A tale of two batteries

Sometimes the most important tech stories are misunderstood. The important information is often mired in details, which obscure the vital principles at stake. My work with Exponential Investor is to get deep inside these critical news items – because these are stories which will shape your investments for years to come.

Today, I’m going to be bringing you up to date on two record-breaking announcements. To the casual observer, they could be easily confused. But if you’re to invest intelligently, you have to understand not only that they’re different – but why.

Both of these announcements are about batteries. In fact, they’re both about grid batteries. A grid battery is a huge thing – designed to power not just a single device but a whole city. This approach is a pretty new use of battery technology. Traditionally, we’ve relied on an electricity grid that’s built around a key principle: generating power exactly when it’s needed. But the new energy economy will be changing beyond recognition – and you can profit. We’re going to be seeing an explosion in demand for energy storage in coming years.

But why?

Renewables are getting seriously cheap, and this will change everything in the wider energy economy.

Allow me to give you a personal example, to illustrate the scale of the transformation we’re facing. I live in a little town at the edge of the London commuter belt. It’s full of attractive little pubs and hotels. These haven’t changed much, in hundreds of years. You might think that’s because they were all lovely, and nobody wanted to change them. But that’s utterly wrong.

The pubs tell the story of a devastating industrial collapse. They remained unchanged for centuries, simply because there was no money to bring them up to date.

Which side of history?

The reason for this poverty is plain to see. In fact, it’s embedded in the design of the buildings. Many have arches to accommodate horses and wagons. The town was a coach stop, from long before the coming of the railways. Almost overnight, the town’s main trade died – as mail, cargo and passengers switched to rail. Trains don’t need to stop to change horses, and the town’s principle industry would have vanished along with the coaches. A few miles up the road, new boomtowns grew to serve the railways. These profited from new support industries – and that’s where the new capitalists made their fortunes. The innkeepers would have faced destitution, just as the boilermakers would have hit the jackpot.

So, which side of history do you want your investments to be on?

Our generation’s “railways” are renewables. And batteries will be one of the key support industries set to benefit. Battery manufacturers are the boilermakers of our age. That’s because we need to be able to store this new, super-cheap energy until it’s needed. There will be a new railway mania, as firms pile in to provide this capability.

Yes, we’ve had storage for a while. Notably, the UK benefits from pumped storage. That’s basically two lakes: one at the top of a mountain and one at the bottom. To get rid of excess power, you pump water up a hill. To get the power back, you let gravity do the work. Simple – but effective. However, we don’t have enough lakes to meet demand.

Confusingly similar

If you’re going to profit, you’ll need to understand exactly how this shift works – because it’s just not as simple as it first appears. The two news stories we’re covering today demonstrate the key details, in sharp focus.

The reason I wanted to highlight these is simple: the stories are confusingly similar. They sound like one and the same – but the difference is critical. Two different functions, two different markets, two different sets of competitors.

Let me give you an analogy: compare a sprinter and a middle-distance runner. One emphasises power, the other endurance. The sprinter delivers energy quickly – but fades in seconds. The middle-distance runner keeps pace for an hour or so. They can’t match the sprinter’s power, but they can delivery far more energy in total.

Story one – Largest frequency regulation battery installed

This is our sprinter story. It’s all about power. South Korea’s KEPCO has just installed the world’s largest frequency regulation battery, made by Kokam. The point of this particular technology is to make sure that very fast changes in demand for electricity can be perfectly matched by the supply. This ordinarily requires what’s called “spinning reserve” – basically fossil-fuel power stations idling like a car engine – waiting just in case someone switches a factory on. This is expensive and inefficient, and replacing this kind of generation is a great use for battery technology. Kokam’s LiMNC battery tech is chosen because of its fast response. You don’t necessarily need to understand the detail of the chemistry involved, but you do need to understand what it delivers.

Story two – Tesla storage hits the big time in Hollywood

This is our middle-distance runner story. It’s all about energy storage. You may have heard about LA’s huge gas leak. As a result, the facility storing the gas for the city’s “peaker” power plants has been closed. These cheap, dirty power stations are designed for occasional use, in periods of high demand. But their closure doesn’t mean that the demand for power has gone away. However, LA’s problem is Tesla’s opportunity – and it’s now got an order for what’s going to be the largest li-ion grid storage facility in the world. That’s fundamentally the same technology that Tesla uses in its domestic Powerwall units. What’s truly awesome about this story is the speed of deployment. A world-beating facility is being tendered, purchased, installed, tested and made live in just a few months. Compare that to Hinkley Point!

If you’re interested in backing these technologies, it would be wise to know about the competition. Of course, these are very different in each case. For energy storage, compressed air and liquid air are the contenders to watch. For frequency regulation, it’s capacitors and flywheels. We’ve covered all these in Exponential Investor before – so please do check back over our previous articles.

You might think we’ve got a bee in our bonnet about energy. Maybe you’re worried that we’re overestimating the impact on the economy. But remember, the coaching inn owners probably felt the same way. Renewables are the railways of our time – and you better be ready.

Those who do not learn history are doomed to repeat it.

The address for feedback, conspiracy theories, green ink, CAPITAL LETTERS and grammar pedantry is andrew@southbankresearch.com.

Best,

Andrew Lockley
Exponential Investor

Category: Energy

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