Energy storage through molten silicon: 1414Degrees

Dr Kevin Moriarty is the CEO of 1414 degrees, which is a company that’s been around for a few years and listed just last month in September on the stock exchange having raised 16.3 million and 35 cents. The shares promptly sank a bit like a stone but that’s life I guess; they’re currently around 30 cents so still not too far off the listed price, but they did get down to about 23 cents at one point after the float. 

What they do is they have a system for energy storage through molten silicon which has a melting point of 1,414 degrees thus the name of the company and they’re basically an energy storage operation; they store both heat and electricity effectively. But the interesting thing about them I think is that they are capable, says Dr Kevin Moriarty, of turning intermittent solar and wind power into base load power because it’s basically very cheap storage, very large scale and they can essentially end the intermittency of solar and wind. 

It’s a really interesting prospective; they are a fair way off making money however, like a couple of years guess and possibly even longer until they start selling big large scale grid type storage systems.

It’s one of those businesses that requires patience; it’s a long-term play, no doubt about it, it’s not short term. It is possible, of course, that in the short-term institutions will have a look at and start to bid the price up so you could see some action before they start making money in a couple of years’ time but you can’t really count on that. 

At the moment they’re 90% mum and dad investors because the float was essentially a crowd funding exercise; they basically converted their Twitter and Facebook followers into small investors of which they’ve got quite a lot now. They had a bit of a following; I think people have been getting out, and those who invested early have been taking a profit and getting out so it might be a good time to buy but as I say it’s a long term investment, energy storage turning solar and wind into base load power. 

Here's Dr Kevin Moriarty, the CEO of 1414 Degrees.

Kevin, since we last spoke you became a listed company, what sort of adventure was that?

Well, it’s quite a journey but we were largely driven by the ever-increasing numbers of people who were connecting with us on social media through website e-mail and so over two years we accumulated over 9,000, so we call them followers.  By in large these are what I call mums and dads and quite a few – a lot of them were saying why can’t we get involved, why can’t we invest in this company and of course they’re not sophisticated investors.  We raised about $15 million dollars from sophisticated investors over the first year and then we turned our attention to letting these thousands of non-sophisticated, they call them, investors in.  I was just saying to our people that really it’s been a form of crow funding and we have listed in order to allow these people to invest and just to give you a sense of it even since listing a month ago we have taken on over thousands of new shareholders so we now have over 3,000.

Can I just go through it, you raised $15 million during the first two years from sophisticated investors, what was the company’s valuation for that $15 million, were there several of them, were several raisings or just one?

Yeah, there were series which began at 10 cents.

Could you take us through the valuations that occurred over those two years.

Yes.  I haven’t got a cheat sheet in front of me where I would know the numbers of shares but the valuation began…

Just the pre-money valuation for – I just want to get a sense of how your valuation has gone over those two years.

Okay, initially it was around 2 million dollars when I got involved, then we did successful raisings at 10%, 15%, 20%, 24% and 28 cents and took on – and this was subscribed to worldwide.  The valuation at the finish was around at the time of listing was between about $60 million and the valuations would have gone from $2 to $10 to about $17 and then around about $25 million pre.

The valuation in the float, you’re saying the valuation in the float was $60 million. 

Yes, with the issue of the raising of $16 million, yes.  I can supply you with exact figures.

That’s okay.  I think you were hoping for $40 to $50 million in the float but you only got $16.

Well we’re $30 million, yeah, but how that came about is we surveyed our 9,000 people, followers, and several thousand of those respondents said yes, we will subscribe to the flight so it doesn’t take a genius to work out that you can potentially raise a lot and you’ve got to understand the context, we were saying that we wanted to build something that would make a difference, a grid scale to the energy storage market and we’re still doing that but in order to finance that fully we needed to raise that sort of money and so that’s what we went for but we didn’t know really how much people were going to subscribe, we didn’t have any way of really assessing it until we listed, until we actually did the prospectus.  Given that this is a new technology and we are dealing with not institutions and people that you can sort of mark up for millions of dollars a piece.  We didn’t have any way to price it and so effectively our IPO price just – but we raised something like a bit more than half the target, the initial target anyway.  We judge it as a success and now building towards the next phases which will be to build these grid scale devices.

Did you get a few people who said they’d invest but when it came time to write a cheque they squibbed it, is that what happened?

Exactly, yes.

Do you think they were put off by the 2,100 minimum?

Some of them where, some of them complained and said could you make it less and so I can tell you that a lot of these thousand people that have come in since the float are buying in quite small lots.  You’re taking on people that are buying 2,000 shares and certainly less than 10,000 dollars.  It shows you that our support base is very wide based and there’s nobody in the company that’s a big risk, put it that way.

Before we just get into the contracts you’re doing and the business itself I just wanted to just finally just get a sense of your cash position now because looking at your annual report for June 30 you were just about out of cash, you were down to less than $1 million and you were burning a hell of a lot of money.  I presume you still are, obviously you’ve got that 16.3 million in so what’s your position now in the middle of October, how much cash have you got there?

Well, we’ve got over $15 million.  The cash burn – remember the grants from the government have been paying half the development of the gas test.  Most of the expenditure was finished by the time that report came out, in other words we had built and we’re starting to test the test industry, the test into machine that we’re currently still commissioning down at our plant.  That’s under commission so there’s only just running costs at the moment.  The gas test is all the components were paid for and being assembled and that’s starting assemble next month down at the Glenelg Wastewater Plant.  Effectively we funded the first two devices to the point of being able to test them so the IPO was not primarily directed at those, it was directed at the next generation of devices, one for the packaging plant and the [ unclear 0:10:25.9] factory and so on in the east, and we’re still doing feasibility on those so there’s not a big cash burn.

Tell us about the ones you’ve got going.  There’s a pilot one I think with the SA water company, is that right?

Yes, SA Water approached us saying they wanted a solution to allow them to time shift the energy generated from their biogas production from all the digesting poo and they said we were currently using these reciprocating engines, so like huge diesel engines to generate power but they had no way of time shifting it and they used the heat from it to displace gas, it’s used in heating the big vats of waste.  But they needed that more in the mornings then the evenings which is when the bugs were working harder.  They said can you come up with a version of your device that burns biogas to provide the heat and then so we can generate heat and power when we need it.  We developed that state government funded half of that and that will be starting commissioning in the next couple of months so that’s going to be a big plus for because there’s huge interest worldwide in the biogas burning.  I mean everything from cow, dairy farms which produce huge amounts in the concentrated form through to major water utilities worldwide are interested in this sort of technology, especially that allows the time shifting. 

The other one is the 10-megawatt hour electrically charged device which is our basic original model and that’s in commissioning at the moment, that’s going well, we’ll have an update for the market shortly and that’s designed to go into an Aust Core packaging factory on the east coast.  We call it on site commercial testing but we’re certainly proving it works now and we’ll come out with a certification on that shortly.

Just run us through the business model.  With these things do you just sell the unit to them and off they go or do you get an ongoing revenue?

Both.  We’re looking at both models.  Probably the gas charging units will be – because they’re being sold to utilities and so on would largely – they’ve got ready access to capital and they are looking at things like the justification for investing that is they’re going to be hours that are cheaper to run than their current reciprocating type engines or they’re currently flaring gas in which case it’s simply got no value but they want to reduce their emissions.  There’s a number of drivers but we are looking at a model because these are relatively cheap to make, our machines, that we would set up effectively a service model whereby we would provide the service, say we’ll take your gas, you provide it and we will share in the sales of energy to industry or the waste treatment plant.  There’s at least two models there.  As far as the smaller units, the 10 megawatt hour units that I described that we’re just commissioning now, once they’ve proven in the commercial environment will attract bank-banking. 

Currently, for example, the model that AustCor and others are working on, they put in solar and the storage and these packages are funded by one of four banks, Macquarie, Westpac for example, ANZ.  The CEFC, it’s the Federal Governemnt’s fund for clean energy finance corporation, that’s it.  They have got several billion dollars that they are using to help finance the rollout of renewable energy.  They provide larger funding packages to the banks, ANZ will take on $200 million.  The bank then repackages them in much smaller packages of $1 million to $5 million and effectively it provides a lease/buy arrangement for people that want to put in – currently it’s mainly solar energy and what our devices will allow them to do is to time shift the solar production.  What’s happening is AustCor fire up their boilers at 3:00am at the morning so they’re hot to start a production run at 6:00 with the new shift and solar is no use at all at that hour.  They want to charge that through the day and then turn them on ad provide primarily heat and some power. 

When you come to a model it’s driven ultimately by not just the fact that renewable solar PB is getting so cheap now, the cost of production from it is very small, the capital as well.  They want to be able to say they’ve got green packaging or at least low emissions packaging which for the packaging industry would be a big thing.  There’s not just the, shall we say the energy in/energy out cost, there’s the odd-on values of being able to take the box on emissions and later if there’s carbon pricing in this country and so on of any note, which I think is likely to happen as things seem to be changing politically, then obviously these things will quality, tick the box on meeting your emissions targets and have a dollar value attached.

Just to summarise what you’re saying there are you saying that your thermal energy storage devices in a sense become part of the financing package for these businesses to have solar?

Correct, infrastructure, yes, necessary infrastructure.

You become part of the funding in a way because you enable them to time shift the power to the time when they use it in the middle of the night.

Well the more important thing that’s happening is you realise we’re displacing gas, and gas can be pretty expensive in Australia at the moment.  What we’re effectively doing is replacing gas with electricity and I don’t think people have quite realised that but the rise of cheap solar – a few years ago you would have been thought insane in you thought that solar was going to displace gas but the ever-decreasing cost of solar panels has made it actually quite feasible now.

The next question is are you saying that your devices are cheaper than lithium batteries?

Lithium batteries don’t cart it for this.  Lithium batteries have their place.  If you just want power and you don’t mind replacing them and you don’t cycle too often because otherwise they need replacing quite quickly lithium batteries doesn’t cut it for industry, they want primarily heat, at least two thirds of their requirements for heat, usually up to 90% so batteries – the powers are a relatively small part.  In fact some industries say to us forget the power, we’ll get that off the grid and because of our energy needs are in heat.

I see.  Your devices are actually not just generating power, they’re providing heat for these factories.

Correct.  In fact, the industries have come to us, they’ve driven this.  Initially we thought rather naively I suppose that we would be competing with batteries but in reality batteries can’t do what we do and we do what the majority of the world’s energy spectrum needs which is we provide heat and power.  There will be a place for batteries where people just want some household backup but we’re going for scale, Alan, and everything from our preference is 10 megawatts hours up and in the end the end result of what we’re trying to do will be to provide versatile storage throughout the grid at a relatively low cost which means that people actually won’t think they need batteries anymore because if you’ve got reliable power, which we don’t have at the moment here in South Australia for sure, why would people spend on these solar battery sort of complexes that have been put on houses.  I don’t mind, solar can be fed back into the grid but the problem is the grid is not able to absorb and time shift it at the moment.

What South Australia did was install a 100 megawatt lithium battery from Tesla.

Yeah, but that’s very expensive.

Could you have done that?

Yeah, we could have done it and we could have done it cheaper, we just have to have a bigger device.  The reality is the big battery is very good for what it does which is providing occasional bursts of power on the grid.  I think the batteries will always have a place there.  It was very expensive but it provides a service but primarily it’s providing a frequency control and it’s used occasionally when the frequency starts varying because something trips out or there’s an outage on a power transmission line and things like that or a big generator in Hazelwood – well, not Hazelwood anymore but one of the big generators has to be taken offline or falls offline quickly.  A battery is ideal for that.  We can provide a similar thing but you’d have to say a battery was the thing of choice but we’re talking actually our minimum grid scale to be 200 megawatt hours, so twice the size of that up to – the sort of devices we envisage will be in the gigawatt hour range so we’ll be up there with the sort of pumped hydros, even the snowy scheme in terms of providing huge amounts of storage and power but at a much lower cost and distributed potentially through the grid so it’s where the users need it, not necessarily sitting in some mountain somewhere.

Does your energy storage for electricity, does that mean that you create steam which drives a turbine, does that mean then it’s slower than both a battery or a pumped hydro?  Slower to generate the electricity, you can’t do it instantly?

That’s correct.  If you’re feeding into a turbine but you’d say the same with pumped hydro.  If your turbine is spinning you’ve got a lot of spinning in measure, ours would be designed to be providing effectively base load power so they are sitting there with a lot of inertia.  If you’ve got a lot of inertia, spinning inertia on your grid, you don’t need the big batteries, they were only need because we’ve got a relatively unstable grid with the increasing renewables and not enough big power stations anymore, particularly in the end of the grid like South Australia.

If I can interrupt there, are you saying that your device effectively turns solar and wind into base load power?

Correct.

Right.

That’s the aim at the big scale, leave aside the industry but that’s right, we’re taking the intermittency out of it and its needs to be done at a low cost.  The problem with a lot of the other solutions, and they all have a place if you’ve got some dams up in the mountains you can use them but they are not located where the users are and it’s going to be very low cost so it will be if we’re going to have low cost electricity and gas, frankly, we need to come up with low cost storage with renewables.  We need low cost storage, it’s as simple as that and that’s where we’re positioning our device.  We’re not saying there’s not a place for battery or if there is but we’d like to make batteries an option or extra rather than a necessary part of the infrastructure.

Can you give us a sense of your price then?  Firstly, at the 10 megawatt and the 100 and 200.  If you managed to sell a 10 megawatt hour device to AustCor for its factory what will you charge them?

Well, that’s sort of commercial and confident of course but you can see from our prospectus and actually I can talk about it because we’ve actually costed the first installation there which is about $3 million for something that delivers more than 10 megawatts hours so that gives you an idea.  We think the production cost eventually of our technology will be more like around the $70,000 per megawatt.  That’s our aim and that’s the cost of the storage not the turbines and so on.  As I say, AustCor and that, they want steam and they’re not really interested in power so we can produce that constantly day in, day out, for decades without any degradation and very high efficiencies.  It’s a no-brainer and so you just don’t talk about batteries in that situation, they just can’t do it and you wouldn’t use them. 

A 100 megawatt thing is going to cost $7 million.

Well, in terms of the storage part – that’s where we’re aiming to go in the production cost.  At the moment we’re several times that because we’re only in the first build stage but that’s the sort of numbers, yes, it’s very cheap.

That’s dead cheap.  What sort of margin would you get there?

We’re not selling it for that, I’m telling you what we think we can build them for and…

I see.

Yeah, and then the question is – that’s what we’re aiming for and because we think we can do that is why we think there’s a very good business case for this just about everywhere because we should be able to then build almost all of our devices will go on a project basis, in other words because we have found we’re doing lots of valuations from people that have come to us, everybody ranging from waste management dumps where they’ve got methane coming off through to the wastewater industry like SA Water, all the way through to packaging industry.  These people are all coming to us and they are telling us their needs and every case is different so you have to do it on a case by case basis, on a project basis.  So we’re working with engineering companies to provide tailor made solutions but the key, the underlying key is going to be that the basic cost per megawatt hour of storage is going to be low so we can offer very low cost solutions for them that everybody wins from.

You presented at a show in the US I think a month ago.

Yes.

Tell us about that.

We were asked and given a free slot at what they call the electrification conference which is run by a body called EPRI, who now you’re going to ask me what that means, it’s the Electricity…

It doesn’t matter.

It’s all the big power utilities in the US, they have a research arm.  We’ve got a director resident in the US and he is connected with the energy industry there and so he was approached by utilities, they were talking to him and they said look, we’ve been following you guys, you guys really should get in this, and so into this conference, and tell people what you’re doing.  So they arranged for us to have a free booth and we were approached by utilities across the US and various other energy type oriented companies.  What we found was that the US has huge amounts of gas, in fact it has so much the pipelines – there’s not enough pipeline capacity but the trouble is that the pipelines they have that go particularly to the colder parts of the US it’s very hard for them to increase capacity on those for a whole lot of – just simply getting the infrastructure in and getting approvals and all this.  There are times with the increasing utilisation of electricity that the big generators, gas generators, and industries that are all using gas, the same people are coming to us in Australia that are burning gas at the moment are saying well we can’t get enough gas, there’s times when we simply can’t power our turbines or get a contract on the gas so for instance the New York governors degree that there should be 1,500 megawatts of power available from stored energy by I think it’s 2030. 

They are driven by similar things to here but they were actually not as advanced as Australia in many aspects of understanding the need for storage so that’s why it’s been driven at higher level.  They certainly are very interested in displacing gas and with electricity and that’s where our device comes in because you can put in renewable energy and have a way of storing it.

I’m going to have to finish in a minute but just as a final question when do you think you’re going to start making money?

Well we think the gas test is going to be first cab off the rank for us and it’s pretty much a no-brainer given the fact that we’re using flared gas and competing with engines that are very expensive to maintain and build.  We’re expecting that the next financial year we should get our first orders for those devices.  I’d say in the next financial year, ’19-’20 we’re expecting to make our first sales.

Right.

And that should bring the institutions into the register then.

Yeah.  Good to talk to you, Kevin, thank you very much for your time.

My pleasure, Alan.

That was Dr Kevin Moriarty, the CEO of 1414 degrees.