Eco Investor July 2016

Pre-Profit Securities

Room to Move for RedFlow

RedFlow has plenty of room to move on the pricing of its ZCell home battery system if it needs to, said company chairman Simon Hackett. Last month RedFlow revealed the enclosure for the residential energy storage system, and expects the first shipment of ZCell batteries to arrive in Australia late this month for testing. The initial price of a storage system without solar panels will vary with capacity and installer but a standard 10 kilowatt hour installation is expected to cost around $15,000 to $18,000.

No doubt RedFlow is hoping for strong support from early adopters who may be less price sensitive than other consumers. Success in the residential market is key to the company's near term prospects, so having room to move on price if and when it may need to is an important ace up the company's sleeve.

But the company is also working on several fronts to ensure sales. One of these is trying to sell an interesting pitch to State Governments about a better use of their feed-in tariff obligations.

Mr Hackett would like State Governments to offer consumers incentives to voluntarily trade in their solar feed-in tariffs in exchange for battery subsidies. He says this would reduce the Governments' long-term liabilities while helping the new energy storage industry. Consumers would still have a product that helps reduce their energy bills but one that would last much longer than their feed-in tariff. If the deal made sense, consumers could volunteer to trade in their generous solar feed-in tariff.

State Governments would also benefit as over the longer term the battery subsidy would be less than their feed-in tariff subsidies. Some State Governments have feed-in tariff liabilities to 2028, but are sensitive to the political risk of simply canceling the schemes.

Mr Hackett said "The remaining forward liability for a given customer can be readily estimated based on past subsidy payment patterns. In many cases, governments may actually spend less by using the re-purposed feed-in tariff payments to subsidize an energy storage system than to fund a long-running tariff."

Mr Hackett says solar feed-in tariffs have already achieved their goal of kick starting solar panel adoption. "Australia is among the world leaders in its per capita deployment of PV solar panels," he said. "From a public policy point of view, continuing to pay solar feed-in tariffs beyond this point represents a substantial forward liability that does not deliver improved public good outcomes."

The residential market is important to RedFlow's success as so far it has failed to achieve significant sales in the commercial sector. Mr Hackett said this was because companies did not want to be the first to commit on a large scale to a new system. Purchasing officers prefer to know that their collaborators and competitors have already tried a new technology and it works, as this reduces their risk of failure if they recommend a big purchasing decision, he said.

Another step RedFlow has taken to make its product more saleable in the residential market is certifying its storage system with a second inverter brand. The first was Victron Energy and the second is Redback Technologies. Last month RedFlow and Redback Technologies announced that the ZCell home battery works with Redback's Smart Hybrid Solar Inverter System.

Redback's inverter system manages energy supplies from the grid, solar panels and the battery, helping users achieve greater savings by self-consuming more of their self-generated power. It is hosted in Microsoft's Azure IoT Suite cloud platform and this is said to offer easy updates and upgrades as the technology develops. It has an intelligent system for analytics and remote control that monitors consumption patterns and moves the use of appliances such as pool pumps and hot water into the "solar window" to optimize self-consumption of rooftop solar.

RedFlow expects to announce more compatible inverters soon.

Customer installations of the ZCell are expected to commence in August.

The developments and market expectations saw RedFlow' shares touch a four year high of 68 cents early last month, but they have since fallen back to the 50 to 60 cent range where they have mostly been since May. (ASX: RFX)


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