by Julian Spector
March 15, 2017

Editor’s note: We’re trying out a new format for our Squared columns, to deliver more market insight in an approachable way. This is the first installment for Storage+.

The past week was a tough one for cleantech.

We had a double feature of bankruptcies -- saltwater battery maker Aquion and top-five residential solar installer Sungevity. With so much destruction around us, it needs to be said: This doesn’t mean the whole sector is doomed. It does, however, bring into focus the fact that it's still a tough market and there isn’t a lot of room for error.

Let’s start with Aquion, which carried a lot of promise for the advanced storage industry. We can even put a number on that potential: $190 million. That’s how much the company raised from a roster of big-name investors including Bill Gates and Kleiner Perkins Caufield & Byers.

The company aimed to challenge lithium-ion for the long-duration storage market, pitching a safer, nonflammable, nontoxic chemistry as a primary differentiator. It set up a factory in Pennsylvania capable of producing 200 megawatt-hours annually, and had manufactured more than 36 megawatt-hours by the end of 2016.

Aquion had numerous deals under its belt, most recently a solar-plus-storage system along with Schneider Electric for Kyushu Electric Power Company in Japan, announced February 27.

The rug seems to have been pulled out quickly, then. Now the search is on for a buyer for all the operating assets.

Two weeks ago, I attended the ARPA-E Energy Innovation Summit, where many of the keynote talks focused on how to properly fund, well, energy innovation. (One novel idea: Don’t slash federal funding for early-stage research.) Aquion shows how daunting this challenge can be.

This company made it well beyond the basic research stage that the DOE has historically funded. It left the labs at Carnegie Mellon University, raised private funds from high-profile investors and began to scale. 

But there were some warning signs. Aquion built a production facility with a capacity of 200 megawatt-hours. But it was only producing around 36 megawatt-hours of batteries -- showing that demand was far lower than expected. An idle factory is expensive.

It didn’t help that the long-duration storage market doesn’t really exist yet. We’ve seen utilities nudging up to 5-hour duration units in Hawaii, and buying lithium-ion for that. But for longer applications where the lithium is less cost-competitive, there are limited use cases.

Weak- or off-grid applications constitute one option. Zinc-air specialist Fluidic has built a business in Indonesia and the Pacific islands selling to island communities that rely on imported diesel or cell towers in need of backup power. It enjoys strategic backing from Caterpillar, which provides those diesel generators. Similar suppliers with connections to these markets might be interested in snagging a deal on Aquion’s IP.

The other boogeyman here is the falling cost of lithium batteries. If you’re a buyer, it makes sense to take a chance on some upstart chemistry if you can save a lot compared to the incumbent. Trouble is, lithium-ion costs keep beating expectations, which scrambles the carefully laid business plans of lithium-ion alternatives.

Eric Wesoff reports that Aquion’s cost target was $250 per kilowatt-hour; large-volume lithium-ion battery packs have hit that target in recent months. Granted, that's for a shorter duration than Aquion's technology, but costs are still falling.

Which brings us to Sungevity, which I’m including in Storage+ because it was dabbling in solar-plus-storage before this week's demise. The potential for a nationwide solar-plus-storage distribution channel built by Sungevity is now gone. The company, ranked fifth on GTM Research’s residential solar leaderboard, ran out of funding sources before it started generating profits. 

Evidently, a Series E was not possible, prompting corporate leadership to look elsewhere. The time was not right for going public either, so they pursued a reverse merger with a Wall Street shell company that promised $200 million in cash. That got pushed further and further back until the opportunity window elapsed at the end of 2016.

The company slashed a group of highly paid staff in January, then cut two-thirds of the remaining workforce last week before announcing bankruptcy Monday.

This does not spell doom for the cash-light solar installer model, nor residential solar more broadly. It’s not clear that Sungevity really fulfilled the promise of cash-light growth, although it did achieve the industry standard of unprofitability. In any case, a single data point does not disprove a theory.

If there’s a takeaway from these two bankruptcies, it’s that investors still have limited patience for cleantech startups trying to achieve profitability. And profitability is still elusive for pretty much any company in distributed energy with a national sales model.

And now, some assorted insights from a few weeks of conferences.

Standards, schmandards?

I heard a striking sentiment at an ARPA-E panel on second-life batteries and lithium-ion recycling. It went something like this: There’s a place for safety standards in a mature industry, but with battery technology growing and changing so fast, we don’t yet know what those standards should be. They should be delayed until the industry has matured to avoid stifling the innovation we need right now.

That flies in the face of conversations I’ve had with folks like UL, the global product safety standards authority with a few standards already developed for advanced energy storage. UL officials stress that batteries are going into people’s homes and businesses, and thus a minimum level of safety is of the utmost importance.

Another take I’ve heard from battery makers is that they do everything they can to make their products safe, but they worry about cheap imports from China catching fire and feeding the perception that the whole industry is dangerous.

Expect to hear more about this conversation as batteries make their way into more households and businesses. The safety protocols-versus-innovation debate calls to mind the Uber approach: provide a groundbreaking service that customers want, and let the regulation follow you.

Uber, though, wasn’t trying to put combustible chemicals into people’s houses.

Energy hotspot in chilly Chicagoland

From Washington, D.C. I hopped to Chicago for a stakeholder discussion on microgrids and critical infrastructure hosted by Advanced Energy. It was fascinating to hear from community leaders about how crucial uninterrupted power has become for many facets of modern life -- hospital care, water treatment and pumping, air traffic control.

Moreover, I was pleasantly surprised at the excitement and ideas swirling around the Chicago energy scene. We hear plenty about what’s afoot in California and New York, but the middle of the country appears infrequently in cleantech-minded news. The Chicago energy folks seem more focused on doing the hard work of improving the grid than on telling the world how great they are at improving the grid.

I got to check in with the Energy Foundry, a combination accelerator/shared workspace/networking hub for the city’s highly relationship-driven energy startup scene. Managing Director Sara Chamberlain told me they took a hard look at the barrage of VC cleantech failures from the mid-2000s and took a different tack.

The Foundry's evergreen fund deals in smaller dollar amounts, giving its beneficiaries time to grow slowly and healthily. They’ve had two exits so far -- Digital H2O, which handles fracking water efficiency, and energy-efficiency company Root3.

I also made an expedition to the Mesopotamia of lithium-ion civilization, Argonne National Lab. To understand how complex and impressive this battery stuff is, it’s worth seeing how it comes into being: first in rough-hewn, handmade prototypes, where a real human being crushes powders to form a slurry, paints it onto metal foil, and punches out little button-sized dots to make electrodes.

If you haven’t gotten to witness this act of creation, it’s time to leave your career and hop aboard the journalism train.

After testing a chemistry at that level, the scientists hand it off to other labs to mix the ingredients at scale and test whether they still work in large batches, as well as whether there are ways to simplify batch production and cut costs. The leftovers from that process are available for use by researchers if you ask for it.

Chemistries that graduate from there go to a humidity-controlled room where mechanized fabrication equipment stamps out the electrodes and coils them into industry standard canisters and pouches. Companies that see something they like can then make a deal for the IP.

It’s heartening to see the advanced lab research clearly geared toward rapid transfer of successful technology into the markets. Argonne has learned from the last couple of decades of high-profile commercialization and has a system figured out. If it works, it should reduce time-to-market for advances currently underway, like cheap flow battery storage that runs for months, or EV batteries that charge faster thanks to a blast of concentrated light.

EV batteries for the grid: The future is now

Last week, I found myself back in San Francisco presiding over a panel on electric vehicles as a grid asset, part of GTM's event on California's Distributed Energy Future. The full video of the event is available to Squared subscribers here, but I'll pull out my key takeaway: EVs are already grid assets; we don't have to wait for the future on this one.

We heard from BMW, which ran a real-world study using EV charging as a demand response tool for PG&E; the first round had 100 participants, and now the company wants to follow up with 300. Meanwhile, eMotorWerks is aggregating across its network of smart-car chargers to earn money on demand response and even in wholesale markets.

An important distinction here is that these companies are not discharging car batteries onto the grid to provide power. That would stress the batteries and, in many cases, violate an EV's warranty. Much can be accomplished with intelligent scheduling of charging based on the needs of the grid. That's exciting, because it means we don't need to wait for big technical leaps for all those roving batteries to help the electrical network overall.