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By Robert Rapier on Feb 25, 2008 with no responses

Investing in Energy Storage

I attended a presentation last year where a number of alternative energy technologies were discussed, and I was asked whether any major topic had been missed. I responded that I felt like the single most important topic had been missed: The enabling technology of energy storage. An efficient and cost effective energy storage solution is critical for smoothing out the intermittency of solar, wind, and tidal energy. This is the one advantage that biomass does have over these sources: Biomass may be inefficient at gathering solar energy, but it does store nicely.

How important is energy storage? I think it is absolutely crucial, but largely overlooked in alternative energy discussions. It simply isn’t as sexy as solar, but without a good storage solution, solar will never fulfill its potential. And it just hasn’t seemed to me that we are attacking the storage problem with a sense of urgency. So I was really glad to run across this story a couple of days ago:

Energy storage nears its day in the sun

MONACO (Reuters) – Energy storage is an unglamorous pillar of an expected revolution to clean up the world’s energy supply but will soon vie for investors attention with more alluring sources of energy like solar panels, manufacturers say.

The article sums up the problem:

While the supply of the wind and sun far exceeds humanity’s needs it doesn’t necessarily match the time when people need it: the sun may not be shining nor the wind blowing when we need to cook dinner or have a shower.

Soaring production of solar panel and wind turbines is now spurring a race to develop the winning energy storage technologies which will drive the electric cars and appliances of the future.

The race is heating up as manufacturers with entirely different solutions near the moment of commercial production.

Then it discusses a couple of storage solutions that are vying for supremacy, such as:

For example, UK-based ITM Power sees the future of energy storage in the explosive gas hydrogen. The company is developing a piece of kit called an electrolyzer which uses solar or wind power to split water into hydrogen and oxygen.

The hydrogen is then stored in a pressurized container until it is needed, whether to drive a car, produce electricity or for cooking.

“With batteries you’re taking enormous quantities of basic raw materials,” said Chief Executive Jim Heathcote, referring to cadmium in nickel cadmium varieties. His company won an award for research at the Monaco conference, organized by corporate finance advisers Innovator Capital.

“Two things we’re confident of is the supply of renewable energy and water,” he said.

ITM Power aims to start production later this year of electrolyzers and next year of hydrogen fuel cells which generate electricity.

“The one problem everyone’s had is how to store. The ability to take (surplus) renewable energy and make useful fuel out of it is almost priceless,” Heathcote said.

Investment Opportunities

The remainder of the article describes the investment opportunities in energy storage companies, which look attractive. I think in this next phase of my life, I will be more active at seeking out and acting on opportunities such as this. I have not done this in the past, even when I felt strongly about the direction of commodities or stock sectors. For instance, I just saw this comment from yesterday at The Oil Drum:

About four months ago Robert Rapier suggested that investors looking at energy commodities consider gasoline futures as a likly profit maker. That day I checked the price on www.bloomberg.com at $1.92 per gallon. I suggested to a relative that is heavy in the market to get into gasoline futures then as that commodity looked under priced. The person said it looked riskey and required too much diligents to handle.

Today gasoline closed at $2.55, up 33%. A $5000 investment in futures would have netted over $100,000 in following RR’s advice.

Did I act on my own advice? No. (I can already hear my wife asking “Why didn’t you act?”)

Did I act last spring when I was convinced gasoline prices were headed higher? No.

Did I invest in corn futures when I was predicting that because of the ethanol mandates they were headed much higher from their (then) $2/bu price? No. (Corn futures have more than doubled since then).

Did I short ethanol stocks when I wrote that they were overvalued? No. (I do know some who did just that based upon what I had written, and they made out quite well.)

And probably the best (worst?) example of all, did I short Xethanol when it was at $12 and I knew that a devastating exposé was about to be released by Sharesleuth? No. (XNL is now worth less than $0.50 a share).

I always advise people to invest in what they know. I got burned in 2000 investing in technology stocks that I didn’t properly understand. It is hard to do the proper due diligence if you really don’t grasp the important issues in the sector. In technology, it was hard for me to say which companies were poised, and which ones just thought they were poised (and fooled the analysts). But I do understand the energy sphere. I just have to start acting on my convictions. (I haven’t totally twiddled my thumbs on this issue. I have invested my 401K shares per my conviction on higher oil prices, and that has paid out quite well.)

Disclaimer: If you do act on anything you read here, you are on your own. I may change my mind tomorrow about whether something is still a good investment (with gasoline inventories where they are, gasoline futures are starting to look a lot riskier), and I don’t send out warnings to take profits and run. I am obviously not writing an investment blog, although clearly there are numerous financial implications based on developments in the energy markets.