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12 January 2022

Energy storage – Hydrostor $250m, Freyr for LFP, Toshiba & Aleees

The rising tide of investment in energy storage really showed up this week, with a fresh $250 million investment from Goldman Sachs in Canadian compressed air energy storage firm Hydrostor; a new type of lithium ion battery design from Toshiba that can survive 8,000 recharges without power loss, and Freyr Battery in Norway lining up its first Gigafactory LFP cathode plant.

These are very different investments, and are only a handful of the deluge of energy storage announcements this week. Expect further bombardments of stories of this type over the next two years, as alternative chemistries, lithium ion improvements and physical forms of storage fight it out for investor attention. Just prior to Christmas the Long Duration Energy Storage (LDES) council was formed with members including the likes of Azelio, CellCube, ESS,  EOS, Enlighten, Form Energy, Highview Power, and Malta.

In one week in November last year Rethink Energy reported how ESS has built an Iron Flow battery and partnered with Softbank’s SB Energy for some huge orders, and how EnerVenue cut a deal with Schlumberger in Nickel Hydrogen batteries, and how Form Energy came out of stealth with an iron oxide battery and the backing of Breakthrough Ventures, and Toyota revived its own Nickel Hydrogen battery for its Prius EV, to name but a few.

The Hydrostor deal is the most significant this week in that the company now goes from “nickel and diming” its investments to a significant amount of money that assures it of a place at the long duration table long term. Over recent months it has picked up $5 million here and $10 million there, feeding hand to mouth from ArcTern Ventures, Lorem Partners, Canoe Financial, and Business Development Bank of Canada.

This preferred equity financing commitment of $250 million from Goldman Sachs Asset Management has almost certainly come from utilities not wishing to invest in the Hydrostor technology without support from a heavyweight investor and in that sense they have spoken up on behalf of Hydrostor to Goldman, promising that it has firm orders.

The investment will be used to pay for the construction of around 1.1GW, (8.7GWh) of compressed air storage projects in Australia and California, and while Rethink Energy is NOT saying that Hydrostor is a bad investment or that Goldman Sachs will lose money on the deal, we are wary of project based companies. Let us explain.

In all radical market transformations in the past, the formula has been the manufacture, sale and installation of a large number of small, almost identical devices. This is true for television, the 5 generations of mobile phones, cars, streaming video, broadband lines, even record players. A new organizational structure takes care of distribution, route to market, installation and maintenance.

The energy market always, for the past 135 years, has relied on large projects, and not only do we at Rethink Energy believe this is about to change, but investors everywhere are far happier to invest in Gigafactories ahead of gigaprojects. The last Gigafactory for energy manufactured transformers, and today there are multiple tens of thousands in each energy market – but they are now produced on low margins and with little innovation.

We put this to Hydrostor when we last spoke to their CEO Curtis VanWalleghem, and he was indignant at the suggestion that Hydrostor was somehow constrained, insisting that the company could run 5 to 10 projects simultaneously. But the system is little more than a tweak on a widely known Compressed Air Storage (CAES) principles and it already uses compressors and expanders which are already widely in use in the oil and gas industries. So they are already cheap and it requires the digging out of a purpose built cavern. Digging and off the shelf equipment is not a way to keep rivals at bay.

We’re betting that in the time it takes to get permission to dig such a cavern, another developer could get 20 sites ready for lithium ion energy storage, and get the permits through. It can be built for less than a lithium ion site of similar capacity as of two years ago, but by now we’re not sure – lithium on cells have fallen in price so fast. And anyone can copy the design, so if it took off, someone else would enter the market with a low cost of market entry. If it was left to Hydrostor alone not even 1 TWh would be put in place before 2030 and the world needs a lot more than that.

In essence Hydrostor may make money and we wish it well, but the idea is NOT the solution to the energy transition – despite the fact that cheap and reliable energy storage is the only missing component from that transition.

Goldman Sachs will release the money slowly as project milestones are reached to match Hydrostor’s capital needs.

What we believe is happening here is that existing backers of large projects, such as Goldman Sachs, see this the same way they see building a coal plant – project based, how the industry of the past loved things to be, with a quantifiable return on a handful of sites. Goldman Sachs in fact is one of the world’s biggest investors in fossil fuels and that perhaps colors how it sees this industry.

Interestingly we could not find Hydrostor’s name in the LDES list of members, almost as if it thinks it is a different type of company from its members.

Hydrostor has two large long-duration energy storage facilities in the process of being built in California and in December filed an Application for Certification with the California Energy Commission for its second the 4,000 MWh storage facility outside Rosamond, in Kern County. Before that it filed for the Pecho Energy Storage Center, a 3,200 MWh. That earlier one is scheduled to come online in 2026 and the second one a little later.

The Pecho center is supposed to surpass all existing battery energy storage projects in California in terms of MWh with an expected capital investment of $975 million, which clearly is not being made by Hydrostor. Well that’s all well and good, but according to Rethink Energy forecasts, by 2028 California is likely to have 10.6 GW of traditional energy storage, and about 42 GWh of time duration storage in lithium ion alone. So by the time the Hydrostor project is built, it will be represent closer to 10% of total installs, not be a single install which is bigger than all of them. The US in total by that date will have over 227 GWh, and be about to accelerate aggressively.

In the past 6 months the California Public Utilities Commission has decided to add another 1,000 MW of long-duration (8,000 MWh) to be online between 2026-2028, so it has more recently addressed specifically 8 and 10 hour storage, not just 4 hours, which is mostly what it has ordered up to now.

We would suggest that over the next two years “alternative chemistry,” grid energy storage will mature rapidly and eat the majority of these California projects, as lithium ion stabilizes, and gets cheaper at the same time, and retains significant orders too.

Meanwhile at Freyr in Norway, a deal has been struck with Taiwan’s Aleees a producer of lithium iron phosphate (“LFP”) cathode materials for a joint venture to establish an LFP cathode plant in the Nordic region. The joint venture partners will seek to commence production in 2024, coinciding with the anticipated ramp-up of operations from FREYR’s first Gigafactory in Norway.

Lithium iron phosphate is used as the cathode material instead of lithium cobalt oxide, cutting costs dramatically although sacrificing some energy density and speed of charge and discharge, due to lower cathode conductivity.

This would make it the first giga scale LFP cathode plant outside of mainland China. The partners plan an initial 10,000 tons of LFP cathode material a year in the Nordic region by 2024, sufficient to supply FREYR’s first Gigafactory and then expand to at least 30,000 tons by 2025. Aleees also works with 24M Technologies, Freyr’s US-based partner.

Aleees and Freyr will jointly develop a Nordic supply chain for iron and phosphate products from the Nordic region.

Meanwhile despite the fact that Toshiba languishes outside of the top echelons of lithium ion battery makers, it does have a division which may eventually lead a comeback in this area. It says that it now has a lithium ion battery the 20Ah-HP SCiBTM cell that can be used with electric vehicles, industrial equipment and energy storage systems.

It headlines high energy, high power, but the real headline is its long life. It claims that under the test conditions the cell maintained almost 100% capacity after 8,000 charge/discharge cycles. Previous versions of the technology lost 10% of power over this time.

Toshiba says that the cell is ideal for heavy-load applications where high power input and output are essential, and for situations where battery cells must suppress heat and operate continuously. The new cell delivers 1.7x higher input and 1.6x higher output, by introducing 40% less resistance throughout the cell. This in turns suppresses heat generation and allows for a simpler cooling system – so it can use air cooling. This also helps the cell work better when almost depleted.

Mostly Toshiba cells are used in industrial equipment and things like power supplies and emergency power supplies for railways, regenerative power supplies for harbor cranes, electric ferries, hybrid buses and trucks. It has very small market share for EVs.

We don’t really think the energy density by weight (watts per kilogram) is yet sufficient to attract a top end EV designer like Tesla, but that may be on the near horizon.

Toshiba late last year said it would break itself into 3 divisions, after pressure from investors after it was caught in a scandal inflating its sales figures.