ESS is betting the world is ready for a billion-dollar battery disrupter
Clean energy companies that sat in the shadows for a long time have gone public and are turning into billion-dollar enterprises. Oregon-based ESS is hoping to become the next.
In lieu of keeping clean energy in lithium-ion batteries ESS creates an “flow battery” which moves electrons by using an iron-based liquid and salt. ESS is poised to profit from certain trends in the market for clean energy:
- The rapid development of solar and wind energy can make storing electricity for later more important.
- Lithium-ion batteries are the current market leader in new grid storage, come with a number of negatives such as fire danger as well as supply chain concerns, and operational limits.
- The Biden administration has declared that it’s the right the right time to see the start of an American manufacturing revival as well as an unprecedented investments in infrastructure grids.
Ten years old ESS announced in May it was planning to go public through merging with a special purpose acquisition firm (SPAC) which is a well-liked alternative to an Initial Public Offering. The merger is expected to be completed in the fall, but the exact timing will depend on the date that the Securities and Exchange Commission completes its examination.
Real factory Real factory, real products
Electronic truck manufacturer Lordstown Motors went public with an SPAC in October However, it’s now in the risk of being short of funds before it can ever produce an actual product for sale.
ESS isn’t going to have that problem. The company already has a facility that pumps out flow batteries to the south from Portland, Oregon.
The core product of the company can be described as The Energy Warehouse, which fits the rotund tank as well as several piles of battery material into the container of a shipping container, together with the required electronics. ESS can alter the capacity of discharge and storage time. The customer can ask for 50 kilowatts in 4 hours or 12 hours, for example.
The company expanded the factory through the help of a 30 million Series C raise in the year 2019, led by SoftBank’s SB Energy, and Bill Gates’ Breakthrough Energy Ventures. On a visit to the factory in June I was able to see the test line, where robots were preparing cells to be joined into a battery stack, which the iron liquid that is made by the company flows through.
The automated production line making flow batteries at the ESS factory in Oregon. (Photo courtesy of ESS)
This is the first generation of automated lines that will create a cell every minute, according to co-founder the president Craig Evans. After several new lines have been constructed, the facility can produce more than 1.5 gigawatts of storage capacity per year.
Technicians remove the components from robots, combine them , and then load them into cargo boxes that are docked to the walls in the manufacturing. After connecting cables and electronics, and filling the tank with dry powdered form of the fluid iron, the truck transports away the final Energy Warehouse.
ESS facility was once the majority of the business complex. It just assumed the remaining space in addition to gaining many more shipping docks. In the year 2020, ESS had the number of employees at 57, ESS now has a staff of 115, and is increasing.
One of those new recruits was Dresselhuys who was appointed CEO in April ahead to the SPAC announcement. Dresselhuys founded Silver Spring Networks in 2002 with the idea of connected “smart” grids. Silver Spring Networks went public and then was bought by rival Itron for $830 million in 2017.
Utilizing less expensive materials than its rivals
ESS did not pick a simple issue to solve however, it’s an area that could be lucrative.
Lithium-ion grid batteries are successful in attracting massive investments and expand their reach thanks to the revolution in electric vehicles. Startups attempting to challenge lithium’s grip in grid storage must to find a low-cost solution and succeed where lithium-ion falls short.
A startup then has to leap from the lab to commercial production and gain early customers in order to build a track record for success in its field.
In the crowded, hype-ridden market that is Silicon Valley venture funding, companies often boast about pipelines of customers which are vastly different from the deals they actually completed.
ESS was modest. It stayed clear of rash statements about its cost targets or potential sales volumes. The SPAC announcement of the company SPAC statement included a number of verified and calibrated claims about the product including:
- “An eco-friendly battery that is low-cost and long-lasting. battery that is designed to boost renewable energy and ensure the stability of the electricity grid.”
- “Built using earth-abundant substances.”
- “Poses no explosion risk.”
They are believable claims for the system that stores energy by using dirty water.
“If it all boils down to the price of basic materials I’d be willing to challenge anyone to beat salt, iron and water.” Dresselhuys said.
Lithium-ion batteries enjoy massive efficiency, however their cost of materials include high-cost metals. Traditional batteries are expensive when they are scaled up for a large number of hours of storage. All ESS requires is to add more rusty water into the tank, making the cost of adding storage considerably less.
“Iron may not be the most sexy however there’s plenty of it in the world,” said James Frith the head for energy storage in market research company BloombergNEF. “What I’ve always enjoyed about ESS is that it’s a straightforward technology when it comes in the form of flow batteries.”
Contrary to this vanadium flow battery, an evergreen competitor in the lithium-ion challenger category, are harmed when vanadium prices rise, like they did in recent times.
Vanadium is around 100x more costly than iron” in these kinds of applications, says Cyril Yee who studies storage technologies with long duration as head of research and investment at the climate accelerator Third Derivative. (Third Third Derivative, along with Max world power are both supported by the think tank for climate change RMI.) “Flow-battery technologies that make use of low-cost redox species like iron have an advantage in terms of cost over vanadium.”
A lobby display shows four generations of the ESS Battery stack, from the earliest, at right, to the current commercial design, far left. (Photo courtesy of ESS)
The iron flow challenge
Iron flow batteries face challenges that are their own However, they have their own issues. It’s not yet seen widespread acceptance, despite the fact that it’s been in use for decades as noted by Yee.
“One common issue that is encountered that iron flow batteries face is the generation of hydrogen at the negative electrode , which eventually causes cells failing,” He said. “A Iron flow batteries that are commercially available can block the production or limit it in some way.”
ESS solved the issue by inventing the Proton Pump, which connects to the tank and mixes the hydrogen that is not needed in the water. It maintains the equilibrium between pH and state charged in the electrolyte of the liquid moving throughout the system.
“The cell is what’s called the heart and the electrolyte is blood and the Proton Pump is the kidney that helps to keep everything in equilibrium,” said ESS President Evans.
The invention is a crucial commercial differentiation for ESS. Other flow chemistries have to shut down regularly in order to replenish their electrolytes, according to Hugh McDermott, the company’s vice president of commercial development as well as sales. A flow battery won’t earn profits while it’s shut down during scheduled maintenance.
“This is continuously running which means you’re not missing the cycle,” He said about the Proton Pump.
Another issue that plagues battery flow is the price for membranes and separators which let electrons travel, but also prevent other substances from mixing. However, ESS utilizes off-the-shelf separators made by in the industry of batteriesthey say “it’s nothing new,” Evans said. It eliminates the risk of the creation and production of a new product.
There’s also the possibility that the system that pumps liquid for a long time will eventually leak.
In the most recent version of the product, ESS reduced the number of connections to pipes for each Energy Warehouse from 170 to 36. Instead of using threaded connections which need to be tightened precisely The new pipes get “thermally connected,” which means they are fused.
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Risks remaining: Growing rapidly
There are two dangers that ESS cannot address within the laboratories: the capacity to scale up and its size in the marketplace it wants to take.
International supply chains that are robust and reliable provide lithium-ion batteries that can discharge hundreds of megawatts of power. ESS has not yet supplied any project that is more than 1 megawatt. However, Evans stated that they have signed deals with projects exceeding that amount.
The executive team didn’t appear to be particularly concerned about moving into the next level. This is because they’ll have greater competitive economics once the SPAC cash will allow the company to boost the capacity of their manufacturing.
“Ours is a business that’s volume,” Dresselhuys said. “You benefit from a variety of cost efficiency by having an automated production line, by optimizing designs , and also from large quantities. It’s not a complicated formula.”
The cash left over from the manufacturing expansion strengthens the company’s balance report.
For attracting clients to this technology, ESS points to an unusual plan that was developed by German Reinsurance giant Munich Re. The company examined the technology and opted to provide an performance guarantee that covers the cost in the event that the technology fails to perform in the manner it was promised.
“Munich Re assists in addressing the technology risk that is posed to the initial few score customers,” McDermott said. “The balance sheet addresses the risk to your business that you’ll be around for long enough to warrant the warranty.”
Resting risk: How wide are the markets?
In the end, ESS’ ability to achieve a $1 billion valuation is contingent on the market’s potential for storage that lasts for a long time.
Lithium-ion battery units typically provide power for up to four hours however, very few users have installed systems that are designed for significant longer-term storage. The idea, as per ESS and companies that are similar to it is that the emergence of renewable energy sources that are extremely cheap will create a knock-on market for equipment that will efficiently store power , and then turn into a 24/7 resource.
California is one of them. It has already pledged to purchase one gigawatt worth of long-term storage in 2026 to ensure power is running after sunset. This will help maintain its vast array of solar panels.
“The long-duration storage market will be around for a while,” Evans said. “It’s expanding much quicker than the shorter-duration market.”
The question is whether ways to pay and procure for long-term storage need to be developed.
“There will be an need for it, however, some of the criticisms concerning how…you should incentivize it on the market, and what methods to reward it is the last part of the puzzle,” said Frith of BNEF.
However lithium-ion batteries flooded the power markets before any structures were in place to compensate them, Frith added. They competed successfully in the market for frequency regulation at the beachhead that managed moment-to-moment grid fluctuations. The success there opened the way for batteries to compete in different roles. A decade later, they’re the preferred source of capacity within California and have seen more results on other market.
The past suggests that the lack of possibilities should not restrict how big the market for long-duration in a few years or even decades down the road. However, forecasting ESS’s likely share of this market will soon be a problem that public market investors must solve.
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