Eco Investor June 2014

Pre-Profit Securities

$8 Million Capital Raising and Schneider Agreement for RedFlow

RedFlow has signed a collaboration agreement with Schneider Electric, made its first deal to enter the Philippine market, and has placed $2.2 million of shares at 12 cents each. It is also undertaking a $6 million fully underwritten entitlement issue.

The placement investor is interests associated with Simon Hackett, founder of Internode and Agile Communications. Mr Hackett has over 20 years of experience in the internet and telecommunications industry, is an innovator and successful early adopter of new technology, and a director of NBN Co.

Of the total 18.6 million shares placed, 17.6 million were with Mr Hackett, making him the single largest shareholder in RedFlow with a 9.2 per cent stake.

The company will now proceed with a rights issue, including to Mr Hackett who has agreed to take up his rights in full. The two for seven rights issue is at 11 cents per share. The underwriter is Morgans Corporate with sub underwriting from RedFlow's chairman, managing director and a non executive director.

RedFlow believes these capital raisings will take it through to a cash flow positive position.

Mr Hackett said RedFlow's product is potentially transformational to the global energy industry and that the timing for an investment is right. "I have been a passionate follower of the energy storage market, and in particular the electric vehicle industry for a number of years. RedFlow's core zinc-bromide battery offers a smart, commercial solution to the energy requirements of several applications and has the potential to participate in transforming a rapidly changing market segment."

"Effective energy storage is the game-changer for the renewable energy sector. RedFlow ZBM uses readily available source materials that make it capable of high volume production without relying on the supply of 'rare earth' elements. After a long period of research and development work to create the ZBM solution, RedFlow is now on the cusp of full commercial production of their battery systems."

Mr Hackett's other recent investments include stakes in cloud hosting company UltraServe, Electric Vehicle company eVRS, and aviation software company AvSoft.

RedFlow and Schneider Electric have agreed to collaborate and develop energy storage systems that incorporate the RedFlow battery. Schneider is an international electrical products company with a market capitalization of Euro 40 billion.

"Our smart battery technology is ideally suited to some of the markets Schneider currently service and we are working with Schneider to identify solutions for those customers," said RedFlow chief executive, Stuart Smith said "Our batteries have already been tested and operated in series with a Schneider inverter using a 360V DC BUS which further validates our technology."

"RedFlow's technology offers customers a range of cost and environmental benefits in certain applications, said Dirk Krueger, Queensland State Manager for Schneider Electric. "The potential reduction in diesel run time and use of lead acid batteries in some applications could have benefits for both customers and the environment."

RedFlow has entered into a supply agreement with SMS Global Technologies, Inc of the Philippines and received an initial order for two batteries to enable SMS to develop a flow battery storage solution for off-grid telecommunication applications. This will be done in conjunction with its customer, Globe Telecom Inc. A field trial commenced last month.

SMS director, Ricardo Rivera said "The RedFlow flow battery offering is well suited for these applications, and as the majority of the ZBM componentry consists of plastic, they are ideal for storage applications in harsh environments and off-grid locations such as some locations in the Philippines and surrounding islands."

Mr Smith said that on completion of a successful 90 day trial, further orders and a planned roll out program are expected to commence.

RedFlow's core product is a modular battery that delivers 8kWh of energy with a continuous power rating of 3kW and a peak of 5kW. It is a fully DC self managing battery with in-built diagnostics and self protection. It has 100 per cent depth of discharge, with daily charging and discharging over several hours available. It has a life of over 1,000 full depth of discharge cycles, or about three years of full daily charging and discharging. This equates to 6 MWh per battery but RedFlow expects over 8 MWh to be completed.

The battery's life is more dependent on the MWh delivered than the number of cycles, which can vary from 0 to 100 per cent depending on the energy requirements; so if the ZBM is used at lower states of charge it should deliver the same MWh in energy and so perform more than the prescribed number of full discharge cycles.

The batteries currently cost US$$7,000 each, or about US$875 per kWh.

There is no scheduled battery maintenance until end of life. This is less than vanadium, comparable to similar lithium, and although more than advanced lead acid the usability of lead acid is limited, says RedFlow.

The battery is lightweight with a small footprint, and has no exotic or heavy metals such as lead, cadmium or mercury. All of its materials are easily sourced, and it is made of recyclable plastic and has recyclable electrolyte.

The zinc-bromide battery module (ZBM) can be used in a range of applications, including residential. RedFlow has deployed over 50 ZBMs in different storage applications in Australia, USA and New Zealand.

Large orders not expected to require significant working capital, and operating overheads have been reduced to $500,000 per month, said the company.

The battery has so far taken over 9 years of research and over $38 million to develop. Further improvements are underway. These include longer discharging cycles, more cost reductions through the use of plastic, and a target cost reduction of at least 40 per cent by end of 2015.

Lower costs and longer life should result in a compelling energy storage proposition, said RedFlow. (ASX: RFX)

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