Business Overview

Rapidly Growing Energy Storage Market To Reach $16.5 Billion By 2024

Eguana Technologies (TSX: EGT.V) designs and manufactures high performance power electronics for residential and commercial energy storage systems.

Power electronics are considered "the brain of an energy storage system" as they manage the power flow of the entire system, enable the grid connection and host or communicate with the energy and battery management.

According to leading research firm Navigant, the market for distributed energy storage systems (DESS) will grow from less than 200MW in 2014 to more than 12,000MW of installed capacity by 2024, which represents a total market opportunity of $16.5B

Installed DESS Power Capacity by Application, World Markets: 2014-2024
Chart: Installed DESS Power Capacity by Application, World Markets 2014-2024, Navigant 2014

Increasing Solar Penetration

A recent study states that by 2025 the cost of producing power in central and southern Europe will be between 4₵ -6₵ per kilowatt hour.

Already a cost-efficient power source in sunny places, the study shows a large decline in cost for solar energy. Solar, along with wind energy, will become a major source of energy, due to the lowering costs and favourable impact on the environment.

In 2014 alone, global solar panel installations have hit more than 40 gigawatts, the equivalent of 12 nuclear power plants worth of solar capacity. The European Photovoltaic Industry Association (EPIA) has forecasted a total global installed global capacity of between 288GW and 422GW by 2017. In the US, every 2.5 minutes a new solar system gets connected to the grid and the number of installed systems is expected to hit the 1 Million mark by latest 2016.

Solar Growth
Chart: Historical and forecasted growth of solar PV (in MW), EPIA 2013

 

Solar PV installations per Minute in the USA
Chart: Solar PV installations per Minute in the USA, GTM 2014

However, the increasing penetration of solar energy creates stress on the dated grid infrastructure in increasing jurisdictions.

"Germany now has a problem of curtailment of renewables power, meaning that at times the grid cannot absorb 100% of (especially wind) output on surges following weather changes." (HSBC, Energy Storage - Power To The People, 2014)

In Hawaii, many of the feeders have already reached their capacity:

"This is a circuit-by-circuit, feeder-by-feeder type of problem. While most U.S. utilities aren’t close to having enough solar on the grid to worry about it, Hawaii Electric Co. is already seeing many of its feeders overflowing with solar power at midday, and utilities in California, New Jersey and Arizona are starting to see it happening in pockets across their PV-rich grids." (Source: Greentech Media, 2014)

Multiple studies have shown that distributed energy storage can reduce the solar induced stress on the grid and can significantly expand the grid capacity, which can be a more economic alternative to investments into upgrading the grid infrastructure:

"Decoupling generation from consumption can reduce the need for peak generation capacity by 40% and can increase grid capacity by up to 66%” (Fraunhofer Institute, Freiburg Germany, 2013)."

Decreasing Battery Costs

Lithium-ion battery costs have dropped by an average of 23% each year since 2010 and energy storage balance-of system costs have dropped by an average of 14% each year during the same period, resulting in total installed commercial system costs dropping by 17%, from $3,400/kWh in 2010 to $1,600/kWh in 2014 for a 2- to 4-Hour lithium-ion energy storage system.

Battery cost reductions will continue as manufacturing capacity accelerates to accommodate the electric vehicle (EV) market and stationary storage. The EV market will continue to grow at a fast pace, leading to more manufacturing expansion. The energy storage market will both benefit from and cause further cost reductions and technology improvements.

By 2020, experts expect battery costs to reach $250/kWh- $300/kWh, and commercial system costs to decline under $600/kWh, which is expected to further fuel the mass scaling deployment of stationary storage.

More ambitious initiatives are underway at Tesla Motors with a publically announced path to $100/kWh cost target for the Lithium-ion batteries, manufactured at their "Gigafactory" in Nevada, so the cost by 2020 could even be lower than assumed today.

Continued decreasing system cost for battery applications will improve the cost effectiveness and obviate the need for subsidies and are already cost effective in certain jurisdictions such as Germany and Australia. This is particularly true for Germany, where the spread between grid electricity rates and solar feed in tariffs continues to widen while in California, commercial ratepayers can already achieve double digit rates of return by reducing their demand charges.

Regulatory Drivers

California sees energy storage as a critical tool to better manage the electric grid, integrate a growing amount of solar and wind power, and reduce greenhouse gas emissions. Renewable power quotas will result in the procurement of approximately 1.3 gigawatts of energy storage by 2020, enough to supply roughly 1 million homes.

On September 3, 2013, the California Public Utilities Commission (CPUC) issued a proposed decision detailing policies and mechanisms for its energy storage (ES) procurement program established under the 2010 Assembly Bill 2514, the first state law requiring grid-scale energy storage.  

Energy Storage Procurement Targets

Source: California Public Utilities Commission (CPUC), 2013

According to CPUC, its energy storage procurement policy is guided by three main purposes i) grid optimization, ii) renewable energy integration, and iii) emissions reduction to 80 percent below 1990 levels by 2050.  

In Germany, an energy storage subsidy has been available since May 1, 2013 that provides a grant of up to €600 to lower the cost of installing an energy storage component in a PV system up to 30 kW in size. The program also grants access to debt financing through the government owned KfW bank. Up to 100% of net investment costs eligible for the programme can be financed.

Japan’s energy storage market looks set for a boost in 2016 thanks to a planned cash injection of 81 billion yen ($700 million). The support package is being mulled by the Japanese Ministry of Economy, Trade and Industry (METI). It is understood that the budget will be available to consumers, companies and industry associations, and that METI is working closely with the Energy Conservation Center of Japan on the fine points of the scheme. The funding is being considered to balance the grid in the country.

Leader in Power Conversion and Control Systems for Stationary Energy Storage

Eguana's product design philosophy is to deliver a universal power management platform that is easily adaptable to all battery technologies, allowing battery manufacturers to offer complete energy storage systems and operators of distributed energy storage fleets to easily accommodate different battery technologies using a common control and communications platform.

Eguana has established itself as a leader in the growing market for grid tied energy storage. Recent partnerships with tier 1 battery manufacturers and system integrators have paved the way for Eguana to also establish itself as a leading provider of power control solutions to the emerging home market in North America.

Eguana’s product has been specifically designed to enable a flexible OEM strategy that will support all energy storage solutions and battery chemistries in the market.

At present, Eguana's equipment has been integrated with almost all existing and next generation battery technologies companies including: Lead Acid, Lithium Ion, Vanadium and Zinc Bromide Redox Flow, Liquid Metal, Aqueous Hybrid Ion and Zinc Aqueous Hybrid.

Efficient Operating Model Provides Rapid Scalability Without Significant Capital Expenditures

Through its operational structure Eguana Technologies has put itself in the position to ramp up production capacity quickly and flexibly adjust to the projected steep increase in demand.

Eguana operates an in-house manufacturing line at their headquarters in Calgary, Alberta. The capacity of the current line is 1,000 units/month. Through its global contract manufacturing partners, Eguana is able to add additional capacity quickly without requiring major capital investments.

Lab

Eguana's business model is not targeted towards  selling product through distribution but to rather engage with selected partners through long term supply contracts. This provides good visibility on short and midterm demand.

Due to the standardized components and the buying power of Eguana's manufacturing partners, Eguana's product cost structure allows for attractive pricing.

Forward-Looking Statements

The reader is advised that some of the information herein contains certain statements or disclosures relating to Eguana Technologies Inc. ("Eguana" or the "Corporation") that are based on the expectations of the Corporation's management as well as assumptions made by and information currently available to the Corporation which may constitute forward-looking information and forward-looking statements (collectively, "forward-looking statements") under applicable securities laws. All such statements and disclosures, other than those of historical fact, which address activities, events, outcomes, results or developments that the Corporation anticipates or expects may, or will occur in the future (in whole or in part) should be considered forward-looking statements. Specifically, we include forward-looking statements pertaining to explosive market growth, our expectation that the market for distributed energy storage systems will grow from 200 MW in 2014 to mora than 12,000 MW by 2024 and that that rapidly growing energy storage market will reach $16.5 billion by 2024. Although the foregoing forward-looking statements are substantiated by third party analysis they are forward looking by nature and the anticipated growth may not be explosive, the distributed energy storage systems may not grow from 200 MW in 2014 to 12,000 MW by 2024 and the energy storage market may not reach $16.5 billion by 2024 or at any point in the future. Additionally, these forward-looking statements do not necessarily mean that the Corporation will realize a direct or indirect benefit from the distributed energy market growth. .

The forward-looking statements contained herein are expressly qualified by this cautionary statement. Furthermore, forward-looking statements are not a guarantee of future performance and the forward-looking statements are subject to a variety of risks and uncertainties and other factors that could cause actual events or outcomes to differ materially from those anticipated or implied by such forward-looking statements. Such factors include, but are not limited to general economic conditions in Canada and the United States, industry conditions, changes in laws and regulations and changes in how they are interpreted and enforced and increased competition, volatility of commodity prices. Readers are also directed to the Risk Factors section of the Corporation's most recent annual audited financial statements and annual information form which may be found on its website or under the Corporation's profile at www.sedar.com  Readers are cautioned that the assumptions used in the preparation of such forward-looking statements, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on the forward-looking statements. Eguana's actual results, performance or achievement could differ materially from those expressed in, or implied by, this forward-looking information. The Corporation does not undertake any obligation to release publicly any revisions to forward-looking statements contained herein to reflect events or circumstances that occur after the date hereof or to reflect the occurrence of unanticipated events, except as may be required under applicable securities laws.

Market data and certain industry forecasts used herein were obtained from market research, publicly available information and industry publications. Management of the Corporation believes that these sources are generally reliable, but the accuracy and completeness of this information is not guaranteed. The Corporation has not independently verified such information.