Energy Vault
The downside of alternative energy sources like solar and wind is that they are intermittent. In other words, they don’t work all the time
The big joke used to be that solar’s largest hurdle was night.
That’s because, in a society that wants the lights to come on when we throw the switch, we need power 100% of the time…not just when the sun shines.
And so, back in the mid-2000’s, every gigawatt of solar or wind power needed to be matched with the same amount of natural gas generation. Jet engines that could be spun up to generate power when the solar or wind generation didn’t work.
And, while that’s a decent intermediate solution, it still has some problems. The primary being natural gas is a fossil fuel. It’s better than coal (way better in our opinion) but not perfect. And that’s where battery storage comes in.
The company we’re researching this month just built a brand-new battery storage system on the site of the Reid Gardner Power Plant, an old coal-fired electric utility in Nevada.
This company is a global leader in grid-scale energy storage. And they take a wide view of the definition of batteries.
A battery is anything that can store energy and release it. When you lift a heavy weight up into the air, that’s a battery. The potential energy is released when the weight falls (we’ll talk about the commercial application of this, later!).
However, we like to think of chemical batteries like the ones in our flashlights and cars. The truth is battery science is much more advanced today. Battery tech is moving as fast as computers did in the 1990’s.
Engineers keep producing new combinations to make batteries:
- Safer
- Faster
- Longer-lived
- Smaller
The latest battery innovation is something called sodium-ion batteries. Sodium, like lithium and potassium, are alkali metals on the periodic table. Lithium is lighter and more energy dense than sodium. However, it’s also more reactive.
That means it likes to burn and once ignited is hard to put out. (That’s one of the problems with lithium batteries.)
That combination of light weight and energy density is why lithium beat sodium in the original battery tech race. They first appeared on the market in 1991. However, recent innovations are bringing sodium batteries to the foreground today, particularly for large-scale battery uses.
Sodium technology has many benefits. It’s cheap, easy to source in the U.S., faster energy cycles, longer battery life, and much safer. This is important for use as grid-scale battery backup to replace natural gas turbines.
To understand why, we need to take a quick look at the future of electricity demand. Here’s what we wrote in the latest Mangrove Investor Spotlight Issue:
According to a recent survey by Grid Strategies, grid planners doubled the 5-year forecast for power demand. It forecasts the growth in power demand to more than 1.1% per year. Part of this growth will come from investments in conventional manufacturing and industry. However, a significant part will come from data centers used to generate AI.
That’s a problem because we are coming from a period of underinvestment in the power sector. Capital expenditures dropped from $9.2 billion in 2021 to $8.8 billion in 2023. There were fewer miles of transmission lines built, at a time when we need more. And these giant infrastructure projects take years to plan and build.
Here are some drivers of growth electricity demand:
- Federal legislation provides tax incentives to new industry and manufacturing in the U.S.
- Data center growth spurred by the rise of AI.
- Electrification of transportation and appliances.
- Extreme weather events drive peak demands.
According to a survey of eight power companies (including Texas’ ERCOT, Duke Energy, Georgia Power, etc.), seven see data centers and AI driving larger than expected increases in the five-year power demand growth.
And there is some concern that these forecasts are underestimating the demand. AI is growing far faster than expected. According to the Boston Consulting Group (BCG), generative AI will drive 2 GW of load in the next five years and 7 GW by 2030. BCG’s total data center demand growth forecast is 13 GW over the next five years.
This is a radical change from our historical electric power consumption in the U.S. We only grew electric consumption about 0.6% per year over the last 20 years. That’s less than the rate of population growth (0.7% per year). In other words, we are adding more people, but they use less electricity.
That’s mostly due to improvement in efficiency of our existing technology like refrigerators and air conditioners. But now, we are ramping up massive demand in the form of electric vehicles and massive server farms.
That’s where they need these grid-scale batteries.
Servers need to operate 24 hours a day. They don’t shut down at night. And where natural gas turbines work for that, they are expensive. But there’s a better way that can reduce the cost of electricity.
That’s where new battery-energy storage systems (BESS) come in. They can reduce the cost of electricity for the entire grid by smoothing out supply.
Today, rates vary depending on the day. Supply and demand economics mean that power is most expensive when everybody is using their air conditioners, televisions, ovens, etc. And at night, when everyone is asleep, it’s least expensive.
You can see it in the Energy Information Administration (EIA) chart from New England below:
Peak hours are seasonal. According to Florida Power and Light (FPL), a major electric utility, peak hours from November to March are from 6 am to 10 am and 6 pm to 10 pm. From April to October, peak hours are from noon to 9 pm. FPL instituted a “time of use (TOU)” rate system to encourage people to plug in during off hours. They offer reduced energy rates if you avoid using power during those times.
However, BESS can dramatically improve that, without us having to dry our laundry at 4 in the morning…
BESS units fill up during the low-demand periods and discharge into high-demand periods. That effectively distributes supply and demand. That smooths out the demand curve and will lower prices – exactly what FPL wanted to do with its TOU plan.
But that’s going to require a lot more BESS units. This month we are going to invest in one of the fastest growing BESS suppliers in the world. It’s a company that combines innovative energy storage with new software controls. They company provides turnkey solutions to energy storage, and they are growing fast.
Let’s jump in…
Energy Vault Holdings Inc. (NYSE: NRGV) is a $128 million energy storage company based in Westlake Village, California.
The company develops and sells turn-key energy storage systems. It operates in three divisions:
- B-Vault: Battery Energy Storage
- G-Vault: Gravity Energy Storage
- H-Vault: Hydrogen Energy Storage
It also offers three separate software solutions. Its Vault OS manages one or more of the energy storage systems. The Vault Bidder utilizes machine learning to match specific data with real-time weather and performance information. And Vault Manager blends safeguards asset management and blends existing technologies together seamlessly.
The company saw explosive growth in revenue from 2021 through 2023. Its revenue grew 134% year over year. It has a strong cash position of $146 million with almost no debt.
The company reports First Quarter earnings on May 8, 2024. You can see its progress in the table below:
The company installed its first twenty-five megawatts of gravity storage in China. It will build another three gravity energy storage systems of 368 megawatts. That will bring its total projects to 3.7 gigawatts.
It also began construction on the largest Green Hydrogen micro-grid system in the U.S. with California’s PG&E Electric Utility. That should be completed and online this summer.
CEO Robert Piconi said, regarding the company’s annual results:
“The Energy Vault team successfully executed on our most important priority that we set at the beginning of 2023 –deployments of our first energy storage projects across multiple customers delivered on time, on budget and at the quality, safety and performance levels that meet or exceed our customer expectations.
In addition to commissioning ~1 GWh of battery and hybrid short duration energy storage systems in the second half of 2023 under our new OS-Vault Energy Management System, we also continued to solidify our global leadership position in long duration energy storage with gravity energy territory expansions across the globe in the US with a large public utility and Southern Africa to complement explosive growth in China with total projects now surpassing 3.7 GWh of EVx gravity energy systems.
With the innovation in motion with the construction start of the largest green hydrogen energy storage micro-grid in the USA with PG&E in California serving a multi-day, ultra-long duration storage need, we are clearly demonstrating our unmatched capabilities as an energy storage solutions provider.”
The company clearly succeeded in its operational goals. However, the stock price has not performed well.
You can see what we mean in this chart:
It recently hit a 2-year low of $1.10 per share. While we believe this company could recover, this is an ugly chart.
We recommend that you be cautious in your investment.
That said, we like this sector and this company. We see its global growth as a significant strength. It just signed a $20 million, 10-year gravity technology license and royalty agreement with GESSOL, which includes sixteen countries in southern Africa. That group represents 125 gigawatts of addressable power.
We see Energy Vault as a high-risk/high reward play on battery storage technology.
It will play a part in supplying the demand for energy storage. We like its strong cash position and strong international presence. We like its diverse offerings of gravity, battery, and hydrogen storage.
Action to Take: Buy Energy Vault Holdings (NYSE: NRGV) up to $1.75 per share. Please use a hard stop at $1.25 per share. That means we will sell if the share price closes below $1.25. At that price, we’ll know that we got something wrong in the analysis.
However, if the company performs as we expect it to, it could easily regain its former share price, north of $10 per share. That’s an excellent risk to reward ratio for our portfolio.
We look forward to the May 8th investor day presentation. We plan to provide an update to this recommendation after that.
For the Good,
The Mangrove Investor Team
