Startup holds key to energy windfall
RICHARD BLACKWELL
globeinvestor.com
00:00 EST Thursday, November 16, 2006
One of the key problems holding back the development of wind and solar power is that they are intermittent energy sources and aren't always reliable.
One solution: a storage system that charges up when the wind is blowing or the sun is shining, then releases power when it's needed.
That's the idea behind a Vancouver technology firm that is hoping it's on the cusp of a business breakthrough with its battery technology.
VRB Power Systems Inc., listed on the TSX Venture Exchange, makes large scale power storage units based on "flow" batteries. The technology involves pumping an electrolyte that contains the metal vanadium through a membrane. This causes a chemical reaction that releases electricity, and the flow can be reversed to store power.
Unlike lead acid batteries, flow batteries don't wear out and the units are "scalable," so merely adding more units and fluid tanks means they can store more power for longer periods.
A unit the size of a refrigerator can hold enough electricity to power a cellphone transmission tower. One that fills a football-field size building can store the power from a mid-size wind farm.
VRB has sold several small-scale systems, but the recent completion of a manufacturing plant in Richmond, B.C., and a key deal in Ireland has got the attention of analysts.
The Irish sales agreement, signed in August, calls for VRB to supply $6.3-million (U.S.) worth of the storage units to the Sorne Hill wind farm near the northern town of Letterkenny. The batteries will store power at night when the wind blows hardest and electricity usage and rates are low. They will deliver power to the grid during the day, when it is needed and the farm can make more money from higher daytime rates.
There's one remaining hurdle to finalize the contract: a feasibility study that's looking at whether the storage system makes economic sense. The results are expected within weeks, and a positive verdict could open doors for VRB throughout Europe, chief executive officer Timothy Hennessy said in an interview this week.
While the revenue from the Irish sale won't likely hit VRB's books at least until next year, it could mark a breakthrough for a company whose income statement has clearly been in startup mode.
In the first six months of 2006, VRB generated just $183,000 (Canadian) in revenue and incurred a whopping loss of $5.1-million.
Jon Hykawy, an analyst at Research Capital Corp., has projected VRB revenue of $23-million in 2007, and says that is now "feasible" because of contracts in the pipeline.
For 2008, Mr. Hykawy projects VRB will generate $115-million in sales, and earnings a share of 11 cents. He has a 12-month target of $1.40 on the stock, a level that would mark a significant jump from the current price of about 50 cents a share.
Another analyst, MacMurray Whale of Sprott Securities Inc., is also enthusiastic about sales in Ireland, and suggests the potential market in that country for power storage systems could be as high as $2.7-billion (U.S.).
Mr. Whale has a 12-month target price of $1.20 (Canadian) on VRB stock, although he acknowledged in an interview that the timing of the revenue stream for an early-stage company like VRB is hard to predict. Still, "given what we know, [the stock] is a pretty nice buying opportunity."
Russell Stanley of Clarus Securities Inc. has the highest 12-month target for VRB stock, $1.75. "We believe VRB Power is on the cusp of fully commercializing its battery technology," he said in a report. The company's technology "is the ideal energy storage solution for wind power applications," he added.
Sprott, Clarus and Research Capital were all part of an underwriting syndicate that led a recent $11.5-million bought-deal stock offering for VRB.
Ironically, Canada may not be a great market for VRB's large-scale storage systems, despite the explosive growth in wind power here. That's because, at least for now, wind farm owners get the same price whenever they supply power, so there is little incentive to store it at low price periods and then send it to the grid later.
"The economics have still not stacked up in favour of storage at current price levels," Mr. Hennessy said.
Still, there are other market opportunities in Canada, particularly in remote locations. VRB says a vanadium flow battery is an ideal complement for a diesel generator or a wind turbine in off-grid communities in the North, for example, to help even out peaks and troughs in the electrical load.
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