- EnSync, Inc. (NYSE MKT: ESNC)
“I’d put my money on the sun and solar energy. What a source of power!”
- Thomas Alva Edison (1847-1931)
According to a report by Lux Research, “Energy Storage, driven largely by electronics and plug-in vehicles, will grow at a compound annual growth rate of 8% to $50 billion in 2020, with dramatic shifts coming from the transportation industry.” In the utility, residential and commercial markets, the key growth drivers pushing the need for energy storage and management solutions are actions, such as, government mandates/incentives/policies, aging infrastructure, high electricity rates, decreasing cost of installing solar technology, etc…
To discuss the Energy Storage and Management markets, I spoke with Bradley Hanson, CEO of EnSync, Inc. (NYSE MKT: ESNC), an energy management and storage systems company for utility, residential and commercial markets.
RK: Mr. Hansen, thank you for your time. Let’s start with a brief overview on EnSync, Inc.
BH: Sure. Our focus at EnSync, our mission and reason for existence is to revolutionize the way energy is generated and distributed. We do this by not only creating high performance distributed energy generation systems, but also enabling a future where the utilities can embrace the potential of that generation in a way that is not common today, and the asset owners can profit from the utilities embracing of that potential. We want to be a change agent for a new energy economy.
RK: You’ve just recently been appointed CEO of the company. What is your background and how’d this come to be?
BH: My background is primarily in the semiconductor and renewable energy fields. I spent a number of years at Applied Materials, Inc., the leader in the semiconductor manufacturing equipment market. I held positions there in multiple business units, including VP of Planarization Products, which grew to a $1.0B annual business from ~$100M while I was part of the organization. I was also part of the initial group of employees in the Solar Products Business Group at Applied. When I left Applied in 2010 I was VP of Solar Business and the group had grown to be in excess of $1.0B in Sales. When I initially joined, the Sales were literally $0. In 2010, I formed a small private equity fund that made two investments in China. One of these was Meineng Energy, which was the China JV Company of ZBB Energy. I ran Meineng Energy until May 2014, when I joined ZBB.
RK: The Company also just recently changed its name. Why did the company change its name from ZBB Energy to EnSync, Inc.?
BH: Over the last two years the ZBB products and solutions have evolved from selling batteries to selling complex and highly advanced energy management and storage systems. Additionally, the company has taken a leading role in the Commercial and Industrial building market segment by providing complete distributed generation solutions behind the meter, which synchronizes all energy inputs and outputs between the distributed generation, the grid and the building demand. In the future, we will also focus on providing complete connectivity between the distributed generation in commercial and industrial installations and the grid, and further enabling realization of the Internet of Energy. In summary, our former name, ZBB Energy, was derived from Zinc Bromide Battery. We’ve long since departed from a pure play battery company.
RK: How is the company providing solutions for the transition from a ‘coal-centric economy’ to one reliant on renewable energy? Please describe the Company’s products.
BH: EnSync Energy Systems products are critical to the expansion of renewable energy. At the macro level, adding more and more renewable energy installations into a grid network creates a supply peak that is several hours disconnected from the demand peak. For a variety of reasons, it can become very problematic to run traditional generation assets for only a few hours a day to fill in this supply gap. Storage enables movement of large amounts of energy from one time of day to another, effectively filling this energy supply gap. This is what is behind the energy storage policy in California. EnSync’s utility scale batteries address this market by moving a lot of energy from one time of day to another. At the micro level, EnSync provides energy management and storage systems that enable commercial buildings to fully leverage the PV and other generating assets that they deploy and maximize the economic return. The power generated by the PV can be stored and used for a number of applications in the building or exported on demand. There are more than a dozen functions and applications that currently can be performed in a commercial building with our systems, from back-up power to demand shift. The day will come when commercial properties with distributed generation assets like PV with storage will be able to sell their electricity to the grid operator or utility at spot market electricity rates. We call this, “smart export on demand." Our systems have the intelligence and capability to enable this future today. So an owner of a building that is investing in a 20-year PV and storage system today can have confidence that their system can provide the value that they want years down the road. We refer to this as a “future proof” investment.
RK: What is the size of the energy management market? Who are your target markets? What is the demand for energy management applications?
BH: There are a lot of differing forecasts out there, but they range from high growth rate to phenomenal growth rate. In any case, the total market for our products and services is likely to reach $100B annually by 2020. Our target markets today are energy management and storage systems for the utility market and commercial and industrial building markets. These markets represent more than 80% of the solar deployments. It’s reasonable to project that for energy management and storage systems we address around 80% of the market today. We currently don’t address the single-family residential solar + storage market, but will continue to monitor the economics of that market to see if there is a compelling case to be made for entry.
RK: What are the key growth drivers for the energy storage and management markets?
BH: As stated earlier, adding more and more renewable energy generation into the overall grid network is the key driver for our systems. Whether to close the supply and demand energy gap at the utility level, or to enable your commercial property to generate cash from distributed generation. These are the direct drivers. If you go one level removed, the driver for utility PV is government policy, whether in terms of renewable portfolio standards at the state level or EPA and other Federal policies that have the impact of phasing out traditional generation sources such as coal. For the commercial and industrial buildings, the primary driver is high electricity rates. Other contributors are tax credits and poor grid quality in some locations. But rates are the main driver. Over time the rates nearly always rise – on the order of 3% in 2014, according to some estimates. So more and more locations enter that attractive portion of the market over time as the rates rise.
RK: Who are the Company’s competitors?
BH: There are limited competitors in the market that line up directly with what we do in the C&I space – provide advanced energy management solutions for distributed generation behind the meter. We bring the energy management system, the storage and the integration expertise. For example, we’re the only company to date that has been permitted to install a Solar + Storage system behind the meter in Hawaii. That being said, there are other companies providing pieces of systems – power controls, batteries and other items. What sets us apart is that we have the leading energy management systems technology with our Matrix product, which enables us to perform many more functions with a higher degree of simplicity than other products in the market. The Matrix is the anchor product in our systems. It’s differentiated and IP protected. Beyond that, what differentiates us from battery companies like Tesla and others is our applications focus. We select the right storage technology to perform the most applications possible in a building or micro-grid. Sometimes this is flow battery technology, sometimes it is Li Ion and in some cases it is even lead acid. Most often it is a battery that is a hybrid, with flow battery and Li Ion technology integrated into a storage system that can cover high power, short discharge applications, in addition to high energy, long discharge applications. We’re the only ones in the market driving commercial scale hybrid batteries into behind the meter applications. For our hybrid systems with Li Ion we select the best technology for the application. Most people treat Li Ion as if it is all the same. It isn’t, and the EnSync Li Ion is the right Li Ion technology for the application. Unlike pure-play battery companies, we don’t try to install our battery products for applications where they are wrong technically or poor economically. We mix and match the best storage for the applications. Unlike the commercial and industrial building market, the utility market is typically defined by single application systems. So it becomes much more of a cost driven business. We compete in this segment with a lot of pure-play battery companies and differentiation becomes more difficult. Our ability to manufacture in China gives us some competitive advantage in cost relative to others in the long discharge battery category. We have also bid on projects utilizing EnSync Li Ion where the application needed two hours or less discharge each day. It is difficult for small companies to land big utility projects due to balance sheet concerns. Our partnership with Solar Power Inc. gives us a better balance sheet to go after these particular contracts. We generally view the commercial and industrial building market as our core that we can build a company around and the utility business as great incremental business when it happens.
RK: Please explain the Company’s ‘PPA’ model and how, using one of your customer’s as an example, does it work?
BH: Power purchase agreements for owners of commercial properties are essentially a shared savings program. The owner of the PPA installs the distributed generation system, consisting of PV, storage and the energy management system at a site. The owner of the PPA can then use the system to generate and provide electricity less expensively than the grid rate. The PPA owner sells the generated electricity to the owner of the property at a rate above the generation cost but below the grid rate. So the owner of the PPA makes a profit and the owner of the building saves money – often a lot of money - on electricity. On top of savings in electricity rates, the owner of the building gets resiliency and back-up power due to the storage.
RK: How does the increasing role of solar and wind energy affect the business?
BH: There is growing realization around the world that ongoing expansion of renewable energy generation cannot continue without incorporation of energy storage and better energy management systems. This is especially true for solar. So our business is often connected to the expansion of solar. We enable it and it drives us.
RK: In the same press release announcing you being appointed CEO, the Company also states, ZBB Energy and Solar Power, Inc. (SPI) Announce Closing of Global Strategic Partnership. What does this mean for the Company?
BH: There were three main drivers for the partnership with SPI. First, the deal came with a four-year supply agreement that the two companies have valued at $80-120M. The exact number will ultimately be driven by applications for storage. Second, SPI invested $33.4M in EnSync (ZBB at time of announcement) in exchange for a combination of common and convertible preferred stock. The capital injection will help us fund our strategic initiatives as well as be available as working capital. Third, the agreement gives us access to more markets and channels globally since SPI is well positioned in locations like Germany, the UK, Japan, Australia and elsewhere where EnSync is not. SPI also builds on our existing position in China through our JV Company, Meineng Energy. We look forward to this partnership yielding great results.
RK: What does the future hold for EnSync?
BH: First, the market for our products is growing at a phenomenal rate. That is an excellent place to start! But compelling and differentiated products are also a must. We’ve been able to bring an entirely new product portfolio to the market in the last nine months that we believe will be well positioned to be successful. Lastly, the global presence of SPI gives us many more channels to the market. We’re well positioned to capitalize on the market. It all comes down to our own capability to execute.
For more information about EnSync, Inc., go to: www.EnSync.com