wind/solar storage project. Beacon Power Corporation (NASDAQ:BCON) is also a pure-play flywheel company, but its technology is still very much in the development phase.

To reach the scale needed for big wind and solar projects, the old stand-by lead-acid battery probably offers the most potential. The basic technology is more than 100 years old, but it has the advantage of being less expensive and scalable. Companies such as Exide Technologies (NASDAQ:XIDE), EnerSys (NYSE:ENS), C&D Technologies Inc. (NYSE:CHP), and Axion Power International, Inc. (OTCBB:AXPW) are all working on improving lead-acid technology and scalability. Axion has patented lead-carbon technology that significantly decreases the amount of lead needed in a battery and is currently working on a couple of utility-scale demonstration projects.

The $2 billion in the US economic stimulus package is a huge amount by the standards of the battery industry. The interesting thing to watch here will be how the Department of Energy divvies up the money. The battery companies, with a couple of exceptions, are very small with very low share prices. They employ few people, and won’t employ many more even with new federal money.

By virtue of its authority to make grants, the DOE could decide which companies win and which companies lose. That has never proven to be the best way to develop a market. It does, however, have the advantage of making things happen quickly.

Remember the ethanol boom following the government’s requirement for increased ethanol content in gasoline? Fortunes were made off this.  Ethanol promised to be so big that even Bill Gates jumped into the ring very early via an investment in a company no one ever heard of before he got in.  But the winners are not always winners in the end.  Think of where ethanol stocks are now. That kind of market distortion could happen with advanced battery technology as well.

The good news about the sector is that there are very large companies who have their eyes on the arena.  The world’s largest conglomerate has its hands tied right now, but it has shown some interest recently in battery technology.  We all need power.  Whether we all need ethanol is something we don’t care to debate, because we are firmly entrenched in our own thoughts there.

Paul Ausick
February 13, 2009

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