Eco Investor March 2015

Pre-Profit Securities

RedFlow

Two New Products from RedFlow

Commercial production of RedFlow's battery has commenced with the company having accepted what it says is a competitive turnkey price from its manufacturer, Flextronics. The deal commenced on 1 March. Commercial quantities of the battery are now available and volumes will increase over coming months.

RedFlow will also have available two new products in late April that offer significantly lower energy storage and delivery costs compared to the current ZBM battery. Extensive research, development and testing on the batteries have been completed.

The standard 3kW ZBM can store 8kWh and has 10MWh of warranted energy throughput over its operating life, which is claimed to be maintenance free. The new 5kW ZBM2 battery can store 10kWh and offers twice the total warranted energy throughput at 20MWh. The new ZBM3 is also a 5kW battery but stores 11kWh and has a lifetime throughput of 22MWh.

The increases in total throughput and storage per cycle come with only a 35 per cent increase in cost from the ZBM to the ZBM2 and a 39 per cent increase from the ZBM to the ZBM3.

The base prices from Flextronics North America are US$7,000, US$9,500 and US$9,750 respectively. The cost of ownership per kWh is US$0.70, US$0.48 and US$0.44 respectively.

The company said that after consultation with customers, its measure of battery performance measures now focuses on the maintenance free cost per kWh and lifetime energy throughput rather than battery cycle count. "These are important metrics for the actual working life of a battery. They are verifiable and reliable measures against which to benchmark different energy storage products and technologies in the market," said chief executive, Stuart Smith. "Lifetime cycle counts can be misleading due to large practical differences in depth-of-discharge, required operating temperatures and other factors which vary between differing energy storage products and technologies."

The ZBM3 will also be used in the RedFlow Large Scale Battery containerized solution which has been rerated to 660kWh per 20 foot shipping container for about US$665,000. There are 60 batteries in each container and with 22,000 kWh energy throughput for each battery the fully containerized cost per kWh is US$0.50.

"We believe these cost reductions make our product cost competitive in initial markets targeted and also open other markets such as residential and mining which we now intend entering earlier than previously planned," said Mr Smith. The pricing and product offerings allow RedFlow to continue pursuing the telco channel and also the integration of the products with solar and other renewable energies. The modularity is seeing systems integrators in several continents planning to incorporate the batteries into systems ranging from one to sixty batteries, while the containerized Large Battery System with ZBM3 modules extends applications up to grid scale.

"Our cost of ownership is fast approaching grid tariffs in some European countries before subsidies. We believe we have a disruptive, scalable technology whose applications are continually expanding. The future where the grid progressively becomes a backup rather than the primary source of energy is fast approaching by integrating our products with renewables such as solar and wind at a residential and commercial level," he said.

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RedFlow Batteries Comparison

RedFlow's focus is now on sales. Mr Smith said trials are in progress in South, Central and North America, Europe, Australia, New Zealand, Philippines and Africa, and the number of trials underway is increasing.

"However, sales in commercial quantities are currently slower than expected as the sales cycle for new technology and capital goods is longer than anticipated. The first small commercial orders have been received by one of our system integrator partners but no further details are available due to confidentiality requirements. Although the sales cycle is taking longer than originally expected, we remain confident that commercial scale sales will commence in the first half of this calendar year."

But RedFlow has sold its first commercial large scale energy storage system in Australia. The sale is to Base64 Pty Ltd, a company associated with major shareholder and director Simon Hackett. The system is a 20 foot shipping container modified to accommodate 60 ZBM3 battery modules providing up to 300kW and 660kWh of energy with a voltage output between 400V and 800V DC. Delivery and installation are expected in June. RedFlow said the system is well suited to commercial buildings where solar or other renewable energy sources can be integrated with larger scale energy storage. When complete, the design of the system will be available free to RedFlow's system integration partners.

With commercial manufacturing underway, two great sounding new products about to be released, and lots of markets to pursue, the outlook for RedFlow looks bright. The next key metrics for investors to watch are sales and when RedFlow can achieve positive cash flow operations. For investors, that's a lot more advanced, a lot easier, and a lot more fun than worrying whether the technology will work or being asked for more money. RedFlow is transitioning to the next stage of commercialization, and a successful transition has the potential to move its share price.

Lest all seem too rosy, RedFlow made an interim loss of $4 million. (ASX: RFX)

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