The positives and negatives of electricity storage

August 2018

The positives and negatives

of electricity storage Cantor Fitzgerald Europe Equity Research

Adam Forsyth Research Analyst +44 131 257 4623

[email protected]

This is a marketing communication. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition of dealing ahead of the dissemination of investment research. However, CFE has put in place procedures and controls designed to prevent dealing ahead of marketing communications. For institutional clients use only. Please see important regulatory disclaimers and disclosures on pages 77-80

Affordable electricity storage is likely to accelerate the energy transition in our view. But storage is complex and lithium ion batteries in particular are only part of the answer. We see this as creating opportunities at different points in the market, notably in project development, complementary technologies, control systems, renewables and in new storage technologies.

Lithium ion is a key part of the energy transition Lowering costs and better performance from lithium ion batteries are changing both transportation and electricity markets, accelerating the growth of electric vehicles and renewable energy and driving the transition to a low carbon world. We think the relationship between EV demand and infrastructure needs in particular will accelerate demand for lithium ion storage.

Lithium ion is not the only solution But lithium ion has persistent limitations in terms of economics and performance. These do not rule out lithium ion as a major component of the energy transition but it also creates opportunities for other solutions, notably outside the economic operating limits of lithium ion.

Supercapacitors and LTO for very short duration We identify four key storage market segments based on storage duration. Very short duration markets for frequency management and the internet of things play to the strengths of supercapacitors and lithium titanate cells. Gel and solid state batteries are new technologies that could also win a share of this growing market.

Lithium ion remains dominant for short and medium durations Short duration markets for frequency response remains a key area of opportunity for lithium ion technologies both NMC and LTO. Medium duration is again the preserve of lithium ion which we think will increasingly displace diesel and gas for electricity storage systems. It is also the market where urban transport lies and again we expect to see lithium ion dominate here.

Flow batteries and fuel cells look to gain at longer durations At longer durations lithium ion suffers on both cost and performance. We see flow batteries emerging for mid durations and at longer durations hydrogen-based solutions including fuel cells coming to the fore. We note in particular this year’s KPMG survey of automotive executives which put fuel cell vehicles as the real breakthrough in electric mobility.

Opportunities in development, technologies and renewables We see a number of listed companies who are exposed to the opportunities as these markets develop. In storage development Leclanché, Electro Power Systems, SIMEC Atlantis and Plutus Powergen are all active to a greater or lesser extent. Leclanché and Electro Power Systems complement this activity with strengths in storage control. There are a number of companies progressing opportunities in the supercapacitor hydrogen, flow battery and solid state battery spaces including AFC Energy, CAP-XX, Ceres Power, RedT, ITM Power and Ilika. SIMEC Atlantis and Windar Photonics can also benefit as storage facilitates further growth in renewables.

21 August 2018 | Sector Note | Alternative Energy & Resource Efficiency

Equity Research | UK

The positives and negatives of electricity storage

ELECTRICITY STORAGE Storage and renewable development Leclanché Electro Power Systems SIMEC Atlantis Plutus Powergen Windar Photonics Complementary storage technologies AFC Energy CAP-XX Ceres Power RedT ITM Power Ilika

Adam Forsyth Research Analsyt +44 (0) 131 2574623 aforsyth@ cantor.co.uk

2 Cantor Fitzgerald Europe Research

Alternative Energy & Resource Efficiency | The positives and negatives of electricity storage

Table of Contents

The positives and negatives of electricity storage 3

Why batteries are a hot idea 10

Battery limitations 15

Lithium ion is not the only solution 35

Storage technologies compared 45

Leclanché 51

Electro Power Systems 54

SIMEC Atlantis Energy 57

Plutus Powergen 60

Windar Photonics 63

AFC Energy 66

CAP-XX 69

Ceres Power Holdings 72

RedT Energy 73

ITM Power 74

Ilika 75

Cantor Fitzgerald Europe Research 3

The positives and negatives of electricity storage Alternative Energy & Resource Efficiency |

The positives and negatives of electricity storage

Lithium ion is having a revolutionary impact on both stationary and mobile energy markets. Costs have come down and energy density, the amount of energy stored per unit of weight, has gone up.

BNEF Lithium Ion Battery Price Survey Lithium Ion Battery Gravemetrc Energy Density

Source: BNEF Source: Joint Centre for Energy Storage Research

Storage can already down deliver investable paybacks without the need for subsidies in key applications. Genuinely objective data in this highly competitive environment can be difficult to source but there have been some helpful academic works in recent years which demonstrate the undoubted progress.

Studies of Battery Payback Period

Application Behind the meter PV support Electric Bus Behind the meter PV support

Offshore support vessel

Payback period (years) 14.0 7.7 7.2 5.0 Study National Renewable Energy

Laboratory Columbia University for New York City

Transit Universities of Liege and

Aalborg Norwegian School of

Economics Date Nov-15 May-16 Dec-16 Dec-16

Source: CFE Research estimates

As a result, demand for storage is expected to grow dramatically led by electric vehicles (“EVs”) and electric buses. Storage for consumer electronics continues to growth augmented by Internet of Things (“IoT”) demand. Stationary storage (Energy Storage Systems, “ESS”) is a smaller market by comparison but should also grow rapidly from a low base.

0

200

400

600

800

1000

1200

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

US$

/kW

h

0

50

100

150

200

250

300

1990 1995 2000 2005 2010 2015W

h/kg



Annual Battery Demand by Sector

Source: BNEF

Despite the strong expected uptake of lithium ion technology, it suffers from a number of limitations. Many of these such as material constraints and lifetime limitations directly reflect back to cost. Others such as infrastructure considerations and usage complexity impact usability.

The energy stored (effectively the duration of storage) is reflected in energy density. While this has improved dramatically, it remains a limiting factor, and results in the cost of storing more than a few hours of charge becoming uneconomic and in many cases simply impractical. In the transport space this is reflected in limited range.

Energy Density of Transportation Fuels and Batteries

Source: Qnovo

Other performance limitations such as battery life impact cost. Lack of changing infrastructure for EVs, charging time constraints and thermal considerations all have solutions. Ironically infrastructure solutions are likely to lead to even greater demand for storage with stationary storage being a key tool in managing the additional pressures placed on grids as a result of EV growth. Application complexity is overcome with control solutions and we see this as a key area of differentiation within the sector.

0

200

400

600

800

1000

1200

1400

2011 2013 2015 2017 2019 2021 2023 2025 2027 2029G

Wh/

year

EV E-Bus ESS CE

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Gasoline Ethanol NCA LCO LFP Lead acid

Wh/

kg



Cost reductions will have to be fought for and are likely to be slower than many expect. There are three reasons for this:

• Raw material constraints • Existing low producer margins • Electrochemistry limitations

These are major limitations but do not prevent lithium ion as emerging as a major storage solution. In fact we see it dominating storage for short and medium duration storage.

However we also see the limitations creating opportunities for other rival solutions especially at longer storage durations and at very short durations. Notably we see fuel cells, flow batteries and supercapacitors as benefiting from strong demand.

We see a renewed and stronger role for solutions based on hydrogen chemistries including fuel cells. The success of the recent Bloom Energy IPO suggests we are not alone in seeing the value here. But we also note this year’s KPMG survey of automotive executives which placed fuel cell EVs ahead of battery EVs.

“Fuel Cell Vehicles Will be the Real Breakthrough in Electric Mobility”

Source: KPMG Global Automotive Executive Survey 2018

We also see strong potential in new battery technologies which can overcome some of the limitations of lithium ion although these may take time to develop. The leading technologies are likely to have most immediate success in consumer electronics and IoT applications and this is where we see most interest.

Supporting our analysis we have developed levelised cost of storage curves which show the levelised cost of storage for different technologies for different storage durations. This shows four zones where key technologies dominate; very short, short, medium and long durations.

Absolutely agree

Partly agree

Nuetral

Partly disagree

Absolutely disagree



Broad Levelised Cost of Storage Groupings


Key storage market segments

Segment Duration Applications Current solutions

Very short duration 20ms to 1s Frequency management, IoT Supercapacitors, LTO Short duration 1s to 1 hr Frequency response Lead acid, Li - ion Medium duration ESS 1hr to 6hrs Renewables arbitrage - Peak shaving Diesel and OCGTs Medium duration EV 1hr to 6hrs Urban EV NMC, NCA Long duration ESS > 6hrs Renewables arbitrage - load levelling Pumped storage Long duration EV > 6hrs Long distance EV None


Despite the constraints on cost progress there will be changes in competitive positioning and we can map these in terms of our curves to show how we think storage markets will develop.

10

100

1,000

10,000

0.0003 0.003 0.03 0.3 1 3 6 12 24 48

US$

/MW

h

Duration (hours)

Super capacitors Pumped storage Hydrogen storage old Lithium-ion battery old Lead acid battery Flow battery old OCGT Diesel

Very short duration Short duration Medium duration Long duration



Levelised Cost of Storage Evolution


As a result of this we see the key immediate technologies as being supercapacitors, LTO, solid state batteries, NMC, NCA, flow batteries and fuel cells. Further opportunities exist in control and development and renewable energy will be given a boost by storage as an enabling technology. Finally new storage technologies will be able to exploit the limitations of lithium ion in key markets and we see the IoT as a notable early area of opportunity here.

Market development

Segment Current solutions Competing technology

Very short duration Supercapacitors, LTO, solid state Supercapacitors, LTO, solid state Short duration Lead acid, Lithium ion LTO, NMC Medium duration ESS Diesel and OCGTs NMC Medium duration EV NMC, NCA NMC, NCA Long duration ESS Pumped storage Flow batteries, fuel cells Long duration EV NMC, NCA Fuel cells


10

100

1,000

10,000

0.0003 0.003 0.03 0.3 1 3 6 12 24 48

US$

/MW

h

Duration (hours)

Pumped storage Hydrogen storage old Hydrogen storage new Lithium-ion battery old Lithium-ion battery new Lead acid battery

Flow battery old Flow battery new OCGT Diesel Super capacitors

Li-ion cost reductions

Flow battery cost reductions

Hydrogen storage cost reductions



Opportunities for investors

Lithium ion storage is now seeing widespread adoption and we see this continuing. There is a degree of commoditisation already and we think this will continue. However we continue to see value in the development of storage project in the right situations. But the limitations of lithium ion mean that there are opportunities in complementary storage technologies including supercapacitors, flow batteries and in the emerging hydrogen economy. Control and implementation providers will also see opportunity in our view.

The widespread adoption of storage will in turn support and encourage more renewables and we see relevant companies benefiting here. Finally developers of new storage technologies can exploit the limitations of lithium ion and find potentially major opportunities as they bring their technologies to market.

Storage development companies

The capital needs of storage systems and the skills required to develop projects makes the developer roles a valuable one in our view.

• Leclanché • Electro Power Systems • SIMEC Atlantis • Plutus Powergen

Complementary technologies

Technologies other than lithium ion, especially at either end of the duration curve are likely to see stronger demand as the limitations of lithium ion become more widely known. We see opportunities in supercapacitors, flow batteries and fuel cells as being especially interesting at the moment. Newer technologies such as solid state batteries are also beginning to gain traction.

• Leclanché (LTO) • AFC Energy • CAP-XX • Ceres Power • RedT • Ilika • ITM Power

Control and implementation

The difficulties in matching storage technologies to complex use needs means that control technologies and their implementation are less likely to become commoditised over time. The wider area of smart grid and other smart systems, notably micro grids is also an area of opportunity for investors.

• Leclanché • Electro Power Systems

Renewables

Storage is an enabling technology for renewables and will make their deployment more attractive boosting demand in time. We see a number of companies benefiting from this.

• SIMEC Atlantis • Windar Photonics



This time it’s different

Electricity storage has been around for a long time and has not always been suitable for public markets.

“The storage battery is, in my opinion, a catch-penny, a sensation, a mechanism for swindling by stocking companies. The storage battery is one of those peculiar things which appeal to the imagination, and no more perfect thing could be desired by stock swindlers than that very selfsame thing.”

Thomas Edison, Interview with the New York Sunday Herald, January 28, 1883.

However the clearly improving technologies coupled with real demand arising from concerns about both climate change and particulate emissions has changed the nature of demand for storage in our view. We are moving from a policy driven, normative world to a genuine needs based market.


Alternative Energy & Resource Efficiency | Why batteries are a hot idea

Why batteries are a hot idea

Until quite recently, storing electricity in large quantities sufficient to power a car or provide back-up power for the electricity grid has been largely unfeasible in both practical and economic terms. Pumped storage has been a possible exception and a go to solution for power grids but it is itself an expensive option at up to £1.5m per MW of capacity and requiring a significant amount of space. This exemplifies the problems faced by most storage solutions, namely cost and energy density, the amount of energy that can be stored in a given space. However recent developments, notably improvements in lithium ion battery technology, have seen the cost of storage fall and energy density rise.

Price reductions and technology improvements

The cost of battery technology has fallen dramatically in the past decade.

BNEF Lithium Ion Battery Price Survey Lithium Ion Battery Gravemetrc Energy Density

Source: BNEF Source: Joint Centre for Energy Storage Research

Battery technology has also improved significantly over this period with new technologies being developed to meet market needs and these technologies then improved.

Lithium Ion Battery Timeline

Michael Stanley Whittingham proposes lithium battery for Exxon Research and Engineering

Ned Godshall, John Goodenough and Koichi Mizushima demonstrate

4V LCO cell

LCO commercialised by

Sony

LMO and LFP commercialised

NCA commercialised

NMC commercialised

1972 1979 1991 1996 1999 2008


0

200

400

600

800

1000

1200

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

US$

/kW

h

0

50

100

150

200

250

300

1990 1995 2000 2005 2010 2015

Wh/

kg


Why batteries are a hot idea Alternative Energy & Resource Efficiency |

Not all lithium ion is the same

As lithium ion has been developed over the years, a number of cathode and anode materials have been tried resulting in six main chemistries with differing characteristics. These are summarised in the table below. Broadly speaking for vehicles and stationery storage, NCA and NMC are the dominant chemistries with LTO being available as a more expensive but more useful chemistry in certain applications.

Lithium Ion Battery Chemistries Compared

LCO LMO NMC LFP NCA LTO

Specific energy (Wh/kg) 150–200 100–150 150–220 90–120 200-260 70–80 Specific power (W/kg) 400-2200 300-1600 300 3000-5100 Cycles 500–1000 300–700 1000–2000 1000–2000 500 3,000–7,000 C rate (C) 0.7–1 0.7–1 0.7–1 1 1 1-5 Thremal runaway (°C) 150 250 210 270 150 One of safest


For EVs and stationery storage, NCA, NMC are the most appropriate given their better specific energy and cycle lives. LTO has a key role where power and longevity are important considerations. Most of the other chemistries are more suited to consumer good applications.

The drive to reduce exposure to cobalt has led to reformulations of the key NMC chemistry. Originally nickel, manganese and cobalt were present in equal amounts with cells described as NMC (111). The industry is through different formulations with NMC (622) in sight where nickel represents 60% of the total and manganese and cobalt with 20% each. The target is NMC 811. However there are issues here. The formulation has been found to show increased impedance with cycling leading to a rapid capacity fade. For low cycle life cells this may be acceptable and some manufacturers are already offering product for consume applications. For large format cells the material is not an option at present.

BNEF expects chemistries to develop as follows.

Share of Chemistry 2017 Share of Chemistry 2030

Source: BNEF Source: BNEF

However we think this may be optimistic on NMC 811 for the reasons we have outlined above.

LMO

NCA

LFP

NMC (111)

NMC (433)

NMC (532)

NMC (622)

NMC (811)

LMO

NCA

LFP

NMC (111)

NMC (433)

NMC (532)

NMC (622)

NMC (811)



Economic viability in key use cases

Batteries are now an economically viable solution as substitutes for other energy sources in certain situations. In particular, battery solutions for marine and bus transportation and for certain stationery storage applications now make economic sense before the consideration of any policy support. The payback periods for investments in buses, marine transport and solar (PV) support are all beginning to look attractive. Research shows payback periods in these key areas as beginning to look viable for subsidy free investment.

Studies of Battery Payback Period

Application Behind the meter PV support Electric Bus Behind the meter PV support

Offshore support vessel

Payback period (years) 14.0 7.7 7.2 5.0 Study National Renewable Energy

Laboratory Columbia University for New York City

Transit Universities of Liege and

Aalborg Norwegian School of

Economics Date Nov-15 May-16 Dec-16 Dec-16


Additionally growing need for energy supply for internet of things applications (“IoT”) has created demand for small scale energy storage.

IoT uses – need for better batteries The very large growth in demand for sensor and control devices fed by IoT applications is creating a similarly large demand for power sources for these devices. Small devices have traditionally been powered by nickel cadmium, nickel metal hydride or even alkaline batteries.

However these all have a number of limitations including temperature sensitivity and memory effects. The biggest limitation of all is poor energy density. As a result lithium ion cells are becoming dominant in this area. In certain applications where power density is important, supercapacitors are also making inroads and there are a number of newer technologies that have applications here including solid state batteries.

The IoT market continues to grow with Forbes magazine summarising a number of recent market forecasts and showing a CAGR to 2020 of between 16% and 31% and overall market valuations in 2020 of up to US$8.9Tr.

IoT CAGR Forecasts to 2020

Source: Forbes

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00%

IDC

Bain

Statista

BCG

Gartner

Dutch ITC

GrowthEnabler/Markets&Markets

PwC


Why batteries are a hot idea Alternative Energy & Resource Efficiency |

Demand for storage set to grow

These breakthrough price points drive further demand growth, accelerating down the cost curve. We have already seen bidding ahead of the curve based on assumed cost reductions in certain stationery areas such as the UK’s EFR auction. More significantly, automotive OEMs and governments are planning as though EV demand will grow significantly. This of course has a propensity to be self-fulfilling.

Policy in particular is advancing to support EVs at a rapid rate. Perhaps the biggest shift here has been the move in policy priorities from the long term impact of CO2 to the more immediate impact of particulate emissions notably fine particulates with a diameter of less than 2.5um (PM2.5). As a result there are various subsidy and other forms of policy support available around the world. Subsidies of up to 50% of a vehicle’s costs are available in some countries.

EV Subsidy as % of EV Cost

Source: McKinsey & Company

China is now the leading market for EVs and as a result policy here is key.

EV Unit Sales

Source: BNEF

Chinese EV policy has developed from tentative support in 2009 to fully-fledged support in 2016 although there is now an emphasis on reducing the subsidy level with phase downs in order to follow the cost curve.

0

10

20

30

40

50

60

Den

mar

k

Nor

way

Sout

h K

orea

Chi

na

Uni

ted

Stat

es

Fran

ce

Net

herl

ands

Uni

ted

Kin

gdom

Ger

man

y

Japa

n

Swit

zerl

and

Spai

n

Swed

en

Port

ugal

Ital

y

% su

bsid

ies

in E

V p

rice

China

USA

Japan

Norway

UK

France

Germany

Netherlands

Sweden

Canada

Belgium



China EV Subsidy Development

NEV pilot city subsidy program initiated

Expansion to include private NEVs

Expansion to promote hybrid city buses in non-pilot cities

Extension of central subsidy to 2013-2015

First phase down of central subsidy 2014-2015

Extension and second phase down 2016-2020

Third phase-down with stricter qualification and compliance 2017-2020

2009 2010 2011 2012 2013 2014 2015 2016

Source: International Council on Clean Transportation

Stricter policy requirements currently being introduced are reducing subsidy from short range vehicles and favouring longer range vehicles. Fuel cell vehicles also receive support. Additionally there are city level support policies which have been strongly instrumental in increasing EV penetration.

Bloomberg New Energy now forecasts electricity storage capacity to grow at an average of 22% annually to 2030, driven principally by EV demand and E bus demand. Stationery energy storage systems (“ESS”) shows much lower demand in this forecast. However we think ESS demand is understated as the impact of EVs on system power demand will increase demand for ESS as a solution to grid constraints caused by charging demand.

Annual Battery Demand by Sector

Source: BNEF

Change drives change

While EV growth is the biggest source of potential demand, the demand for stationery storage may be underestimated. The US Federal Energy Regulatory Commission ruled in February that energy storage companies will be eligible to compete against traditional power plants in US wholesale markets by the end of 2020 (FERC Order 841). This has been seen by some as analogous to the US deregulation of the telecoms market in the 1970’s. Following the issue of Order 841, the Brattle Group issued research suggesting that ESS in the USA could hit 50GW if costs continue to fall. Assuming a three hour storage duration in line with the research, this would mean 150GWh of battery storage for the USA and extrapolating globally would suggest total ESS capacity in line with the E-Bus demand shown above.

Growth for storage set to grow but there are issues

While this might all sound positive for investors in storage opportunities there are major limitations around battery technology. These in turn create risks for investors who back the wrong vehicles. In many ways these risks have not changed in many years.

0

200

400

600

800

1000

1200

1400

2011 2013 2015 2017 2019 2021 2023 2025 2027 2029

GW

h/ye

ar

EV E-Bus ESS CE


Battery limitations Alternative Energy & Resource Efficiency |

Battery limitations

Batteries are now being seen as the ideal solution to both transport needs and to solving the intermittency issues of renewable energy. While they certainly have potential in these areas there are certain issues which mean that they are not necessarily a cure all in either sector.

• Performance limitations • Raw material scarcity • Infrastructure limitations • Complexity of use

Performance limitations

Anyone who has owned a mobile phone for more than about two years will be familiar with one of the performance limitations of batteries, namely a degradation of performance over time. There are other limitations too famously including heat management issues which in some cases have been cited as being behind well publicised failures in products including the Tesla model S, the Boeing Dreamliner and the Samsung Galaxy Note 7.

Performance limitations can be summarised as follows:

• Lifecycle • Charging times • Thermal runaway • Power and energy density limitations • Cost development

Life The life of a battery is usually expressed in the number of full charging cycles that a battery can deliver before there is a noticeable loss of power delivered. A full charging cycle is from being fully charged to fully discharged and then fully charged again. In use a battery is unlikely to ever be fully discharged and battery management systems can control charging so that it can maximise the number of cycles and thus the batteries life. However lifetime is still an issue.

Cycle Life for Main Li-Ion Chemistries

Source: Battery University

0

1000

2000

3000

4000

5000

6000

7000

8000


Cyc

les

High Low


Alternative Energy & Resource Efficiency | Battery limitations

Charging time The time taken to charge a battery is also problematic. While progress has been made here and EV drivers now have the option of superchargers, charging still takes time. In the case of an EV it is still quicker to fill up a traditional ICE powered car than to charge an EV. Additionally rapid charging can have a significantly negative impact on the battery life.

C Rates for Key Li-Ion Chemistries


Charging time is normally expressed as a “C rate” which measures the rate of discharge relative to a batteries maximum capacity. A 1C rate means that the discharge current will fully discharge the battery in one hour. A 2C rate would see full discharge in 30 minutes. In a similar fashion, discharging can be expressed as a D rate although often the term C rate is used interchangeably for charging and discharging.

Life and charging are related. Battery life is affected by maximum voltage, temperature and C rate. The first is fixed at the design stage and the second is largely a function of the application. However the C rate represents a major limitation in that either you can have a long life or you can have rapid charging but not both.

Cycle Life for Different C Rates

Source: Choi et al. Journal of Power Sources 111 (2002)

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6


Hou

rs

High Low



Batteries get hot Lithium ion in particular has a tendency to overhead leading to thermal runaway. This can lead to cells exploding if overheating gets out of control. Battery manufacturers are moving to design in fail safe solutions and in most applications cooling is key.

Thermal Runaway

Source: NREL

Extremes of temperature can also have an impact on battery performance which is severely limited at low temperatures.

Low Temperature Performance

Source: NREL

High temperatures can also limit battery life quite dramatically. In this case the performance degradation is not reversible and will lead to a reduction in the overall life of the battery.



High Temperature Performance

Source: NREL

As with charging, temperature affects lifetime and in turn this increases the effective or levelised cost of storage of the battery.

Power and energy but seldom both Many applications need high power to deliver the required performance. These include high power grid needs such as black start as well as the heavy end of the vehicle market. Other applications need a large amount of energy which in the case of EVs translates into range. Broadly most storage technologies are either good at power or at energy but seldom both.

Ragone Plot

Source: US Defence Logisics Agency, CFE Research estimates

0.1

1

10

100

1000

10000

10 100 1000 10000

Ener

gy d

ensi

ty (

Wh/

kg)

Power density (W/kg)

Fuel Cells

Li-ion

Pb-acid

Supercapacitors

Flow-VRD



The amount of energy stored in a battery is limited. This is what limits the range of an EV. Improvements are being made all the time but range is still a major deterrent for many. Additionally for certain grid applications which require storage for many hours, batteries cannot yet provide a suitable solution.

Energy Density of Transportation Fuels and Batteries

Source: Qnovo

Costs The cost dynamics of a battery mean that while the technology will follow an experience curve and see significant cost reductions as volume increases, the relationship is unlikely to be as strong as Moore’s Law was for semiconductors. This was of course an observation rather than a law and it observed that costs came down linearly with annual production. Observations to date of battery costs suggest that costs come down with cumulative production which is necessarily a slower rate of improvement. It has been termed Snail’s law by one commentator.

Performance Improvements Compared

Source: Qnovo

Additionally raw material constraints and efficiency limits in balance of plant are acting as brakes on the most rapid cost reduction forecasts.

It is important to remember that Moore’s Law is not a law but merely an observation. There is no defined causality. This is a feature typical of learning curves. Abernathy and Wayne’s classic paper on learning curves (The Limits of the Learning Curve,

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Gasoline Ethanol NCA LCO LFP Lead acid

Wh/

kg



Harvard Business Review, September 1974) which studied the learning curve of the model T Ford emphasised that the cost reductions achieved had to be worked for and had to come from a deliberate focus on cost above all else, notably flexibility.

Looking at the facts we see a number of issues that might result in slower than expected cost progression.

• Low margins – limited scope for competition to drive reductions • Material constraints – supply chain restrictions in key materials • Electro chemistry – gains cannot be considered linear

Electro chemistry does not usually lend itself to simple solutions. For example Lithium ion technology has been struggling with a problem known as voltage fade for a number of years now with no sign of solving it. This has limited gains in energy density and hence duration. Perhaps the biggest barrier to cost savings is that batteries are effectively three dimensional solutions compared with semiconductors or PV cells which effectively work in layers. This means a thinner solution will not reduce costs without reducing performance and makes a Moore’s law type outcome less likely.

Overall the performance considerations of batteries limit their usefulness in terms of range and charging. Poor usage regimes also impact performance and, as a result, cost.

Raw material scarcity

A crucial issue with modern battery technology is the use of key materials that could see supply constraints as market demand grows. Demand for the key materials including lithium, cobalt, nickel, manganese and graphite is set to grow as demand for lithium ion batteries grows over the next ten to fifteen years.

The cell materials used in the main lithium ion battery chemistries are shown below. Note that the total cell materials make up 39% of the typical battery pack cost.

Percentage of Metal Content

Source: BNEF

NMC is the chemistry with most potential for EV applications which is itself the highest area of potential demand growth. Much work is being undertaken to reduce the cobalt and manganese content of NMC batteries. Most are formulated as NMC 111 which means equal parts nickel, manganese and cobalt. More extreme formulations up to NMC 811 are being trialled. However this formulation has significant performance drawbacks. Notably the cell’s impedance increases with each cycle leading to quite rapid capacity fade. While this is less of a problem in certain consumer applications

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

NMC (111) NCA LMO LFP LCO

Li Mn Ni Co Al Fe P



with low cycle life, it is still some way away from being a solution for transport or grid storage. That said intermediate formulations such as NMC 622 are now useable.

Global lithium ion and materials demand forecast from EV sales

Source: BNEF

For manganese there is not really an issue but both lithium and cobalt, and to an extent nickel and graphite, could see demand reach almost four times current global production by 2030. According to the United States Geological Survey (“USGS”) there are more than sufficient undeveloped reserves in both cases but raising production will require new investment and any delay here is likely to create constraints on supply leading to pricing pressure.

EV battery demand impact on selected mineral supply

Material BNEF 2030 forecast (metric tonnes)

BNEF 2030 forecast as a % of 2014 production

BNEF 2030 forecast as a % of known global reserves

Lithium 106,768 296% 0.7% Cobalt 265,747 237% 3.7% Nickel 292,909 12% 0.4% Manganese 254,445 1.4% 0.1% Copper 862,470 4.7% 0.1%

Source: USGS,BNEF

Both cobalt and lithium markets are already seeing speculative buying as a result, with lithium almost tripling over the past three years. Cobalt prices have retreated recently but still remain strongly up.

0

200

400

600

800

1000

1200

1400

- 100 200 300 400 500 600 700 800 900

1,000

2010 2015 2020 2025 2030'0

00 t

onne

s

Lithium (tonnes) Cobalt (tonnes)

Nickel (tonnes) Manganese (tonnes)

Li-ion battery demand (GWh)



Lithium and Cobalt Pricing (-3y = 100)

Source: Bloomberg

Lithium Lithium looks likely to face constraints over the next year or so but a significant amount of new capacity is set to be developed and producing by 2020.

Lithium Production Ramp Up

Source: BNEF

Delays in ramping up these projects could mean market constraints last longer. Additionally lithium production is somewhat concentrated with four key developers controlling c.80% of the market. This means that even once supply is more balanced, prices may remain high.

0

50

100

150

200

250

300

350

17/08/2015 17/08/2016 17/08/2017

Cobalt Lithium

0

20000

40000

60000

80000

100000

120000

140000

160000

2016 2027

tpa

Country Australia Chile Argentina China Zimbabwe

Brazil Portugal Bolivia Canada Mexico U.S.



Lithium producers market share

Source: BNEF

Cobalt Cobalt is already in a technical deficit and despite some new announced capacity additions a deficit will re-emerge from 2022 onwards. As a result new capacity is likely to be announced. A high proportion of the world’s cobalt reserves are in the Democratic Republic of the Congo raising security of supply issues. A reduction in output would put supply under pressure now.

Cobalt Production by Country

Source: BNEF

New cobalt capacity is highly concentrated on a small number of producers. For example, any problems at Glencore’s Katanga mine would be a major issue for supply. Glencore has already seen some of its bank accounts in the DRC frozen as part of a dispute with former business partner Dan Gertler and a JV with the state mining company Gécamines is also now uncertain following legal action by Gécamines. As all this is going on the DRC is also introducing a new mining code which will increase royalty rates from 2% to 10%. Despite this Glencore has recently increased cobalt output by almost a third. Together with inventory sales in China, this has reduced some of the recent pressure on prices.

Albermarle

SQM

Tianqi

FMC

Other China

Orocobre

Other

D.R.C

Russia

Australia

Canada

Cuba

Philippines

Madagascar

Papua New Guinea

Zambia

New Caledonia

South Africa



New Cobalt Capacity

Source: BNEF

Nickel Nickel is primarily used for stainless steel, using two thirds of supply in 2017 compared with just 3% for batteries. However BNEF forecast that by 2030 77% of 2016 production levels will be used for batteries. Oversupply in the market peaked in 2013 has led to closure of several mines so there is dormant capacity in the market. Nickel needs to be processed to high purity for batteries and processing facilities will require additional investment as demand grows and there are developments underway.

Graphite There is no immediate pressure on graphite and major new capacity is expected in the period 2020 to 2025. As with Cobalt, there is a degree of concentration in new mines and delays here could put pressure on supply. Chinese environmental regulations could also curtail graphite mining in that country. On the more positive side the possibility of producing artificial graphite from needle coke can be utilised but with an impact on pricing.

Summary on material supply Overall we expect that material supply will sort itself as new production is brought on stream but this will not happen smoothly and prices are likely to remain high. Concentration of producers means that even if supply is sufficient prices will not fall dramatically. Cobalt is the biggest area of potential supply constraint although delays in bringing on new lithium capacity would also have an impact. While new battery formulations such as NMC 811 are trying to reduce cobalt content performance limitations make these unlikely to be commercially viable in the near term. NMC 622 and greater use of the older NCA chemistries might have some impact.

We think material supply will act as a brake on the more rapid cost reduction assumptions making a slower cost progression more likely. Opportunities in upstream including mining are therefore likely to remain. Supply constraints will also act as an additional spur to new technology development making new chemistries beyond lithium ion and other storage solutions more viable.

Glencore Katanga

Eurasian Resources Group

Australian Mines

Conico

Terrafame

eCobalt



Infrastructure Limitations

A virtuous cycle of demand growth There is a growing relationship between EV demand and power needs. There is a tendency to see demand from power grids for storage as more limited when compared to potential automotive demand. However the two are at least in part related.

Lower battery costs makes EV ownership more affordable. As EV ownership grows the demand on power networks created by charging grows. This puts pressure on the grid.

A system already under pressure At the same time, renewable energy is now at a key tipping point. The number of geographies where solar PV or wind generation has reached the point where it has the same cost as traditional power generation technologies (known as grid parity) is growing. The UK has seen offshore wind projects competing at £57/MWh, within 25% of last year’s baseload electricity price. Two major onshore projects in Germany are now going ahead based on market prices alone and Vattenfall has announced a subsidy free offshore wind project.

Global Cumulative Installed Generation Capacity

Source: BNEF

This new renewable electrical supply is generally mismatched with the additional demand for EV charging. For example residential charging mainly happens overnight whereas solar cells only generate during the day. This puts more pressure on the grid, worsened by the intermittent nature of most renewables.

The Duck Curve

One further impact of increased renewable energy capacity and in particular solar is the creation of a “Duck Curve” in the daily demand profile. The potential impact of significant solar capacity on demand was first raised by the California Independent System Operator (“CAISO”). California used to see energy demand on the grid rise in the middle of the day and be fairly flat across the afternoon before rising to a peak in the early evening. Solar is recognised as negative demand because of its distributed nature. With considerable solar on the Californian system, demand now begins to fall from 11am as this capacity kicks in. Then in the late afternoon as the sun wanes and solar starts to come off demand rises very steeply into the early evening peak. This can be represented on a demand graph showing how demand is expected to behave as even more planned solar capacity is added out to 2020. The shape is said to resemble something that quacks.

0%

10%

20%

30%

40%

50%

60%

70%

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2012 2017 2022 2027 2032 2037 2042 2047

GW

Fossil Nuclear Hydro Wind

Solar Batteries and flex Other % renewables



Duck Curve (UK data)

Source: National Grid

The key message of the duck curve is that the grid used to have to deal with a small ramp up in demand in the later afternoon or early evening but now has to deal with a much more marked ramp up. This puts pressure on the system and increases demand for flexible and responsive capacity, potentially increasing demand for ESS solutions.

EVs could make things worse

Battery electric vehicles (“EVs”) have been seen as a potential source of storage that might help to eliminate some of the problem of intermittency. This makes the assumption that charging of the EV can occur when the sun is shining and the wind is blowing and discharge (driving) can occur at other times. However the propensity to charge is greatest when a vehicle returns to the home. This propensity is heightened by range anxiety and by a desire to charge efficiently without introducing additional charging cycles and potentially shortening battery life.

Monte Carlo simulations by the University of Strathclyde for the IEEE using time of use survey data shows that charging is most likely to occur at times of peak electricity demand and thus increase demand. This in turn would exacerbate the duck curve effect.

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

0:30

1:00

1:30

2:00

2:30

3:00

3:30

4:00

4:30

5:00

5:30

6:00

6:30

7:00

7:30

8:00

8:30

9:00

9:30

10:0

010

:30

11:0

011

:30

12:0

012

:30

13:0

013

:30

14:0

014

:30

15:0

015

:30

16:0

016

:30

17:0

017

:30

18:0

018

:30

19:0

019

:30

20:0

020

:30

21:0

021

:30

22:0

022

:30

23:0

023

:30

0:00

GW

2015 2020 2025 2030

2035 2035 - High 2035 - Low



Scenarios of EV Charging in UK

Source: Strathclyde University/IEEE

The problem could be overcome by changing behaviour so that charging does not start until later in the evening. Smart charging systems that defer the initiation of charging until after the evening peak are the obvious solution. Coupled with time of use (“ToU”) tariffs behaviour might be changed to avoid the inflated demand peak. However this is not a given as consumer behaviour is uncertain and it would only take a few well publicised charging failures to create hostility.

Charging devices themselves are already being designed to work with control systems that will facilitate smart charging making use of customer friendly programming through mobile phone apps.

In the UK, the government is already considering policy that will make smart charging mandatory. However it is likely that this will allow manual override.

EV demand impact on grid

The UK National Grid forecasts that EV’s could represent additional demand of up to 29% of current peak demand by 2050. This assumes that all charging is undertaken when most convenient for the driver which is co-incident with existing peak demand. However smart charging could defer charging times so that peak impact is minimised and reduce the peak demand impact to 8GW or 13% of current peak demand.



UK Net Peak EV Demand Under Four Scenarios Including V2G


While the National Grid has said it is comfortable that this demand can be met, it is still significant and has the potential to put severe pressure on the transmission and distribution networks especially at the low voltage network level. Clustering of EV charging points in particular could exacerbate the local impacts. Charging may be forecastable but is not entirely predictable and this adds to the problem.

This pressure on the grid can be solved with additional grid capacity but also by smart solutions including increased flexible storage and generation.

V2G

The pressure placed on networks by EV charging demand could be mitigated by vehicle to grid charging (“V2G”) where surplus power stored in a vehicle battery can be used by the grid.

Recent research from the University of Warwick suggests that by managing the discharge and charging more efficiently, V2G could actually prolong battery life. However other research including work at the University of Hawaii suggests that V2G could have a detrimental impact on battery condition and life and even if merely suspected this could make it a difficult concept to sell to EV owners.

Additionally V2G represents an unpredictable source of supply as the behaviour of individual vehicle owners cannot be perfectly predicted although adequate forecasting is likely to be feasible. The process must also result in a fully charged vehicle when the driver wants it. It would only need a few well publicised cases of owners finding their vehicles with flat batteries to make such schemes unworkable. For these reasons we think V2G cannot be assumed at least until it is developed further. Even National Grid is cautious on the number of EV owners who will participate in V2G.

Percent of EV Owners Who Participate in V2G

Scenario 2030 2050

Community Renewables 2% 13% Two Degrees 2% 14% Steady Progression 2% 10% Consumer Evolution 2% 11%


0

2

4

6

8

10

12

14

2015 2020 2025 2030 2035 2040 2045 2050

GW

Community Renewables Two Degrees

Steady Progression Consumer Evolution



Overall infrastructure is a challenge. The recent KPMG survey of automotive industry executives highlighted the issue.

"Battery Electric Vehicles Will Fail Due to Infrastructure Challenges"

Source: KPMG

More storage

Grids must therefore solve this pressure. That is likely to see them adopt more storage and so battery demand grows further leading to more cost reductions. This in turn allows more renewables and the process is driven further forward.

A Virtuous Circle in Energy Storage


In many developed countries including the UK, electricity demand itself has been falling as a result of efficiency gains and de-industrialisation. The energy transition and particularly the rise of EV’s is likely to reverse this decline and lead to quite substantial increases in demand for electricity.

Absolutely agree

Partly agree

Neutral

Partly disagree

Absolutely disagree

Battery costs down and

performance up

EV demand rises

Charging demand rises

Pressure on electricity grid

Flexibility demand rises

More battery volume



National Grid Peak Demand Forecasts Under Differing Scenarios


Market complexity

Stationery power storage needs can appear straightforward at first sight. We can summarise these into three main groups based on storage duration across a typical day. A simplified picture of power demand across a 24 hour period is shown below, illustrating the need to convert a typical grid daily power supply profile to a baseload demand need. The profile supplied varies across the day with small variations from second to second and larger variations across the day.

Simplified Daily Demand Profile


Storage can flatten this demand profile entirely but to do so there are three principal applications.

50.0

55.0

60.0

65.0

70.0

75.0

80.0

85.0

90.0

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

GW

History Community Renewables Two Degrees

Steady Progression Consumer Evolution

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23



How Different Types of Storage Smooth Power Demand


Here the short term market needs storage solutions of up to 30 minutes and the more responsive the better. Peak shaving needs storage of between an hour and six hours and load levelling needs at least 6 hours of storage.

However this simplification masks a great deal of complexity. The Rocky Mountain Institute identifies 13 use cases for stationary storage applications alone.

Power Storage Use Cases

Source: Rocky Mountain Institute

Short term storage -

frequency response

Medium term storage - peak

shaving

Longer term storage - load

levelling



In the UK, the National Grid has embarked on an attempt to rationalise over X different flexibility needs in the stationery/power market.

UK Balancing Services Markets


The transport market is in some ways more straightforward although is not without its challenges with differing needs for different transport types and distances. Overall we think the underlying complexity of use cases leads to potential marketing challenges and funding challenges.

While we expect these will simplify over time into a smaller number of key markets (National Grid’s rationalisation initiatives will help) a degree of complexity will remain making some markets challenging and rewarding participants who can deal with this complexity adequately. Strong proprietary control offerings are key here. It is interesting in this regard that Engie’s acquisition of a 50% stake in Electro Power Systems cites the “differentiating control technology” at EPS in its acquisition statement. In fact the major recent M&A deals in the storage space recently have been dominated by acquisitions of companies with a strong control angle, notably Younicos and Greensmith.

Significant Energy Storage Acquisitions

Date Acquiror Target EV ($ million) EV / revenue EV / EBITDA

Mar-18 Engie Electro Power Systems € 37 5.9 -20.8 Jul-17 Wartsila Greensmith 170 na na Jul-17 Aggreko Younicos £40 5.71 na Jul-16 Total Saft € 1,003 1.31 9.0 Jun-15 Energizer Energizer (Spin-off) $2,834 1.57 7.2 Nov-14 Berkshire Hathaway Duracell $2,898 na 7 Oct-14 OM Group Ener-Tek $24 1 8 Jun-13 Eurazeo Croissance IES Synergy € 22 1.57 na Oct-12 Johnson Matthey Axeon £41 0.87 na Oct-08 Ener1 Enertech $57 0.93 7.9 Median 1.3 7.9


Controls Matching storage technologies to demand physically requires complex controls systems. Integrating hybrid storage and power increases this complexity dramatically.



This is a less commoditised part of the market than the provision of physical storage equipment alone and is seeing growing demand.

Most storage systems will be connected to a grid via power electronics components. Normally an inverter modulates the waveforms of current and voltage to match with the grid. The inverter itself is managed by a controller that defines the set points of the storage system, normally in terms of the magnitude of active and reactive power.

Control of the battery or other storage devices is undertaken by a Battery Management System (“BMS”) which monitors and controls the charge and discharge process. This maximises the lifetime of the cells and ensures safe operation.

For a complex system a master control module will co-ordinate charging and discharging of slave control modules. For a hybrid power plant, control becomes even more complex. Between different power or storage sources, a further convertor known as a boost convertor or chopper boost is required to levelise voltages. More than one of these may be required in a full hybrid system. Complexity can increase as more assets are added.

Finally a SCADA (supervisory control and data acquisition) system interfaces with the end users including the local grid if appropriate. This may include interface protection for the grid.

A straightforward battery based system would look like the diagramme below.

Energy Storage System Control Schematic

Source: Electro Power Systems

A number of key players can go far beyond this basic offering and provide the control systems and balance of plant to create a full hybrid power plant with a variety of storage, traditional generation and renewable generation sources and the ability to serve off-grid, grid connected and distributed demand. We expect to see more offerings in this space but the existing players have a strong advantage and given demand are likely to maintain an advantage.



Hybrid Power Plant Control Schematic

Source: Electro Power Systems

Control therefore is becoming a clear factor in the market.

Blockchain as facilitator for storage Storage is becoming a key component of the increasingly distributed power markets that are evolving around the world. While control allows storage assets to exploit the potential of these markets, the potential to move to peer to peer transactions within these markets is both growing and an opportunity to further exploit storage’s potential. The growing interest in utilities and independent players in blockchain solutions for energy sector applications is likely to see these transaction types grow. These applications will grow further as EV charging grows and peer to peer charging solutions add to demand.

Companies such as LO3 Energy in New York and Power Ledger in Australia are already ahead of the game here and both include the trading of storage capacity. UK utility Centrica has recently announced that it will partner with LO3 and is looking to use its Exergy blockchain peer-to-peer energy trading platform in a pilot in Cornwall.

Blockchain in Power Networks

Purpose In Traditional networks In Blockchain networks

Front-end Interaction with end-user (untouched by blockchain technology)

Not affected: remains the same

Messaging Technical connectivity with the network Through central infrastructure

Peer-to-peer

Processing Execution of transactions -Centrally -Decentral -Batch or per trx -In "blocks"

Ledger Keeps track of participants' balances -Central -Decentral -Closed (one trusted party)

-Public

Source: Indigo Advisory Group


Lithium ion is not the only solution Alternative Energy & Resource Efficiency |

Lithium ion is not the only solution

Other forms of storage

There are many other storage technologies either currently available or under development that can compete with lithium ion. Traditionally most grid connected storage was pumped hydro and this still represents the greatest proportion of installed capacity today by a long way.

Installed Grid Connected Storage

Source: IEA

Pumped storage Pumped storage is expensive and needs the right location. It can represent considerable absolute power and energy in single projects. Development time can be long especially as planning requirements can be onerous in certain geographies. There are now two Australian projects being developed in old mine pits. These can be executed with limited planning and at lower cost. We see these as exciting projects although the opportunity for repeating these is limited by the availability of similar sites.

Lead acid batteries Lead acid batteries have short lives which impairs their economics but in the right space can still be effective. Generally this is for storage durations of up to an hour where the higher up front cost of lithium ion weights against it. This is likely to change over time. Additionally the lead content of lead acid makes disposal an issue and the technology is threatened by greater regulation as a result.

CAES Compressed air storage can be expensive but has excellent response times making it suitable for certain applications. The UK pumped storage station at Cruachan includes compressed air storage to deliver a faster response time.

Flywheels These use the momentum of rotating masses to store energy. Beacon Power has made some progress here and now has 40MW of installed capacity.

Pumped storage

Lithium-ion

NaS

CAES

Redox flow

Lead acid

Other

Nickel cadmium


Alternative Energy & Resource Efficiency | Lithium ion is not the only solution

Supercapacitors

Supercapacitors provide excellent solutions for short duration and high power storage. They can charge and discharge extremely quickly overcoming some of the key limitations of lithium ion. While a supercapacitor is more technically known as an electric double layered capacitor (“EDLC”), the term is appropriate as the supercapacitor will store 10 to 100 times more energy than a traditional electrolytic capacitor of the same volume.

A capacitor stores energy in an electric field created between two conductors separated by a dielectric medium. While a capacitor can be charged and discharged much more rapidly than a battery, the amount of energy that can be stored is comparatively limited. Capacitors have many other uses in electronics especially as filters.

The supercapacitor brings the high power characteristics of capacitors to energy storage with attributes that are more useful than battery technologies in several key respects:

• Long life – significantly more (thousands) charges than a battery before showing any signs of degradation

• Very rapid (mS) charging and discharging • High range of operating temperature (-40oC to +85oC) • Higher power density • But lower energy density – although this is improving

More importantly the limitations of both supercapacitors and batteries can be overcome by combining the two in hybrid systems

Capacitors have been seen as the solution to high power requirements but ordinary capacitors have extremely low energy densities and this limits their use. Supercapacitors get round this by offering better energy densities combined with high power density. This opens up a considerable range of applications.

Storage Technologies Compared

Property Supercapacitors Capacitors Fuel Cells Batteries

Charge/Discharge Time Milliseconds to Seconds Picoseconds to Milliseconds 10 to 300 hrs. Instant charge (refuel). 1 to 10 hrs Operating Temperature -40 to +85°C -20 to +100°C +25 to +90°C -20 to +65°C Operating Voltage 2.3 to 3.0V 6 to 800V 0.6V 1.25 to 4.2V Capacitance 100mF to 6000F 10pF to 2.2mF N/A N/A Life 50,000+ hrs Unlimited cycles >100,000 cycles 1,500 to 10,000 hrs 150 to 1,500 cycles Weight 1 g to 700g 1g to 10kg 20g to >5kg 1g to >10kg Power Density 10 to 120 kW/kg 0.25 to 10,000 kW/kg 0.001 to 0.1 kW/kg 0.005 to 0.4 kW/kg Energy Density 1 to 10 Wh/kg 0.01 to 0.05 Wh/kg 300 to 3,000 Wh/kg 8 to 600 Wh/kg Pulse Load Up to 100A Up to 1000A Up to 150mA/cm2 Up to 5A

Source: CAP-XX



LTO as a competitor

The nearest competing technology to the supercapacitor is lithium titanate (“LTO”), a variety of lithium-ion battery chemistry. It has better charging, lifetime and power density characteristics than other lithium-ion chemistries.

Supercapacitor compared to LTO

Property Supercapacitors LTO

Charge/Discharge Time Milliseconds to Seconds 6 minutes to 1 hour Operating Temperature -40 to +85°C -20 to +65°C Operating Voltage 2.3 to 2.75V 1.5 to 2.85V Capacitance 100mF to 6000F N/A Life 50,000+ hrs Unlimited cycles 10,000 to 20,000 Power Density 10 to 120 kW/kg 3 to 5.1 kW/kg Energy Density 1 to 10 Wh/kg 70 to 80 Wh/kg

Source: CAP-XX, Battery University

While LTO does not reach the power, charging rates or life of a supercapacitor, it has useful characteristics that mean it can dominate a number of use cases, notably around induction charging and automotive power applications. It is also a useful solution for fast frequency response applications given its power and charging characteristics.



Flow batteries

Flow batteries have now been successfully installed for a number of ESS applications. The first working cell based on a vanadium electrolyte was demonstrated in the late 1980’s at the University of New South Wales. A number of early stage commercial scale batteries are now in operation. They remain expensive but work well at long durations and their cost structure can make them efficient in these situations. We cover this cost aspect in a later section.

A flow battery has a liquid electrolyte normally based on vanadium, iron or zinc-bromine. The electrolyte does not suffer from degradation so that the stored energy can be retained for long durations with negligible self-discharge over time. Duration itself is created simply by adding more electrolyte and a bigger tank in which to store it. In discharge the battery behaves more like an engine with electrolyte fuel passing through it creating a flow of electrons.

Flow and Lithium Batteries Compared

Flow Battery Conventional Battery

Industrial-Scale, Medium & Long Duration Stationary Energy Storage Applications

Short Duration, Residential & Small Scale Applications

25 Year Machine Life - Low Levelised Cost of Storage (LCOS) Deteriorates with Every Cycle, Need to Replace After ~5,000 Cycles (50% Discharge)

100% Depth of Discharge Without Degradation Discharge Beyond 30-50% Causes Damage, Requiring Systems to be Oversized

Safe - No Risk of Thermal Runaway Risk of Thermal Runaway, Requiring Safety Systems to be Installed Charge is Retained Indefinitely With Negligible Self-Discharge Over Time Fully Charged Systems Will Self-Discharge Over Time Electrolyte is 100% Recyclable and Can be Reused Over and Over Again Lithium-Ion Systems are not Widely Recycled & Must be Disposed of Safely Power and Energy Requirements can be Sized Independently for Best Fit Power and Energy Components Cannot be Separated Optimal Performance with Daily Usage, Coupled with Renewables Most Effective for Occasional Use and Back-up Functions

Source: RedT

Flow batteries tend to have lower volumetric energy densities than lithium batteries. However this is not a major limiting factor for most long duration ESS applications.

Vanadium based batteries can suffer from transportation of vanadium ions across the central membrane and must use expensive ion-exchange membranes to minimise resulting losses. While there is some risk of fouling of these membranes by vanadium ions resulting in resistive losses, improvements are being made reducing this risk. Additionally lower cost membranes are under development. Vanadium prices have risen steeply in the past twelve months.

Zinc bromine flow batteries have higher energy densities than vanadium. However storage duration is in part dependent on electrode area so that costs will increase more significantly with capacity, reducing some of the benefits when compared to lithium ion batteries.

Iron flow batteries have less development history but have potentially lower costs thanks to the relative abundance of the materials used. There is a risk of rust although this can be managed and depth of discharge is limited to 85% without increasing inefficiency. Developer ESS claims to have overcome the key limitations of iron flow technology by using a new membrane provided by Advent Technologies.



A hydrogen storage renaissance?

Hydrogen storage using fuel cells also tends to be expensive and more suited to longer storage durations although this latter point is emerging as a key advantage as it translates to range.

FCV and EV Vehicle Ranges

Source: 4th Energy Wave

The recognition of range limitations in lithium ion mean fuel cells are becoming interesting again as a range extender for certain transport applications. Long and medium distance buses are already at a point where this technology makes sense commercially. This is potentially transformational for the fuel cell industry. Already automotive executives surveyed in KPMG’s annual Global Automotive Executive Survey are putting fuel cell vehicles as their top priority.

“Fuel Cell Vehicles Will be the Real Breakthrough in Electric Mobility”

Source: KPMG Global Automotive Executive Survey 2018

0 100 200 300 400 500 600

HyundaiKia

ToyotaHonda Clarity

BMWAudi

MitsubishiNissanLexus

MercedesMercedes M-B EQ

Jaguar i-PaceRiversimple Rasa

VW ID CROZZAudi E-tron

VolvoFord CUVNIO EVE

LeECO LeSEEAudi E-tron Sportback

BMW 15Volvo 40.2

VW ID CROZZTesla Model V

BYD e6NIO ESB

Chevy BoltTesla Model 3Nissan Leaf 2

Miles

Absolutely agree

Partly agree

Nuetral

Partly disagree

Absolutely disagree



Fuel cell technology has been around for some time being first developed in 1838. The cost disadvantage is principally driven by degradation characteristics. But these are improving or being managed commercially so that for long durations or range, fuel cells are now emerging as a commercial option. This is also true in stationery storage and there are a number of key niches where fuel cells are beginning to make progress notably in data centres.

Efficiency Versus Range

Source: ICCT

Fuel cell types

Fuel Cell Technologies Compared

Electrolyte Operating temperature Electrical power Efficiency Possible applications Advantages Disadvantages

PEMFC Ion exchange membrane <120 <1kW-100kW 60 Transportation Quick start Fuel sensitivity AFC Potassium hydroxide <100 <1kW-100kW 60 Back up power Quick start CO2 sensitivity PAFC Immobolised liquid phosphoric acid 150-200 >50kW 40 Distributed generation Fuel flexibility Long start up time MCFC Immobolised liquid molten carbonate 600-700 300kW-3MW 50 Distributed generation Fuel flexibility Long start up time SOFC Ceramic 500-1000 1kW-2MW 60 Distributed generation Fuel flexibility Long start up time

Source: US Department of Energy

Broadly speaking we see PEM fuel cells becoming the go to solution for transport with Alkaline and Solid Oxide cells as stationary and back up power applications.

The hydrogen economy There is a strong need to decarbonise domestic heating if climate change goals are going to be met. In the UK, heat creates approximately 40% of the greenhouse gas emissions. This area requires significant action to meet the country’s longer term carbon budgets. Domestic heating is primarily fuelled by natural gas which is primarily methane. The availability of natural gas during the 1970’s led a move to gas fired central heating which is now the dominant source of domestic heating in the UK. However this move was accompanied by a conversion of existing heating systems away from town gas which contained 50% hydrogen. This transition could be reversed and trials are already being conducted by Northern Gas Networks and Cadent Gas in partnership with Keele University for injecting 20% hydrogen into the existing gas network. It is early days but the need to decarbonise heating could well bring about a move towards hydrogen that would benefit fuel cells as a power generation application.

Ener

gy E

ffic

ienc

y

Range

BEV FCV ICE



New battery technologies

There are many storage technologies being worked on at present. Many of these are very early stage and many have weaknesses that do not have obvious solutions. However a number are viable and could address many of the issues around existing technologies. We see the key areas of development as follows.

Li-air Lithium air uses oxygen from the atmosphere to react with lithium ions from the anode. They have an energy density of 1,500Wh/kg which could give a driving range of 500miles in an EV. However low cyclability is a problem. The use of atmospheric oxygen creates a significant risk of impurities contaminating the battery.

Li S Lithium sulphur batteries can deliver high energy densities of around 500Wh/kg currently but theoretically capable of reaching 2,500Wh/kg. The technology suffers from short cycle life and potential degradation issues but is non-flammable and can be fully discharged without damage. Oxis is making progress here.

ZnBr Zinc bromide batteries use more abundant materials than lithium ion and can offer long life and a high number of cycles. It is non-flammable and can also be fully discharged without damage. It is being developed with a gel based electrolyte option that allows more interesting form factors. Energy density is a potentially limiting factor for transport applications but the technology is well placed for PV support and peak power applications.

Solid state electrolytes Solid state batteries use a solid electrolyte rather than a polymer as used in most current formulations. This allows for very thin cells with reduced electrolyte degradation allowing for longer lives. However manufacture is complex. Ilika is ahead of the game here although their cells are mainly for small scale IoT applications.

New Storage Technologies

Zn-Br Li-S Li-Air Solid state

Specific energy (Wh/kg) 45-85 325-450 1,400 400-600 Cycles 3,000-6,000 1,500-,2500 200 5,000 Lifetime (years) 10-20 10 10 C rate 1 1 1 6 Efficiency (%) 60-85% 90% 57% 98% TRL 3 5 3 6 Key developers Gelion Oxis Ilika




Flexible generation is a competing technology

In practical terms power response generation and storage are very similar. Fossil fuels are technically a form of energy storage with solar energy stored through photosynthesis, then concentrated by long term geological processes to create a portable, storable energy medium. Sadly the timescales involved are truly geological so this is seldom seen as storage.

By contrast most storage technologies can be viewed as generation technologies in which the fuel is electricity itself. Where renewables are providing the power, that fuel can effectively be seen as free.

Comparing Generation and Storage

Source: CFE Research

The important point here is that both power response generation and storage technologies effectively compete.

Flexible generation assets such as fast responding reciprocating engines or open cycle gas turbines are likely to see growing demand in our view. These are traditional forms of fossil fuel generation that are responsive enough to balance many of the needs of the network.

Storage remains more expensive than power response in many cases but costs are coming down and in many applications storage is a more appropriate solution than response generation.

Fuel in(coal or gas)

Electricity outPower Station = energy

conversion machine

Fuel in(electricity)

Electricity outPower Storage = energy

conversion machine



Hybridisation – there is no single answer

Batteries are not a complete solution but fortunately they do not need to be. The electricity world has long been adept at finding hybrid solutions to its complex needs. For example, most electricity networks have a range of generation and other assets that work together to meet the needs of the market with different assets serving baseload and peaking needs.

We have also been driving hybrid cars for longer than most people think. Almost every car on the road today is a hybrid but not in the way we think. In order for a car to move at all it needs an electric motor to start the internal combustion engine. Yes that starter motor may only operate for a tiny fraction of the overall running time but it is still essential unless you want to use gravity to start the car or own a vintage car with a starting handle.

How supercapacitors work batteries not against them While there has been a lot of investor attention on the battery market, few realise that many battery management systems already include a capacitor based pre-charge system of some kind to manage loads. The use of supercapacitors in combination with batteries is potentially one of the greatest sources of growth for supercapacitors.

Combining supercapacitors and batteries in hybrid installations makes a very strong solution to many market needs.

• Increasing runtime of batteries by up to 100% • Increasing battery life. Batteries are damaged by transient power surges that occur

in pulse power systems used in GPRS mobile phones or camera phones. Unlike a battery, a supercapacitor does not need to be replaced.

• Reducing manufacturing costs through the use of smaller power components and enabling the use of cheaper alkaline batteries rather than lithium batteries.

• Enabling reduction in device size, with the space required for a supercapacitor being significantly less than existing technology used by some manufacturers and enabling smaller batteries.

• By using a supercapacitor there is no longer a requirement for the inefficient practice of fitting oversize batteries to cope with sudden surges in power.

Combining Batteries and Supercapacitors

Requirement Supercapacitors Batteries Combination

Rapid Energy Capture <1 second 2-5 seconds < 1 second Rapid Power Delivery <1 second 2-5 seconds < 1 second Extended Temperature Range Excellent Poor Good Product Life 8-15 years 2-6 years 4-10 years Run Time (Energy) Seconds to Minutes Minutes to hours Seconds to hours

Source: Maxwell Technologies, CFE Research

Diesel and batteries The application for batteries in heavy transport applications including marine, rail and mining, includes not only all-electric solutions but also the diesel electric hybrid, with this latter also offering immediate economic gains in the right situations. The decision between all electric or diesel electric hybrid for an individual unit is largely determined by the duty cycle of that unit. These factors determine the most economic technical solution for the end customer.



One of the reasons for the low overall efficiency of diesel or diesel electric systems is that the diesel engine does not normally run steadily at full power. Due to varying load the duty cycle can vary so that the average power output may be as low as 25% of the total capacity. This can reduce the overall efficiency of the engine itself by more than 20% from a typical 45% down to 35%.

Diesel Engine Efficiency at Part Load


By using a battery in the drive train and allowing the diesel engine to run steadily significant savings are possible. The efficiency gain on its own can be as much as 30%.

Storage hybridisation examples

Application Hybridisation

Large motive (Rail, marine, mining) Li-ion and diesel Long range motive Li-ion and fuel cell Frequency management Supercapacitor and LTO


0

10

20

30

40

50

60

0 10 20 30 40 50 60 70 80 90

Effic

ienc

y %

Load %


Storage technologies compared Alternative Energy & Resource Efficiency |

Storage technologies compared

The varying characteristics of different storage technologies can be seen below.

Storage Technologies Compared

Li-ion Pumped hyrdo Lead acid CAES Flywheel Supercapacitors Flow - VRB Hydrogen

Specific energy 75-250 0.5-1.5 30-50 30-60 5-130 0.1-15 75 800-10000 Cycles 103-104+ 2x104-5x104 100-1000 5x103-2x104 105-107 104-108 104+ 103+ Lifetime 5-15 50-100 3-15 25-40 20+ 20+ 5-20 5-15 Efficiency 85-100 75-85 60-95 42-54 85-95 85-98 85 20-50 Operating temp (°C) -20 300 - -40- 300-350 40

Source: Company data

A common way of comparing storage technologies is to plot power and energy density on a graph known as a Ragone plot. This is shown below and shows where the key technologies lie. We can overlay on this a plot of where key use cases lie.

Ragone Plot

Source: US Defence Logisics Agency, CFE Research estimates

However this does not show how the technologies compete against each other on the key metric of cost.

0.1

1

10

100

1000

10000

10 100 1000 10000

Ener

gy d

ensi

ty (

Wh/

kg)

Power density (W/kg)

Fuel Cells

Li-ion

Pb-acid

Supercapacitors

Flow-VRD


Alternative Energy & Resource Efficiency | Storage technologies compared

A cost based analysis – the LCoS approach

A number of commentators have calculated levelised costs of storage, using methodologies for calculated levelised costs of energy (“LCoE”) in power generation.

The levelised cost of energy is calculated as follows:

𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 = 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 𝑐𝑐𝐿𝐿𝑐𝑐𝑐𝑐𝑐𝑐 𝑥𝑥 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 𝑟𝑟𝑟𝑟𝑐𝑐𝐿𝐿𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟 𝑓𝑓𝑐𝑐𝑐𝑐𝑐𝑐𝐿𝐿𝑟𝑟+ 𝑓𝑓𝑐𝑐𝑥𝑥𝑟𝑟𝑓𝑓 𝑂𝑂&𝑀𝑀

𝑐𝑐𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐𝑐𝑐 𝑟𝑟𝑥𝑥𝑐𝑐𝑟𝑟𝑐𝑐𝑐𝑐𝑟𝑟𝑓𝑓 𝑔𝑔𝑟𝑟𝑎𝑎𝑟𝑟𝑟𝑟𝑐𝑐𝑐𝑐𝑐𝑐𝐿𝐿𝑎𝑎 ℎ𝐿𝐿𝑎𝑎𝑟𝑟𝑐𝑐 + 𝑟𝑟𝑐𝑐𝑟𝑟𝑐𝑐𝑐𝑐𝑣𝑣𝑐𝑐𝑟𝑟 𝑂𝑂&𝑀𝑀+ 𝑓𝑓𝑎𝑎𝑟𝑟𝑐𝑐 𝑐𝑐𝐿𝐿𝑐𝑐𝑐𝑐

The capital recovery factor uses the annuity formula to amortise the capital costs over the life of the asset.

In the case of storage we can calculate the levelised cost of storage (“LCoS”) using the same formula with the fuel cost being replaced by the cost of charging the storage device.

Lazards now publish levelised costs of storage for a number of storage technologies on an annual basis.

Lazard Levelised Cost of Storage

Source: Lazards

The Lazards approach estimates cost of storage for different use cases with different durations. This is very useful but in our view does not give full clarity as to where competing technologies stand. We think it is informative to focus on a single key metric and look at levelised costs of storage as this metric varies. That metric is duration.

209

286

282

184

272

273

346

891

1,057

950

1,028

1,160

1,138

413

315

347

338

338

406

386

985

1,154

1,107

1,274

1,239

1,188

0 200 400 600 800 1000 1200 1400

Peaker replacement

Flow Battery (V)

Flow Battery (Zn)

Lithium Ion

Distribution

Flow Battery (V)

Lithium Ion

Microgrid

Flow Battery (V)

Lithium Ion

Commercial

Lithium Ion

Lead-Acid

Advanced lead

Residential

Lithium Ion

Lead-Acid

Advanced lead

US$/MWh



A segmentation of the market based on duration

Why duration is key - the timing issue If we look at the features of key storage applications we see duration emerging as a key variable. Other variables are important but we think it is useful to identify this single issue first and then add back other constraining variables.

We can split the capital cost of storage into a capacity related element and an energy related element. Battery technology is generally dominated by the energy related element. If you have a battery with one hour’s duration it might cost 1x and if you want two hour’s duration it will cost almost 2x. There may be some efficiency in being able to have the same battery management system for the one hour and two hour batteries but most of the cost will vary with storage duration or energy.

For a flow battery, if the cost of one hour’s storage is 1x, the cost of two hours will be 1x plus the small additional cost of more electrolyte and a bigger tank to store it in. Most of the capital cost is capacity related. This is also true of flexible generation such as diesel. The cost is almost all capacity related with the energy cost just the extra diesel and a bigger tank.

By splitting capital costs in this way we can derive levelised cost of storage results for a range of durations and produce a levelised cost of storage curve. There are off course limitations to duration and some technologies will not operate at very short durations because they are not responsive enough and some will not be able to deliver very long durations in practice. This means that different technologies will have curves of different lengths.

Our cost assumptions are for fully installed systems and are not just pack costs. We have also assumed that recharging is by renewable generation at a zero marginal cost. Given the rapidly changing and highly competitive marketplace for electricity storage and the difficulty in always obtaining up-to-date data for each technology, the results should be treated with some caution. However we think the relationships between the technologies are instructive.

Levelised Cost Data Assumptions

Total cycles Capacity cost (US$/MW) Energy cost (US$/MWh) Fixed O&M cost (US$/MW) Variable cost (US$/MWh)

Pumped storage 15,000 2,450,000 0 15,680 59 Hydrogen storage old 10,000 5,593,500 40,000 Hydrogen storage new 7,500 2,796,750 30,000 Lithium-ion battery old 2,000 4,000 600,000 Lithium-ion battery new 2,000 4,000 400,000 Lead acid battery 1000 4,000 330,000 Flow battery old 10000 4,275,000 82,333 15590 Flow battery new 10,000 2,137,500 82,333 15,590 OCGT 7,500 560,000 0 13,860 163 Diesel 6,000 420,000 0 14,000 171 Super capacitors 30,000 4,000 2,500,000


Plotting these shows where the various technologies compete on cost at various duration points.



Levelised Cost of Storage by Duration


Where the key market segments lie

This shows very clearly that there are four distinct markets for electricity storage. A very short duration market exists between 10s and 1s. Key applications here are frequency management and specific internet of things applications. This market is currently served by supercapacitors, LTO and solid state batteries. There is a short duration market between 1s and 1 hour. The key application here is frequency response. Medium duration between 1 hour and 6 hours serves the peak shaving end of renewable energy arbitrage in stationary applications and urban EVs in motive. Lead acid has been and currently remains an important technology here but is increasingly being displaced by lithium ion. Finally long duration storage at greater than 6 hours can be used for full load levelling in renewable energy arbitrage as well as the target for long distance EVs. In the stationary world this demand is currently served by pumped storage. In motive batteries struggle to deliver this duration and thus range.

Key market segments

Segment Duration Applications

Very short duration 20ms to 1s Frequency management, IoT Short duration 1s to 1 hr Frequency response Medium duration ESS 1hr to 6hrs Renewable energy arbitrage - peak shaving Medium duration EV 1hr to 6hrs Urban EV Long duration ESS > 6hrs Renewable energy arbitrage - load levelling Long duration EV > 6hrs Long distance EV


10

100

1,000

10,000

0.0003 0.003 0.03 0.3 1 3 6 12 24 48

US$

/MW

h

Duration (hours)




Broad Levelised Cost of Storage Groupings


This shows that the best technologies today for each use case are as follows:

Storage solutions at the efficient frontier

Segment Current solutions

Very short duration Supercapacitors, LTO, solid state Short duration Lead acid, Lithium ion Medium duration ESS Diesel and OCGTs Medium duration EV NMC, NCA Long duration ESS Pumped storage Long duration EV NMC, NCA


Costs will fall for key technologies The world does not stand still and we expect several key technologies to see cost improvements.

• Lithium ion batteries • Flow batteries • Fuel cells

If we plot these technologies based on forecast costs in 2030 we can see other technologies squeezed out.

10

100

1,000

10,000

0.0003 0.003 0.03 0.3 1 3 6 12 24 48

US$

/MW

h

Duration (hours)


Very short duration Short duration Medium duration Long duration



Levelised Cost of Storage Evolution


At the extreme short end it is difficult to see supercapacitors being displaced and their additional performance benefits reinforce this view. At the short end we see lithium ion dominating the space and in time removing lead acid solutions. Lithium ion will also increasingly displace diesel and then gas engines in flexibility modes. These two technologies will also be attacked from the long end with both flow batteries and fuel cells taking market share. We think fuel cells will move into areas such as behind the meter supply for medium demand needs including data centres where they are already making inroads. Flow batteries are more likely to see use in grid connected applications in our view. We can also see them taking a role in higher capacity solutions displacing pumped storage.

Market development

Segment Current solutions Competing technology

Very short duration Supercapacitors, LTO, solid state Supercapacitors, LTO, solid state Short duration Lead acid, Lithium ion LTO, Lithium ion Medium duration ESS Diesel and OCGTs NMC Medium duration EV NMC, NCA NMC, NCA Long duration ESS Pumped storage Flow batteries, fuel cells Long duration EV NMC, NCA Fuel cells


10

100

1,000

10,000

0.0003 0.003 0.03 0.3 1 3 6 12 24 48

US$

/MW

h

Duration (hours)

Pumped storage Hydrogen storage old Hydrogen storage new Lithium-ion battery old Lithium-ion battery new Lead acid battery

Flow battery old Flow battery new OCGT Diesel Super capacitors

Li-ion cost reductions

Flow battery cost reductions

Hydrogen storage cost reductions

Vertically integrated approach with control Leclanché is more than just a battery manufacturer. It has an enhanced control offering which it is looking to expand and is one of the few LTO manufacturers. It has recently removed a limiting financial risk and is now embarking on a potentially major JV in India.

More than just a manufacturer Leclanché has a long history going back to 1909. It now offers NMC and LTO cells but purchases of software from ADS-TEC and the business of Trineuron means it also has advanced control technology. Leclanché also operates beyond merely manufacturing cells and ESS and acts as a developer. This takes it beyond a mere commodity provider of cells and to capture development margin. We see its expertise in control as a key differentiator here. LTO is also major chemistry. While it is more expensive than other lithium ion chemistries its advantages of long life and rapid charge and discharge make it stand out as a solution for applications where power and rapid charging or discharging are required. Leclanché is one of only four major manufacturers of LTO cells and we expect this business to grow.

Funding package in place Leclanché has suffered from underfunding in the past resulting in a revenue decline in 2017. Funding is now being addressed through the support of the company’s largest shareholder FEFAM. FEFAM has invested a total of CHF75m most recently adding a further CHF20m of convertible debt. FEFAM are also making an additional CHF50m conditional facility to fund acquisitions and joint ventures. Leclanché has also received a non-binding term sheet with a strategic investor to increase funding to between CHF100m to CHF 125m in order to support doubling of revenue to 2019.

Indian JV is a major opportunity The company has formed a joint venture in India with the country’s leading batter manufacturer, Exide Industries. Decarbonisation efforts in India create a potentially large opportunity. There are already 2m electrically power auto rickshaws using lead acid batteries. We estimate that Leclanché could double 2018 revenue simply by replacing Exide’s share of this existing market with its lithium ion cells. The company has also announced a potential acquisition of an energy management software company in the US which will add to its strength in the control space.

We value the shares at CHF 3.0 We have valued the company using a DCF model with a cost of equity of 12% to get a target price of CHF 3.0. The key risks to our valuation are failure to gain traction in target markets and competitor response.

21 August 2018 | Company Flash Note | Household Goods


Leclanche ( FTSE : LECN SW )

BUY

Share Price (as at close: 31/07/2018) CHF 1.5 Target Price CHF 3.0 Upside to TP 105.4% Market Cap (CHF'm) 119.0 Net Debt (CHF'm) 24.0 Enterprise Value (CHF'm) 143.0

Shares in Issue (m) 80.7 Free Float (%) 44.4% Average Daily Volume (000, -3m) 47.0 12 month high/low CHF 2.68/CHF 1.65 (%) 1m 3m 12m Absolute -22.4 -29.1 -38.5 FTA relative -21.2 -27.1 -39.4 Price & price relative (-2 year)

Source: Datastream Next News Interims - Q4 2018 Business Leclanche SA is engaged in manufacturing lithium ion batteries www.leclanche.eu

Adam Forsyth Research Analyst +44 (0) 20 7894 7214 [email protected]

Year end December

Revenue (CHF'm)

EBIT (CHF'm)

PBT (CHF'm)

Tax (%)

EPS (FD) (CHF)

PER (x)

EV/EBITDA (x)

Div Yield (%)

2016A 28.1 -34.5 -38.6 1.4 -89.3 -1.8 -5.1 0.0 2017A 11.7 -36.1 -38.5 0.1 -69.6 -2.4 -4.5 0.0 2018E 40.3 -18.9 -20.5 0.0 -17.6 -9.4 -9.3 0.0 2019E 100.2 -3.2 -10.3 0.0 -8.8 -18.7 -140.9 0.0 2020E 152.5 10.7 4.2 18.0 3.0 55.4 12.0 0.0

Source: Company data, CFE Research estimates Figures exclude exceptional items

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun

Price Relative


Leclanche | 21 August 2018 Financial model

Financial model

Income Statement (CHF'm)

Year end December 2016A 2017A 2018E 2019E 2020E Stationary 20.4 3.1 27.5 53.9 73.9 Mobile 0.3 0.4 6.1 39.0 71.0 Speciality 4.5 6.0 6.1 6.3 6.4 EPC/Service 2.8 2.2 0.6 0.9 1.1 SG&A and Central Costs 0.0 0.1 0.1 0.1 0.1 Group revenue 28.1 11.7 40.3 100.2 152.5

Stationary -13.5 -8.7 3.3 9.7 14.8 Mobile -2.3 -4.8 -3.4 6.2 15.5 Speciality -2.8 -2.3 -2.3 -2.4 -2.3 EPC/Service 0.3 -0.1 -1.9 -1.8 -1.8 SG&A and Central Costs -16.3 -20.2 -14.5 -15.0 -15.5 Adjusted operating profit -34.5 -36.1 -18.9 -3.2 10.7 Associates and other income 0.0 0.0 0.0 0.0 0.0 Adjusted EBIT -34.5 -36.1 -18.9 -3.2 10.7 Finance Costs -4.1 -2.5 -1.7 -7.1 -6.5 Adjusted PBT -38.6 -38.5 -20.5 -10.3 4.2 Exceptional items 0.0 0.0 0.0 0.0 0.0 Reported PBT -38.6 -38.5 -20.5 -10.3 4.2 Reported tax 0.6 0.1 0.0 0.0 -0.8 Adjusted tax rate 1.4% 0.1% 0.0% 0.0% 18.0% Reported PAT -38.1 -38.5 -20.5 -10.3 3.5 Minority interests 0.0 0.0 0.0 0.0 0.0 Discontinued businesses 0.0 0.0 0.0 0.0 0.0 Earnings attributable to shareholders -38.1 -38.5 -20.5 -10.3 3.5

Shares in issue (m) 42.7 69.7 116.7 116.7 116.7 Average weighted capital (FD) (m) 42.7 55.3 116.7 116.7 116.7 Adjusted EPS (FD) (c) -89.3 -69.6 -17.6 -8.8 3.0 Reported EPS (FD) (c) -89.3 -69.6 -17.6 -8.8 3.0 DPS (payable) (c) 0.00 0.00 0.00 0.00 0.00

Source: Company data, CFE Research estimates

Performance Metrics

Year end December 2016A 2017A 2018E 2019E 2020E Revenue growth (%) 54.1 -58.2 244.1 148.3 52.2 Adjusted EBITDA growth (%) n.a. n.a. n.a. n.a. n.a. Adjusted EBIT growth (%) n.a. n.a. n.a. n.a. n.a. Adjusted PBT growth (%) n.a. n.a. n.a. n.a. n.a. Adjusted EPS growth (%) n.a. n.a. n.a. n.a. n.a. DPS payable growth (%) n.a. n.a. n.a. n.a. n.a. Dividend cover (x) n.a. n.a. n.a. n.a. n.a.

Adjusted EBITDA margin (%) -109.4 -292.3 -41.8 -1.1 8.5 Adjusted EBIT margin (%) -123.1 -307.5 -46.7 -3.2 7.0

Interest cover (x) 8.4 14.7 11.3 0.5 1.7 Net cash/(debt)/adjusted EBITDA (x) 0.6 0.6 1.4 62.8 -6.8 Net cash/(debt)/equity (%) 363.4 -198.2 -165.7 -1675.3 -1148.5

Net working capital/revenue (%) 24.0 211.5 70.6 63.7 56.0 Operating cashflow conversion (%) 101.8 123.5 108.1 1117.6 -86.9

Return on assets employed (%) -151.2 -90.4 -41.2 -4.0 10.4 Return on equity (%) 713.8 -350.7 -142.0 -248.5 45.6



Financial model Leclanche | 21 August 2018

Cashflow Statement (CHF'm)

Year end December 2016A 2017A 2018E 2019E 2020E Operating profit -34.5 -36.1 -18.9 -3.2 10.7 Depreciation and amortisation 3.8 1.8 2.0 2.1 2.3 Other non-cash movements 5.9 4.7 0.2 0.2 0.2 Change in working capital -10.3 -14.9 -3.7 -35.3 -22.4 Other cash movements 0.0 0.0 0.0 0.0 0.0 Operating cashflow -35.2 -44.5 -20.4 -36.2 -9.3 Taxation paid 0.0 -0.1 0.1 0.0 0.0 Finance costs 0.0 -0.1 -1.7 -7.1 -6.5 Investment income 0.0 0.0 0.0 0.0 0.0 Capitalised intangibles 0.0 0.0 0.0 0.0 0.0 Capital expenditure (net) 5.1 -2.5 -4.2 -2.3 -2.3 Free cashflow -30.1 -47.2 -26.2 -45.5 -18.1 Other investing activities 0.0 0.0 0.0 0.0 0.0 Acquisitions/disposals (net) -3.4 -4.1 0.0 0.0 0.0 Dividends paid 0.0 0.0 0.0 0.0 0.0 Shares issued/(repurchased) 3.8 40.2 24.0 0.0 0.0 Other financial 16.3 8.8 0.0 0.0 0.0 Movement in net cash/(debt) -13.5 -2.3 -2.2 -45.5 -18.1

Net cash/(debt) b/fwd -5.9 -19.4 -21.7 -24.0 -69.5 Movement in net cash/(debt) -13.5 -2.3 -2.2 -45.5 -18.1 Net cash/(debt) c/fwd -19.4 -21.7 -24.0 -69.5 -87.5


Balance Sheet (CHF'm)

Year end December 2016A 2017A 2018E 2019E 2020E Goodwill 0.0 0.0 0.0 0.0 0.0 Intangible fixed assets 6.9 4.5 4.5 4.5 4.5 Tangible fixed assets 9.2 10.6 12.8 12.9 13.0 Net working capital 6.7 24.8 28.5 63.8 85.5 Assets employed 22.8 39.9 45.8 81.2 103.0 Other assets/(liabilities) 0.8 1.6 1.6 1.6 1.6 Net cash/(debt) -19.4 -21.7 -24.0 -69.5 -87.5 Pension deficit -9.5 -8.5 -8.5 -8.5 -8.5 Deferred tax 0.0 0.0 0.0 0.0 0.0 Provisions -0.1 -0.3 -0.5 -0.7 -0.9 Net assets -5.3 11.0 14.5 4.1 7.6 Minority interests 0.0 0.0 0.0 0.0 0.0 Shareholders funds -5.3 11.0 14.5 4.1 7.6


Valuation Metrics

Year end December 2016A 2017A 2018E 2019E 2020E EV / Revenue (x) 5.6 13.3 3.9 1.6 1.0 EV / Adjusted EBITDA (x) -5.1 -4.5 -9.3 -140.9 12.0 EV / Adjusted EBIT (x) -4.5 -4.3 -8.3 -48.2 14.6 PER (x) -1.8 -2.4 -9.4 -18.7 55.4 Yield (%) 0.0 0.0 0.0 0.0 0.0 FCF yield (%) -22.8 -35.8 -19.9 -34.5 -13.7 NAV/Share (c) -12.5 15.7 12.4 3.6 6.5


Strong control systems and a strategic partner Electro Power Systems is building up a strong track record in the micro grid storage market and is likely to see its position accelerated as a result of the majority stake taken by Engie. This brings access to Engie projects, a strengthened counterparty position and capital support as evidenced in the recent rights issue.

Track record in micro grid and grid support Electro Power Systems has a proven track record offering storage based micro grid and grid support projects around the globe. It is technology agnostic and has been at the forefront of developing hybrid systems with a mix of storage technologies. It recently deployed a system in Chile with both lithium ion and fuel cell based storage acting in a hybrid system. A second battery/fuel cell hybrid is being developed in Singapore. But what really makes EPS stand out is its control technology.

Control drives rapid rsponse EPS uses patented technology augmented by two trade secrets: DROOP Virtual Inertia at the inverter level and POOL Algorithms at the energy management system level. These technologies provide system inertia and allow EPS to deliver spinning reserve just like a larger rotating power system such as a large coal fired plant. This allows response within 125us. In a 50Hz power system response within 20ms (1/50) means that frequency deviation is controlled rather than merely responded to. The loss of significant amounts of synchronised generation in most major economies means the need for very rapid response or control is set to grow and EPS has one of the few viable solutions in the market.

Engie stake provides support EPS has sold a majority stake to French based global energy major Engie. Engie cited EPS’s differentiated control technology as one of the reasons for buying. We expect that the partnership will allow EPS to accelerate its growth through access to Engie projects and through a strengthened counterparty position. The deal places shareholders in a minority position which is a risk but we view the upside potential and logic behind Engie’s acquisition as giving a degree of protection. Engie held its corner in the recent rights issue which raised €30.3m and was oversubscribed by 60%.

We value shares at €14.6 We have valued the company using a DCF model with a cost of equity of 12% to get a target price of €14.6. This reflects a slight softening of our forecasts following the full year results. The key risks to our valuation are failure to gain traction in target markets, competitor response and minority disenfranchisement.

21 August 2018 | Company Flash Note | Alternative Energy & Resource Efficiency


Electro Power Systems ( DJSTOXX : EPS PA )

BUY (FROM HOLD)

Share Price (as at close: 14/08/2018) €10.3 Target Price €14.6 (from €15.3) Upside to TP 41.3% Market Cap (€'m) 131.5 Net Cash (€'m) 6.3 Enterprise Value (€'m) 125.2

Shares in Issue (m) 12.8 Free Float (%) 27.7% Average Daily Volume (000, -3m) 15.0 12 month high/low 15.1579 c/7.0458 c (%) 1m 3m 12m Absolute -13.5 -9.1 +46.2 FTA relative -12.8 -7.7 +42.4 Price & price relative (-2 year)

Source: Datastream Next News Interims Q4 2018 Business Power storage and microgrid solutions to off-grid and grid support markets www.electropowersystems.com


Year end December

Revenue (€'m)

EBIT (€'m)

PBT (€'m)

Tax (%)

EPS (FD) (c)

PER (x)

EV/EBITDA (x)

Div Yield (%)

2016A 7.1 -6.8 -6.9 0.6 -87.6 -11.8 -21.0 0.0 2017A 9.9 -6.0 -6.7 12.1 -72.6 -14.2 -24.9 0.0 2018E 35.7 4.1 3.1 25.0 18.0 57.1 21.2 0.0 2019E 52.9 10.3 9.7 25.0 56.8 18.1 9.9 0.0 2020E 78.2 19.3 18.7 25.0 109.7 9.4 5.6 0.0


2

4

6

8

10

12

14

16

Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug

Price Relative


Financial model Electro Power Systems | 21 August 2018

Financial model

Income Statement (€'m)

Year end December 2016A 2017A 2018E 2019E 2020E Goods 6.7 9.5 35.3 52.5 77.8 Services 0.4 0.4 0.4 0.4 0.4 Other 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 Group revenue 7.1 9.9 35.7 52.9 78.2

Goods 1.4 -3.4 13.8 20.6 30.5 Services 0.4 0.4 0.4 0.4 0.4 Grants and other income 0.2 0.0 0.0 0.0 0.0 Other -8.8 -3.0 -10.1 -10.7 -11.6 Adjusted operating profit -6.8 -6.0 4.1 10.3 19.3 Associates and other income 0.0 0.0 0.0 0.0 0.0 Adjusted EBIT -6.8 -6.0 4.1 10.3 19.3 Finance Costs 0.0 -0.7 -1.1 -0.6 -0.6 Adjusted PBT -6.9 -6.7 3.1 9.7 18.7 Exceptional items -1.7 -3.1 0.0 0.0 0.0 Reported PBT -8.5 -9.8 3.1 9.7 18.7 Reported tax 0.0 0.8 -0.8 -2.4 -4.7 Adjusted tax rate 0.6% 12.1% 25.0% 25.0% 25.0% Reported PAT -8.6 -9.0 2.3 7.2 14.0 Minority interests 0.0 0.0 0.0 0.0 0.0 Discontinued businesses 0.0 0.0 0.0 0.0 0.0 Earnings attributable to shareholders -8.6 -9.0 2.3 7.2 14.0

Shares in issue (m) 7.9 8.2 12.8 12.8 12.8 Average weighted capital (FD) (m) 7.9 8.2 12.8 12.8 12.8 Adjusted EPS (FD) (c) -87.6 -72.6 18.0 56.8 109.7 Reported EPS (FD) (c) -108.6 -110.5 18.0 56.8 109.7 DPS (payable) (c) 0.00 0.00 0.00 0.00 0.00


Performance Metrics

Year end December 2016A 2017A 2018E 2019E 2020E Revenue growth (%) 505.9 39.7 260.4 48.3 47.8 Adjusted EBITDA growth (%) n.a. n.a. n.a. 113.3 77.0 Adjusted EBIT growth (%) n.a. n.a. n.a. 148.5 87.2 Adjusted PBT growth (%) n.a. n.a. n.a. 214.8 93.2 Adjusted EPS growth (%) n.a. n.a. n.a. 214.8 93.2 DPS payable growth (%) n.a. n.a. n.a. n.a. n.a. Dividend cover (x) n.a. n.a. n.a. n.a. n.a.

Adjusted EBITDA margin (%) -79.0 -47.7 15.5 22.3 26.8 Adjusted EBIT margin (%) -96.2 -60.6 11.6 19.5 24.7

Interest cover (x) 150.7 8.0 3.9 16.2 31.8 Net cash/(debt)/adjusted EBITDA (x) 0.2 2.6 1.1 0.4 0.3 Net cash/(debt)/equity (%) -19.6 -850.3 18.5 11.4 9.5

Net working capital/revenue (%) 13.7 75.2 63.6 62.1 61.2 Operating cashflow conversion (%) 63.4 159.9 -234.1 15.8 31.0

Return on assets employed (%) -104.2 -41.5 14.6 27.6 38.0 Return on equity (%) -126.2 -408.8 6.8 17.6 25.3



Electro Power Systems | 21 August 2018 Financial model

Cashflow Statement (€'m)

Year end December 2016A 2017A 2018E 2019E 2020E Operating profit -6.8 -6.0 4.1 10.3 19.3 Depreciation and amortisation 1.2 1.3 1.4 1.5 1.7 Other non-cash movements 0.2 0.2 0.0 0.0 0.0 Change in working capital 1.1 -5.1 -15.2 -10.2 -15.0 Other cash movements 0.0 0.0 0.0 0.0 0.0 Operating cashflow -4.3 -9.6 -9.7 1.6 6.0 Taxation paid 0.0 0.0 -0.8 -2.4 -4.7 Finance costs 0.0 0.0 -1.1 -0.6 -0.6 Investment income 0.0 0.0 0.0 0.0 0.0 Capitalised intangibles 0.0 0.0 0.0 0.0 0.0 Capital expenditure (net) -0.3 -0.1 -0.2 -0.2 -0.2 Free cashflow -4.7 -9.7 -11.7 -1.6 0.5 Other investing activities 0.0 0.0 0.0 0.0 0.0 Acquisitions/disposals (net) -5.0 -2.6 0.0 0.0 0.0 Dividends paid 0.0 0.0 0.0 0.0 0.0 Shares issued/(repurchased) 1.4 0.0 30.3 0.0 0.0 Other financial -1.4 1.1 n.a. 0.0 0.0 Movement in net cash/(debt) -9.6 -11.3 18.6 -1.6 0.5

Net cash/(debt) b/fwd 8.6 -1.1 -12.3 6.3 4.7 Movement in net cash/(debt) -9.6 -11.3 18.6 -1.6 0.5 Net cash/(debt) c/fwd -1.1 -12.3 6.3 4.7 5.2


Balance Sheet (€'m)

Year end December 2016A 2017A 2018E 2019E 2020E Goodwill 0.0 0.0 0.0 0.0 0.0 Intangible fixed assets 4.8 6.3 6.3 6.3 6.3 Tangible fixed assets 0.8 0.8 -0.5 -1.9 -3.4 Net working capital 1.0 7.4 22.7 32.9 47.8 Assets employed 6.5 14.5 28.5 37.3 50.7 Other assets/(liabilities) 0.0 0.0 0.0 0.0 0.0 Net cash/(debt) -1.1 -12.3 6.3 4.7 5.2 Pension deficit 0.0 0.0 0.0 0.0 0.0 Deferred tax 0.0 0.0 0.0 0.0 0.0 Provisions 0.0 -0.7 -0.7 -0.7 -0.7 Net assets 5.5 1.4 34.1 41.3 55.3 Minority interests 0.0 0.0 0.0 0.0 0.0 Shareholders funds 5.5 1.4 34.1 41.3 55.3


Valuation Metrics

Year end December 2016A 2017A 2018E 2019E 2020E EV / Revenue (x) 16.6 11.9 3.3 2.2 1.5 EV / Adjusted EBITDA (x) -21.0 -24.9 21.2 9.9 5.6 EV / Adjusted EBIT (x) -17.2 -19.6 28.3 11.4 6.1 PER (x) -11.8 -14.2 57.1 18.1 9.4 Yield (%) 0.0 0.0 0.0 0.0 0.0 FCF yield (%) -3.8 -7.9 -9.5 -1.3 0.4 NAV/Share (c) 69.4 17.8 266.7 323.5 433.2


Proven developer with storage opportunities While the main focus of SIMEC Atlantis will be the waste to energy conversion of the Uskmouth power station, the company has a number of opportunities in storage including an innovative pumped storage lead in Australia. Additionally much of the pipeline is flexible generation of one sort or another which fits well with our overall investment theme.

Major renewable developer Through its deal with SIMEC, SIMEC Atlantis has transformed itself into a major renewable developer with an enviable pipeline of renewable and flexibility projects. These include a major pumped storage project in Australia and battery projects. The current asset base is a mix of tidal stream and waste to energy assets both of which are non-intermittent and therefore of more value as the energy transition progresses in our view. The waste to energy asset in particular is fully flexible spinning reserve and as such contributes to mitigation of the rising problem of lost inertia in the grid.

Better pumped storage opportunity While pumped storage is normally restricted by high capital costs, SIMEC’s Middleback project is able to reduce the civil engineering costs by making use of an abandoned mine site for the lower reservoir. This will get the cost to around A$1.2m/MW or c.US$1m/MW compared with a more typical US$3m/MW for a normal PHS project. SIMEC ZEN is also developing a 100MW grid scale storage project based on lithium ion batteries in South Australia. The cost of batteries has fallen to a point where shorter duration arbitrage (peak shaving) can deliver good returns. The Playford project is well located in Southern Australia.

Tidal and storage are a natural fit The predictable but variable output characteristics of tidal generation work very well alongside medium to long duration energy storage such as pumped hydro. Additionally flow battery provider RedT has announced that it has been selected to be part of a UK tidal project. While this project has not been identified, and is unlikely to be a SIMEC Atlantis project, it does highlight the potential for SIMEC Atlantis to add storage to projects such as its Wyre Barrage and extend the implicit storage in that project.

We value the shares at 75p We value SIMEC Atlantis on a DCF basis with a WACC of 10.1% giving us a target price of 75p. The key risks to our valuation are the financing and conversion of the Uskmouth power station.

21 August 2018 | Corporate Flash Note | Alternative Energy & Resource Efficiency


SIMEC Atlantis Energy ( AIM : SAE LN )

BUY

Share Price (as at close: 14/08/2018) 26.8p Target Price 75p Upside to TP 180.9% Market Cap (£'m) 33.7 Net Debt (£'m) 35.7 Enterprise Value (£'m) 69.4

Shares in Issue (m) 126.0 Free Float (%) 46.0% Average Daily Volume (000, -3m) 66.0 12 month high/low 44p/26.75p (%) 1m 3m 12m Absolute -16.4 n.a. -29.6 FTA relative -15.7 n.a. -31.4 Price & price relative (-2 year)

Source: Datastream Next News Interims - Q3 2018 Business Independent renewable power producer www.atlantisresourcesltd.com


Year end December

Revenue (£'m)

EBIT (£'m)

PBT (£'m)

Tax (%)

EPS (FD) (p)

PER (x)

EV/EBITDA (x)

Div Yield (%)

2016A 0.2 -6.4 -7.3 0.0 -6.8 -3.9 -10.9 0.0 2017A 0.3 -9.5 -11.1 5.2 -8.6 -3.1 -7.6 0.0 2018E 5.3 -8.0 -10.5 0.0 -4.2 -6.3 -12.0 0.0 2019E 6.6 -5.2 -7.6 0.0 -3.0 -8.9 -23.9 0.0 2020E 6.7 -5.2 -7.6 0.0 -3.2 -8.4 -23.8 0.0


10

20

30

40

50

60

70

80

90


Price Relative


SIMEC Atlantis Energy | 21 August 2018 Financial model

Financial model

Income Statement (£'m)

Year end December 2016A 2017A 2018E 2019E 2020E Turbine and Engineering Services 0.2 0.0 0.0 0.0 0.0 Consolidated Project Income 0.0 0.3 5.3 6.6 6.7 Grants 0.0 0.0 0.0 0.0 0.0 Project development 0.0 0.0 0.0 0.0 0.0 Group revenue 0.2 0.3 5.3 6.6 6.7

Turbine and Engineering Services -9.8 -10.0 -9.6 -7.9 -8.0 Consolidated Project Income 2.2 0.0 2.2 3.3 3.5 Grants 2.0 1.1 0.0 0.0 0.0 Project development -0.6 -0.6 -0.6 -0.6 -0.6 Adjusted operating profit -6.2 -9.5 -8.0 -5.2 -5.2 Associates and other income -0.2 0.0 0.0 0.0 0.0 Adjusted EBIT -6.4 -9.5 -8.0 -5.2 -5.2 Finance Costs -0.9 -1.6 -2.5 -2.4 -2.5 Adjusted PBT -7.3 -11.1 -10.5 -7.6 -7.6 Exceptional items 0.0 0.0 0.0 0.0 0.0 Reported PBT -7.3 -11.1 -10.5 -7.6 -7.6 Reported tax 0.0 0.6 0.0 0.0 0.0 Adjusted tax rate 0.0% 5.2% 0.0% 0.0% 0.0% Reported PAT -7.3 -10.6 -10.5 -7.6 -7.6 Minority interests -0.5 -0.3 -0.2 -0.5 -0.4 Discontinued businesses 0.0 0.0 0.0 0.0 0.0 Earnings attributable to shareholders -7.7 -10.8 -10.7 -8.0 -8.1

Shares in issue (m) 117.0 126.0 251.9 251.9 251.9 Average weighted capital (FD) (m) 113.0 126.0 251.9 251.9 251.9 Adjusted EPS (FD) (p) -6.8 -8.6 -4.2 -3.0 -3.2 Reported EPS (FD) (p) -6.8 -8.6 -4.2 -3.2 -3.2 DPS (payable) (p) 0.00 0.00 0.00 0.00 0.00


Performance Metrics

Year end December 2016A 2017A 2018E 2019E 2020E Revenue growth (%) -82.9 28.1 1670.8 23.0 2.5 Adjusted EBITDA growth (%) n.a. n.a. n.a. n.a. n.a. Adjusted EBIT growth (%) n.a. n.a. n.a. n.a. n.a. Adjusted PBT growth (%) n.a. n.a. n.a. n.a. n.a. Adjusted EPS growth (%) n.a. n.a. n.a. n.a. n.a. DPS payable growth (%) n.a. n.a. n.a. n.a. n.a. Dividend cover (x) n.a. n.a. n.a. n.a. n.a.

Adjusted EBITDA margin (%) -2691.9 -3035.9 -108.3 -44.1 -43.2 Adjusted EBIT margin (%) -2717.9 -3163.5 -150.8 -78.6 -76.8

Interest cover (x) 7.3 5.9 3.2 2.1 2.1 Net cash/(debt)/adjusted EBITDA (x) 3.5 3.5 6.2 44.0 87.1 Net cash/(debt)/equity (%) -33.2 -53.7 -31.4 -120.3 -259.1

Net working capital/revenue (%) -3886.8 -1678.4 -6.1 -121.0 -118.1 Operating cashflow conversion (%) 215.3 52.4 137.8 -91.6 56.1

Return on assets employed (%) -7.1 -9.9 -4.9 -2.1 -1.4 Return on equity (%) -10.9 -17.5 -9.3 -7.2 -7.8



Financial model SIMEC Atlantis Energy | 21 August 2018

Cashflow Statement (£'m)

Year end December 2016A 2017A 2018E 2019E 2020E Operating profit -6.2 -9.5 -8.0 -5.2 -5.2 Depreciation and amortisation 0.1 0.4 2.3 2.3 2.3 Other non-cash movements -0.3 2.5 0.0 0.0 0.0 Change in working capital -6.9 1.7 -5.3 7.6 0.0 Other cash movements 0.0 0.0 0.0 0.0 0.0 Operating cashflow -13.3 -5.0 -11.1 4.7 -2.9 Taxation paid 0.0 0.0 0.6 0.0 0.0 Finance costs 0.0 -0.3 -2.6 -2.9 -2.9 Investment income 0.0 0.0 0.0 0.0 0.0 Capitalised intangibles 0.0 0.0 0.0 0.0 0.0 Capital expenditure (net) -14.2 -10.3 0.0 -93.1 -119.9 Free cashflow -27.4 -15.5 -13.1 -91.3 -125.7 Other investing activities 0.0 0.0 0.0 0.0 0.0 Acquisitions/disposals (net) 0.0 0.7 0.0 0.0 0.0 Dividends paid 0.0 0.0 0.0 0.0 0.0 Shares issued/(repurchased) 6.3 3.8 20.0 0.0 0.0 Other financial 6.3 0.9 -10.3 0.0 0.0 Movement in net cash/(debt) -14.8 -10.2 -3.4 -91.3 -125.7

Net cash/(debt) b/fwd -7.3 -22.1 -32.3 -35.7 -127.0 Movement in net cash/(debt) -14.8 -10.2 -3.4 -91.3 -125.7 Net cash/(debt) c/fwd -22.1 -32.3 -35.7 -127.0 -252.7


Balance Sheet (£'m)

Year end December 2016A 2017A 2018E 2019E 2020E Goodwill 0.0 0.0 11.9 11.9 11.9 Intangible fixed assets 36.3 34.3 34.3 34.3 34.3 Tangible fixed assets 62.7 66.7 117.0 207.8 325.5 Net working capital -9.1 -5.1 -0.3 -7.9 -7.9 Assets employed 89.9 95.9 162.8 246.1 363.7 Other assets/(liabilities) 1.2 0.2 1.3 1.3 1.3 Net cash/(debt) -22.1 -32.3 -35.7 -127.0 -252.7 Pension deficit 0.0 0.0 0.0 0.0 0.0 Deferred tax 0.0 0.0 0.0 0.0 0.0 Provisions -2.3 -3.5 -14.8 -14.8 -14.8 Net assets 66.6 60.2 113.6 105.6 97.5 Minority interests 8.0 8.3 8.3 8.3 8.3 Shareholders funds 74.7 68.6 122.0 113.9 105.9


Valuation Metrics

Year end December 2016A 2017A 2018E 2019E 2020E EV / Revenue (x) 294.3 229.8 13.0 10.6 10.3 EV / Adjusted EBITDA (x) -10.9 -7.6 -12.0 -23.9 -23.8 EV / Adjusted EBIT (x) -10.8 -7.3 -8.6 -13.4 -13.4 PER (x) -3.9 -3.1 -6.3 -8.9 -8.4 Yield (%) 0.0 0.0 0.0 0.0 0.0 FCF yield (%) -82.1 -46.5 -39.3 -273.0 -375.8 NAV/Share (p) 57.0 47.8 45.1 41.9 38.7


Flexible generation developer Plutus has developed a good portfolio of flexible generation assets. While this represents old technology, as we have shown, it still has a role to play being competitive at medium durations in our levelised cost analysis. The ability to hybridise these assets with battery storage also creates an opportunity for the company in future years in our view.

120MW of operating flexible generation capacity Plutus has moved quickly to roll out a portfolio of flexible generation projects in the UK. These have been based initially on diesel engines fired with biofuel (hydrogenate vegetable oil) but the company is now moving to gas engines which have better economics. The company is also now combining this generation with storage to deliver a wider offering to the various UK flexibility markets. While competition has brought prices down in recent months, demand is growing rapidly and we see good economics going forward.

Good sites Part of Plutus’s success in building out its portfolio has been the ability to acquire good sites with grid connections. The company has built strong relationships including a big six utility and JCB and now has a further pipeline of good sites with 180MW of capacity. Project funding is the only real constraint on growth and we see this as being available with the company currently working on bond finance.

Hybrid storage opportunities There is a risk that elements of Plutus’ revenue stack are cannibalised by new forms of flexible solutions, notably battery based storage, entering the market. With only two years of FFR contracted this is a risk. However we continue to see gas assets as competitive for some time to come especially at longer durations. Additionally Plutus is well positioned to pivot to newer storage technologies and is already planning a 85MW project in a JV with London and Devonshire Trust. The early signs are the National Grid’s replacement services for FFR will best be served by hybrid technologies making this an area of potential opportunity for Plutus.

We value the shares at 3.6p We have valued the company using a DCF model with a cost of equity of 12% to get a target price of 3.6p. The key risks to our valuation are further policy change as the National Grid implements its System Needs and Product Strategy review and competitive response. The company recently announced the sad death of CEO Phil Stephens. CFO James Longley will fill the role in the interim.



Plutus Powergen ( AIM : PPG LN )

BUY

Share Price (as at close: 14/08/2018) 0.95p Target Price 3.6 p Upside to TP 274.5% Market Cap (£'m) 6.9 Net Debt (£'m) 0.4 Enterprise Value (£'m) 7.3

Shares in Issue (m) 723.9 Free Float (%) 46.0% Average Daily Volume (000, -3m) 1199.0 12 month high/low 2.63p/0.93p (%) 1m 3m 12m Absolute -29.6 -42.4 -44.1 FTA relative -29.1 -41.6 -45.6 Price & price relative (-2 year)

Source: Datastream Next News Preliminary Results - Q3 2018 Business Plutus Powergen generates power from flexible stand-by power generation farms www.plutuspowergen.com


Year end April

Revenue (£'m)

EBIT (£'m)

PBT (£'m)

Tax (%)

EPS (FD) (p)

PER (x)

EV/EBITDA (x)

Div Yield (%)

2016A 0.9 -0.4 -0.4 0.0 -0.1 -14.0 -19.2 0.0 2017A 1.4 -0.2 -0.2 0.0 0.0 -32.6 -40.8 0.0 2018E 1.4 -0.5 -0.5 0.0 -0.1 -14.8 -15.0 0.0 2019E 1.4 0.9 0.9 19.0 0.1 8.5 7.9 0.0 2020E 6.2 5.4 5.4 19.0 0.6 1.6 1.2 0.0


0.5

1.0

1.5

2.0

2.5

3.0

3.5


Price Relative


Financial model Plutus Powergen | 21 August 2018

Financial model


Year end April 2016A 2017A 2018E 2019E 2020E Management fees 0.9 1.4 1.4 1.4 1.4 Consolidated projects 0.0 0.0 0.0 0.0 4.8 Other 0.0 0.0 0.0 0.0 0.0 Head office 0.0 0.0 0.0 0.0 0.0 Group revenue 0.9 1.4 1.4 1.4 6.2

Management fees 0.9 1.4 1.4 1.4 1.4 Consolidated projects 0.0 0.0 0.0 0.0 2.4 Other 0.0 0.0 0.0 0.0 0.0 Head office -1.3 -1.5 -1.8 -1.4 -1.4 Adjusted operating profit -0.4 -0.2 -0.5 0.0 2.3 Associates and other income 0.0 0.0 0.0 0.9 3.1 Adjusted EBIT -0.4 -0.2 -0.5 0.9 5.4 Finance Costs 0.0 0.0 0.0 0.0 0.0 Adjusted PBT -0.4 -0.2 -0.5 0.9 5.4 Exceptional items 0.0 0.0 0.0 0.0 0.0 Reported PBT -0.4 -0.2 -0.5 0.9 5.4 Reported tax 0.0 0.0 0.0 -0.2 -1.0 Adjusted tax rate 0.0% 0.0% 0.0% 19.0% 19.0% Reported PAT -0.4 -0.2 -0.5 0.7 4.4 Minority interests 0.0 0.0 0.0 0.1 -0.3 Discontinued businesses 0.0 0.0 0.0 0.0 0.0 Earnings attributable to shareholders -0.4 -0.2 -0.5 0.8 4.1

Shares in issue (m) 691.4 691.4 711.4 711.4 711.4 Average weighted capital (FD) (m) 602.3 691.4 723.9 723.9 723.9 Adjusted EPS (FD) (p) -0.1 0.0 -0.1 0.1 0.6 Reported EPS (FD) (p) -0.1 0.0 -0.1 0.1 0.6 DPS (payable) (p) 0.00 0.00 0.00 0.00 0.00


Performance Metrics

Year end April 2016A 2017A 2018E 2019E 2020E Revenue growth (%) 914.3 52.1 0.0 0.0 356.8 Adjusted EBITDA growth (%) n.a. n.a. n.a. n.a. 562.3 Adjusted EBIT growth (%) n.a. n.a. n.a. n.a. 487.2 Adjusted PBT growth (%) n.a. n.a. n.a. n.a. 499.2 Adjusted EPS growth (%) n.a. n.a. n.a. n.a. 442.0 DPS payable growth (%) n.a. n.a. n.a. n.a. n.a. Dividend cover (x) n.a. n.a. n.a. n.a. n.a.

Adjusted EBITDA margin (%) -42.8 -13.2 -36.1 68.1 98.8 Adjusted EBIT margin (%) -42.8 -13.2 -36.1 68.1 87.5

Interest cover (x) 13.7 7.9 31.3 69.7 n.a. Net cash/(debt)/adjusted EBITDA (x) 0.4 0.7 0.9 2.1 -0.4 Net cash/(debt)/equity (%) -14.6 -12.9 -81.9 145.5 -46.5

Net working capital/revenue (%) 28.4 2.9 -8.9 -8.9 -8.2 Operating cashflow conversion (%) 121.8 -36.3 67.2 1344.7 109.1

Return on assets employed (%) -28.4 -15.9 -50.6 95.4 30.6 Return on equity (%) -35.0 -20.2 -94.9 54.7 80.4



Plutus Powergen | 21 August 2018 Financial model


Year end April 2016A 2017A 2018E 2019E 2020E Operating profit -0.4 -0.2 -0.5 0.0 2.3 Depreciation and amortisation 0.0 0.0 0.0 0.0 0.7 Other non-cash movements 0.0 0.0 0.0 0.0 0.0 Change in working capital -0.1 0.2 0.2 -0.2 -0.5 Other cash movements 0.0 0.0 0.0 0.0 0.0 Operating cashflow -0.5 0.1 -0.3 -0.2 2.6 Taxation paid 0.0 0.0 0.0 0.0 -0.2 Finance costs 0.0 0.0 0.0 0.1 -0.2 Investment income 0.0 0.0 0.0 0.0 0.0 Capitalised intangibles 0.0 0.0 0.0 0.0 0.0 Capital expenditure (net) 0.0 0.0 0.0 0.0 -17.8 Free cashflow -0.5 0.0 -0.3 -0.1 -15.6 Other investing activities 0.0 0.0 0.0 0.0 0.0 Acquisitions/disposals (net) 0.0 0.0 0.0 2.5 11.1 Dividends paid 0.0 0.0 0.0 0.0 0.0 Shares issued/(repurchased) 0.2 0.0 0.0 0.0 0.0 Other financial 0.0 0.0 0.0 0.0 0.0 Movement in net cash/(debt) -0.3 0.0 -0.3 2.4 -4.5

Net cash/(debt) b/fwd 0.1 -0.2 -0.1 -0.4 2.0 Movement in net cash/(debt) -0.3 0.0 -0.3 2.4 -4.5 Net cash/(debt) c/fwd -0.2 -0.1 -0.4 2.0 -2.5



Year end April 2016A 2017A 2018E 2019E 2020E Goodwill 1.1 1.1 1.1 1.1 1.1 Intangible fixed assets 0.0 0.0 0.0 0.0 0.0 Tangible fixed assets 0.0 0.0 0.0 0.0 17.1 Net working capital 0.3 0.0 -0.1 -0.1 -0.5 Assets employed 1.3 1.1 1.0 1.0 17.7 Other assets/(liabilities) 0.0 0.0 0.0 -1.6 -9.6 Net cash/(debt) -0.2 -0.1 -0.4 2.0 -2.5 Pension deficit 0.0 0.0 0.0 0.0 0.0 Deferred tax 0.0 0.0 0.0 0.0 0.0 Provisions 0.0 0.0 0.0 0.0 0.0 Net assets 1.2 1.0 0.5 1.3 5.5 Minority interests 0.0 0.0 0.0 0.0 0.0 Shareholders funds 1.2 1.0 0.5 1.3 5.5


Valuation Metrics

Year end April 2016A 2017A 2018E 2019E 2020E EV / Revenue (x) 8.2 5.4 5.4 5.4 1.2 EV / Adjusted EBITDA (x) -19.2 -40.8 -15.0 7.9 1.2 EV / Adjusted EBIT (x) -19.2 -40.8 -15.0 7.9 1.4 PER (x) -14.0 -32.6 -14.8 8.5 1.6 Yield (%) 0.0 0.0 0.0 0.0 0.0 FCF yield (%) -7.0 0.7 -4.5 -1.8 -227.4 NAV/Share (p) 0.2 0.1 0.1 0.2 0.8


Riding on the back of renewable growth We think that storage is a key enabler for renewables. Windar stands to benefit from this as existing wind energy projects look to retrofit the company’s LiDAR solution to improve performance and as OEMs adopt the technology as a competitive differentiator. The company has made recent progress in both areas and we expect to see growth as a result.

Low cost LiDAR Windar Photonics has developed a low cost, lightweight, small footprint LIDAR device for new and retrofitted wind turbines. Turbine sizes are rising, leading to cost savings and grid parity is being achieved or in sight in many parts of the world. The potential for deploying wind on a very large scale has, to date, faced a limiting factor as integration costs rise steeply above about 30% penetration. Storage can reduce these costs and make intermittent wind energy more manageable. As a result we think more storage will enable more wind energy increasing the potential market for Windar.

Strong order book Windar measures frequency changes in laser light in order to analyse the wind ahead of a wind turbine. This allows the turbine to be fully optimised for the wind conditions at all times. This in turn can increase the output of the turbine. Windar is now beginning to show real traction, notably with Chinese wind turbine manufacturers (“OEMs”) and this is evidenced by a strong order book and order backlog. In the retrofit market Windar has signed a global distribution agreement with Vestas Wind Systems for the sale and promotion of its 2 beam LiDAR system. Vestas will market the systems as a retrofit after sales solution to wind turbine owners and operators. Vestas is the largest maintenance provider in the wind industry serving not only its own branded turbines but also those of other manufacturers.

Funding for growth Windar has also put in place funding packages to address the working capital needs of growing sales. The company has a factoring facility in place and has had success using export credit guarantees under the Danish EKF programme. Together these initiatives reduce funding constraints as a key impediment to near term progress. It has also completed a €2.2m equity raise leaving it well placed to fund growth.

We value the shares at 130p We value the company on a DCF basis with a conservative cost of equity of 15.8% and a conservative non-systematic risk adjustment of 50%. This gives us a target price of 130p. The key risk remains the timing of orders. Competition exists although it is at a price and performance disadvantage.

21 August 2018 | Corporate Flash Note | Electronic & Electrical Equipment


Windar Photonics ( AIM : WPHO LN )

BUY

Share Price (as at close: 14/08/2018) 80p Target Price 130p Upside to TP 63.0% Market Cap (£'m) 34.9 Net Cash (£'m) 1.5 Enterprise Value (£'m) 33.4

Shares in Issue (m) 43.9 Free Float (%) 36.5% Average Daily Volume (000, -3m) 12.0 12 month high/low 110p/76p (%) 1m 3m 12m Absolute 0.0 -18.5 -4.8 FTA relative +0.8 -17.3 -7.3 Price & price relative (-2 year)

Source: Datastream Next News Interims - Q3 2018 Business Windar Photonics is based in Denmark and a provider of lidar systems for wind turbines www.windarphotonics.com


Year end December

Revenue (€'m)

EBIT (€'m)

PBT (€'m)

Tax (%)

EPS (FD) (c)

PER (x)

EV/EBITDA (x)

Div Yield (%)

2016A 1.2 -3.2 -3.3 3.9 -8.1 -11.0 -11.8 0.0 2017A 2.2 -2.0 -2.3 2.9 -5.4 -16.4 -18.8 0.0 2018E 5.5 0.1 -0.1 25.0 -0.2 -478.5 185.0 0.0 2019E 26.5 11.7 11.5 0.0 25.8 3.4 2.9 0.0 2020E 46.1 22.8 22.5 20.9 40.1 2.2 1.6 0.0


50

60

70

80

90

100

110

120

130


Price Relative


Windar Photonics | 21 August 2018 Financial model

Financial model

Income Statement (€'m)

Year end December 2016A 2017A 2018E 2019E 2020E LIDAR Systems 1.2 2.2 5.5 26.5 46.1 Other 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 Head office 0.0 0.0 0.0 0.0 0.0 Group revenue 1.2 2.2 5.5 26.5 46.1

LIDAR Systems -3.2 -2.1 0.1 11.7 22.8 Other 0.1 0.1 0.0 0.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 Head office 0.0 0.0 0.0 0.0 0.0 Adjusted operating profit -3.2 -2.0 0.1 11.7 22.8 Associates and other income 0.0 0.0 0.0 0.0 0.0 Adjusted EBIT -3.2 -2.0 0.1 11.7 22.8 Finance Costs -0.1 -0.3 -0.3 -0.2 -0.2 Adjusted PBT -3.3 -2.3 -0.1 11.5 22.5 Exceptional items 0.0 0.0 0.0 0.0 0.0 Reported PBT -3.3 -2.3 -0.1 11.5 22.5 Reported tax 0.1 0.1 0.0 0.0 -4.7 Adjusted tax rate 3.9% 2.9% 25.0% 0.0% 20.9% Reported PAT -3.1 -2.2 -0.1 11.5 17.8 Minority interests 0.0 0.0 0.0 0.0 0.0 Discontinued businesses 0.0 0.0 0.0 0.0 0.0 Earnings attributable to shareholders -3.1 -2.2 -0.1 11.5 17.8

Shares in issue (m) 39.0 41.8 44.5 44.5 44.5 Average weighted capital (FD) (m) 39.0 41.1 44.5 44.5 44.5 Adjusted EPS (FD) (c) -8.1 -5.4 -0.2 25.8 40.1 Reported EPS (FD) (c) -8.1 -5.4 -0.2 25.8 40.1 DPS (payable) (c) 0.00 0.00 0.00 0.00 0.00


Performance Metrics

Year end December 2016A 2017A 2018E 2019E 2020E Revenue growth (%) 26.4 85.1 146.2 385.5 74.4 Adjusted EBITDA growth (%) n.a. n.a. n.a. 6192.3 88.6 Adjusted EBIT growth (%) n.a. n.a. n.a. 7715.1 94.3 Adjusted PBT growth (%) n.a. n.a. n.a. n.a. 96.0 Adjusted EPS growth (%) n.a. n.a. n.a. n.a. 55.1 DPS payable growth (%) n.a. n.a. n.a. n.a. n.a. Dividend cover (x) n.a. n.a. n.a. n.a. n.a.

Adjusted EBITDA margin (%) -259.7 -88.1 3.6 47.2 51.0 Adjusted EBIT margin (%) -264.8 -90.6 2.7 44.3 49.3

Interest cover (x) 29.6 7.0 0.6 55.6 105.0 Net cash/(debt)/adjusted EBITDA (x) 0.1 0.0 8.3 0.4 0.5 Net cash/(debt)/equity (%) -18.0 0.5 49.8 34.0 33.9

Net working capital/revenue (%) 71.1 12.3 16.7 17.9 37.4 Operating cashflow conversion (%) 48.9 39.5 -216.1 73.6 27.7

Return on assets employed (%) -147.1 -160.7 8.7 119.1 105.2 Return on equity (%) -172.4 -188.4 -2.5 77.7 54.7



Financial model Windar Photonics | 21 August 2018

Cashflow Statement (€'m)

Year end December 2016A 2017A 2018E 2019E 2020E Operating profit -3.2 -2.0 0.1 11.7 22.8 Depreciation and amortisation 0.1 0.1 0.0 0.8 0.8 Other non-cash movements 0.8 0.4 0.2 0.0 0.0 Change in working capital 0.8 0.8 -0.7 -3.9 -17.2 Other cash movements 0.0 0.0 0.0 0.0 0.0 Operating cashflow -1.5 -0.8 -0.3 8.6 6.3 Taxation paid 0.0 0.0 0.1 0.0 0.0 Finance costs 0.0 0.0 -0.3 -0.2 -0.2 Investment income 0.0 0.0 0.0 0.0 0.0 Capitalised intangibles 0.0 0.0 0.0 0.0 0.0 Capital expenditure (net) 0.0 0.0 0.0 -5.0 0.0 Free cashflow -1.6 -0.9 -0.6 3.4 6.0 Other investing activities 0.0 0.0 0.0 0.0 0.0 Acquisitions/disposals (net) -0.4 -0.2 0.0 0.0 0.0 Dividends paid 0.0 0.0 0.0 0.0 0.0 Shares issued/(repurchased) 2.0 1.3 2.2 0.0 0.0 Other financial -0.1 0.1 0.0 0.0 0.0 Movement in net cash/(debt) -0.2 0.3 1.6 3.4 6.0

Net cash/(debt) b/fwd -0.1 -0.3 0.0 1.6 5.0 Movement in net cash/(debt) -0.2 0.3 1.6 3.4 6.0 Net cash/(debt) c/fwd -0.3 0.0 1.6 5.0 11.1


Balance Sheet (€'m)

Year end December 2016A 2017A 2018E 2019E 2020E Goodwill 0.0 0.0 0.0 0.0 0.0 Intangible fixed assets 1.2 0.9 0.7 0.7 0.7 Tangible fixed assets 0.1 0.1 0.1 4.4 3.7 Net working capital 0.9 0.3 0.9 4.7 17.3 Assets employed 2.2 1.2 1.7 9.8 21.6 Other assets/(liabilities) 0.0 0.0 0.0 0.0 0.0 Net cash/(debt) -0.3 0.0 1.6 5.0 11.1 Pension deficit 0.0 0.0 0.0 0.0 0.0 Deferred tax 0.0 0.0 0.0 0.0 0.0 Provisions 0.0 -0.1 -0.1 -0.1 -0.1 Net assets 1.8 1.2 3.3 14.8 32.6 Minority interests 0.0 0.0 0.0 0.0 0.0 Shareholders funds 1.8 1.2 3.3 14.8 32.6


Valuation Metrics

Year end December 2016A 2017A 2018E 2019E 2020E EV / Revenue (x) 30.7 16.6 6.7 1.4 0.8 EV / Adjusted EBITDA (x) -11.8 -18.8 185.0 2.9 1.6 EV / Adjusted EBIT (x) -11.6 -18.3 244.8 3.1 1.6 PER (x) -11.0 -16.4 -478.5 3.4 2.2 Yield (%) 0.0 0.0 0.0 0.0 0.0 FCF yield (%) -4.2 -2.3 -1.5 8.9 15.7 NAV/Share (c) 4.7 2.8 7.4 33.3 73.3


Entry to the hydrogen economy AFC is beginning to see commercial traction with its recent sale in Australia. The project could see follow-up deals with the same customer over time and also raises the company profile more broadly. With the Bloom Energy IPO also raising the profile of fuel cells generally we think AFC is well placed to capitalise on recent improvements in its technology.

Leading alkaline fuel cell developer AFC Energy has a leading fuel cell application optimised for key niche markets notably the chlor alkali industry where surplus hydrogen can be used as a fuel. AFC’s uses an alkaline fuel cell which delivers a high conversion efficiency. Degradation which has been a limiting factor in fuel cells is being improved thanks to a development partnership with electrode specialist De Nora. The company’s cell design also allows for efficient stack replacement without the need to change the balance of plant. As a result a commercially viable cell is being marketed in the current year and success here would see the company transformed in our view.

An efficient cell An alkaline fuel cell has a number of key benefits over rival fuel cell technologies. It uses lower cost components which results in a lower overall cost. It runs at a low temperature and has a rapid start up time making it suitable for flexibility applications. While alkaline cells have been seen as sensitive to CO2 in the fuel and in air, the AFC cell can now accept low grade hydrogen without additional degradation increasing its applicability and reducing the overall system cost. Additionally alkaline fuel cells are the most efficient of all the fuel cell types, improving the economics.

Industrial scale sale made The AFC fuel cell provides a solution for longer duration applications and distributed power. The company has completed two EU funded projects and has successfully installed a demonstration unit at Stade in Germany. The company has improved the design of its stack with key input from De Nora and is now pursuing commercial opportunities in the Middle East, South Korea, Thailand and the UK. AFC has recently announced a commercial sale of its fuel cell based hydrogen generation unit in Australia. AFC had already made a small scale commercial sale in the UK but this represents the first industrial scale sale with a capacity of between 200kW and 400kW.

We value the shares at 61p We value AFC using a risked DCF model with a cost of equity of 14.6% and a further risking of 67% to get our target price of 61p. We see commercial traction as the key risk with funding and technology risks also present.



AFC Energy ( AIM : AFC LN )

BUY

Share Price (as at close: 14/08/2018) 9.2p Target Price 61p Upside to TP 563.8% Market Cap (£'m) 35.8 Net Cash (£'m) 3.7 Enterprise Value (£'m) 32.1

Shares in Issue (m) 391.7 Free Float (%) 80.4% Average Daily Volume (000, -3m) 784.0 12 month high/low 17.63p/8.24p (%) 1m 3m 12m Absolute -16.8 -10.7 -14.9 FTA relative -16.2 -9.4 -17.1 Price & price relative (-2 year)

Source: Datastream Next News Prelims – Q1 2019 Business AFC Energy develops alkaline fuel cell systems using hydrogen to produce electricity www.afcenergy.com


Year end October

Revenue (£'m)

EBIT (£'m)

PBT (£'m)

Tax (%)

EPS (FD) (p)

PER (x)

EV/EBITDA (x)

Div Yield (%)

2016A 1.0 -6.3 -6.5 12.7 -1.9 -4.9 -5.2 0.0 2017A 0.2 -5.5 -5.5 10.6 -1.4 -6.7 -6.0 0.0 2018E 4.1 -4.1 -4.0 4.2 -1.0 -9.4 -8.5 0.0 2019E 12.6 -3.5 -3.4 5.6 -0.8 -11.0 -10.1 0.0 2020E 45.5 4.5 4.5 15.0 1.0 9.4 6.6 0.0


0

5

10

15

20

25

30


Price Relative


Financial model AFC Energy | 21 August 2018

Financial model


Year end October 2016A 2017A 2018E 2019E 2020E Fuel Cells 0.0 0.0 3.1 12.6 45.5 Grant Income 1.0 0.2 1.0 0.0 0.0 Licence Fee Income 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 Group revenue 1.0 0.2 4.1 12.6 45.5

Fuel Cells -6.3 -5.5 -4.1 -3.5 4.5 Grant Income 0.0 0.0 0.0 0.0 0.0 Licence Fee Income 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 Adjusted operating profit -6.3 -5.5 -4.1 -3.5 4.5 Associates and other income 0.0 0.0 0.0 0.0 0.0 Adjusted EBIT -6.3 -5.5 -4.1 -3.5 4.5 Finance Costs -0.1 0.0 0.1 0.1 0.0 Adjusted PBT -6.5 -5.5 -4.0 -3.4 4.5 Exceptional items 0.0 0.0 0.0 0.0 0.0 Reported PBT -6.5 -5.5 -4.0 -3.4 4.5 Reported tax 0.8 0.6 0.2 0.2 -0.7 Adjusted tax rate 12.7% 10.6% 4.2% 5.6% 15.0% Reported PAT -5.7 -4.9 -3.8 -3.3 3.8 Minority interests 0.0 0.0 0.0 0.0 0.0 Discontinued businesses 0.0 0.0 0.0 0.0 0.0 Earnings attributable to shareholders -5.7 -4.9 -3.8 -3.3 3.8

Shares in issue (m) 304.9 390.9 390.9 390.9 390.9 Average weighted capital (FD) (m) 304.9 362.6 390.9 390.9 390.9 Adjusted EPS (FD) (p) -1.9 -1.4 -1.0 -0.8 1.0 Reported EPS (FD) (p) -1.9 -1.4 -1.0 -0.8 1.0 DPS (payable) (p) 0.00 0.00 0.00 0.00 0.00


Performance Metrics

Year end October 2016A 2017A 2018E 2019E 2020E Revenue growth (%) -57.2 -76.2 1684.8 205.2 262.1 Adjusted EBITDA growth (%) n.a. n.a. n.a. n.a. n.a. Adjusted EBIT growth (%) n.a. n.a. n.a. n.a. n.a. Adjusted PBT growth (%) n.a. n.a. n.a. n.a. n.a. Adjusted EPS growth (%) n.a. n.a. n.a. n.a. n.a. DPS payable growth (%) n.a. n.a. n.a. n.a. n.a. Dividend cover (x) n.a. n.a. n.a. n.a. n.a.


Interest cover (x) 42.7 6459.7 n.a. n.a. 375.2 Net cash/(debt)/adjusted EBITDA (x) -0.5 -1.3 -1.0 0.2 -0.3 Net cash/(debt)/equity (%) 59.4 79.4 80.2 -43.7 -29.5

Net working capital/revenue (%) 149.4 532.4 14.9 15.0 15.1 Operating cashflow conversion (%) 55.1 81.0 87.2 125.4 -21.9

Return on assets employed (%) -336.9 -286.2 -370.5 -163.4 65.1 Return on equity (%) -115.4 -58.6 -82.1 -238.1 73.5



AFC Energy | 21 August 2018 Financial model


Year end October 2016A 2017A 2018E 2019E 2020E Operating profit -6.3 -5.5 -4.1 -3.5 4.5 Depreciation and amortisation 0.2 0.2 0.3 0.3 0.4 Other non-cash movements 1.2 0.6 0.0 0.0 0.0 Change in working capital 1.5 0.2 0.2 -1.2 -5.8 Other cash movements 0.0 0.0 0.0 0.0 0.0 Operating cashflow -3.5 -4.5 -3.6 -4.4 -1.0 Taxation paid 0.0 0.8 0.6 0.2 0.2 Finance costs 0.0 0.0 0.1 0.1 0.0 Investment income 0.0 0.0 0.0 0.0 0.0 Capitalised intangibles 0.0 0.0 0.0 0.0 0.0 Capital expenditure (net) -0.1 -0.1 -0.1 -0.1 -0.1 Free cashflow -3.6 -3.8 -3.0 -4.3 -0.9 Other investing activities 0.0 0.0 0.0 0.0 0.0 Acquisitions/disposals (net) 0.0 -0.1 0.0 0.0 0.0 Dividends paid 0.0 0.0 0.0 0.0 0.0 Shares issued/(repurchased) 3.6 7.7 0.0 0.0 0.0 Other financial 1.2 0.0 0.0 0.0 0.0 Movement in net cash/(debt) 1.2 3.8 -3.0 -4.3 -0.9

Net cash/(debt) b/fwd 1.8 2.9 6.7 3.7 -0.6 Movement in net cash/(debt) 1.2 3.8 -3.0 -4.3 -0.9 Net cash/(debt) c/fwd 2.9 6.7 3.7 -0.6 -1.5



Year end October 2016A 2017A 2018E 2019E 2020E Goodwill 0.0 0.0 0.0 0.0 0.0 Intangible fixed assets 0.3 0.4 0.4 0.4 0.4 Tangible fixed assets 0.1 0.3 0.1 -0.1 -0.4 Net working capital 1.4 1.2 0.6 1.9 6.8 Assets employed 1.9 1.9 1.1 2.2 6.9 Other assets/(liabilities) 0.1 0.1 0.1 0.1 0.1 Net cash/(debt) 2.9 6.7 3.7 -0.6 -1.5 Pension deficit 0.0 0.0 0.0 0.0 0.0 Deferred tax 0.0 0.0 0.0 0.0 0.0 Provisions 0.0 -0.3 -0.3 -0.3 -0.3 Net assets 4.9 8.4 4.6 1.4 5.2 Minority interests 0.0 0.0 0.0 0.0 0.0 Shareholders funds 4.9 8.4 4.6 1.4 5.2


Valuation Metrics

Year end October 2016A 2017A 2018E 2019E 2020E EV / Revenue (x) 33.1 139.1 7.8 2.6 0.7 EV / Adjusted EBITDA (x) -5.2 -6.0 -8.5 -10.1 6.6 EV / Adjusted EBIT (x) -5.1 -5.8 -7.8 -9.1 7.2 PER (x) -4.9 -6.7 -9.4 -11.0 9.4 Yield (%) 0.0 0.0 0.0 0.0 0.0 FCF yield (%) -10.0 -10.7 -8.3 -12.0 -2.6 NAV/Share (p) 1.6 2.2 1.2 0.3 1.3


Strong offering for high power short term storage We see CAP-XX as at a key point where traction is beginning to grow. After a period of slower sales growth, the licencing model is showing uptake from existing customers and the company is in discussions with others. On top of this the new 3 volt offering is well placed to win new sales and accelerate growth in the medium term.

Leading supercapacitor offering CAP-XX is a leading developer and manufacturer of supercapacitors. Supercapacitors deliver energy storage with very high power density. They are a significant solution for several major applications including energy provision for IoT, regenerative braking and other EV related applications. CAP-XX supercapacitors have proven technological superiority to competing offerings in terms of both power and energy density. The company is pursuing a licencing model and is beginning to see uptake from two existing partners including industry leader Murata. It is in active discussions with a number of other potential partners including some in the automotive space. We expect to see progress here in the near term which could accelerate growth.

An important storage technology on its own or in hybrid applications Supercapacitors can work extremely well with other storage technologies in hybrid applications especially in EV applications. By providing the high power but short duration element of a mixed solution the battery element can be more appropriately scaled for the energy needs of the application.

3v product is a potential game changer CAP-XX has announced the development of a 3 volt thin prismatic supercapacitor. This can couple directly to standard 3V coin cell lithium ion batteries or energy harvesters and allows total power system costs to be reduced by 20% to 30% as well as extending battery life by c.30% over five years. With the power requirements of consumer devices growing, exacerbated by the breakdown in Dennard scaling, and weight and form factor considerations limiting solutions, we see this 3V product as a major development for the company.

We value the shares at 17p In response to the June trading update we have reflected the higher start-up costs for new orders in a revised 2018 forecast. Further out we feel it prudent to reflect that order timings can vary and a range of revenue outcomes are possible. We have taken a more cautious view on this as a result and scale back our revenue forecasts further out. This reduces our DCF based target price to 17p from 18p. The key risks to this valuation are failure to gain sales traction, rival technologies and competition.

21 August 2018 | Company Flash Note | Electronic & Electrical Equipment


CAP-XX ( AIM : CPX LN )

BUY

Share Price (as at close: 14/08/2018) 10.1p Target Price 17p (from 18p) Upside to TP 70.3% Market Cap (£'m) 30.4 Net Cash (£'m) 1.5 Enterprise Value (£'m) 28.9

Shares in Issue (m) 300.8 Free Float (%) 95.9% Average Daily Volume (000, -3m) 720.0 12 month high/low 17.25p/8.05p (%) 1m 3m 12m Absolute +13.5 +11.0 +8.6 FTA relative +14.4 +12.6 +5.8 Price & price relative (-2 year)

Source: Datastream Next News Prelims - Q3 2018 Business Designer, developer and manufacturer of supercapacitors www.cap-xx.com


Year end June

Revenue (£'m)

EBIT (£'m)

PBT (£'m)

Tax (%)

EPS (FD) (p)

PER (x)

EV/EBITDA (x)

Div Yield (%)

2016A 5.0 -1.3 -1.3 0.0 -0.5 -21.0 -26.0 0.0 2017A 4.1 -1.6 -1.7 0.0 -0.6 -17.1 -19.4 0.0 2018E 5.0 -1.9 -1.8 0.0 -0.6 -16.6 -16.9 0.0 2019E 6.2 -1.0 -0.9 0.0 -0.3 -31.7 -36.0 0.0 2020E 9.4 0.6 0.6 0.0 0.2 48.2 36.4 0.0


2

4

6

8

10

12

14

16

18

20


Price Relative


CAP-XX | 21 August 2018 Financial model

Financial model


Year end June 2016A 2017A 2018E 2019E 2020E Super Capacitors 5.0 4.1 5.0 6.2 9.4 Other 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 Group revenue 5.0 4.1 5.0 6.2 9.4

Super Capacitors -3.2 -3.3 -3.4 -2.5 -0.9 Other 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 Adjusted operating profit -3.2 -3.3 -3.4 -2.5 -0.9 Associates and other income 1.9 1.7 1.6 1.6 1.6 Adjusted EBIT -1.3 -1.6 -1.9 -1.0 0.6 Finance Costs 0.0 0.0 0.1 0.0 0.0 Adjusted PBT -1.3 -1.7 -1.8 -0.9 0.6 Exceptional items 0.0 0.0 0.0 0.0 0.0 Reported PBT -1.3 -1.7 -1.8 -0.9 0.6 Reported tax 0.0 0.0 0.0 0.0 0.0 Adjusted tax rate 0.0% 0.0% 0.0% 0.0% 0.0% Reported PAT -1.3 -1.7 -1.8 -0.9 0.6 Minority interests 0.0 0.0 0.0 0.0 0.0 Discontinued businesses 0.0 0.0 0.0 0.0 0.0 Earnings attributable to shareholders -1.3 -1.7 -1.8 -0.9 0.6

Shares in issue (m) 270.2 297.2 297.2 297.2 297.2 Average weighted capital (FD) (m) 269.0 282.1 297.2 297.2 297.2 Adjusted EPS (FD) (p) -0.5 -0.6 -0.6 -0.3 0.2 Reported EPS (FD) (p) -0.5 -0.6 -0.6 -0.3 0.2 DPS (payable) (p) 0.00 0.00 0.00 0.00 0.00


Performance Metrics

Year end June 2016A 2017A 2018E 2019E 2020E Revenue growth (%) 12.0 -16.5 20.2 24.2 52.1 Adjusted EBITDA growth (%) n.a. n.a. n.a. n.a. n.a. Adjusted EBIT growth (%) n.a. n.a. n.a. n.a. n.a. Adjusted PBT growth (%) n.a. n.a. n.a. n.a. n.a. Adjusted EPS growth (%) n.a. n.a. n.a. n.a. n.a. DPS payable growth (%) n.a. n.a. n.a. n.a. n.a. Dividend cover (x) n.a. n.a. n.a. n.a. n.a.


Interest cover (x) n.a. 88.6 n.a. n.a. n.a. Net cash/(debt)/adjusted EBITDA (x) 0.6 -2.6 -0.9 -0.4 0.4 Net cash/(debt)/equity (%) -18.0 63.5 35.4 10.7 8.6

Net working capital/revenue (%) 90.7 58.0 50.0 44.3 36.2 Operating cashflow conversion (%) 40.5 -27.9 51.1 39.6 -18.7

Return on assets employed (%) -26.6 -59.4 -55.8 -26.8 14.3 Return on equity (%) -34.9 -27.2 -42.0 -28.1 15.6



Financial model CAP-XX | 21 August 2018


Year end June 2016A 2017A 2018E 2019E 2020E Operating profit -3.2 -3.3 -3.4 -2.5 -0.9 Depreciation and amortisation 0.2 0.2 0.2 0.2 0.2 Other non-cash movements 2.3 0.3 0.0 0.0 0.0 Change in working capital -2.5 2.1 -0.1 -0.2 -0.7 Other cash movements 1.9 1.7 1.6 1.6 1.6 Operating cashflow -1.3 0.9 -1.8 -1.0 0.2 Taxation paid 0.0 0.0 0.0 0.0 0.0 Finance costs 0.0 0.0 0.1 0.0 0.0 Investment income 0.0 0.0 0.0 0.0 0.0 Capitalised intangibles 0.0 0.0 0.0 0.0 0.0 Capital expenditure (net) -0.3 -0.2 -0.7 -0.2 -0.2 Free cashflow -1.5 0.7 -2.4 -1.2 0.0 Other investing activities 0.0 0.0 0.0 0.0 0.0 Acquisitions/disposals (net) 0.0 0.0 0.0 0.0 0.0 Dividends paid 0.0 0.0 0.0 0.0 0.0 Shares issued/(repurchased) 0.1 3.8 0.0 0.0 0.0 Other financial -1.9 0.0 0.0 0.0 0.0 Movement in net cash/(debt) -3.3 4.6 -2.4 -1.2 0.0

Net cash/(debt) b/fwd 2.6 -0.7 3.9 1.5 0.4 Movement in net cash/(debt) -3.3 4.6 -2.4 -1.2 0.0 Net cash/(debt) c/fwd -0.7 3.9 1.5 0.4 0.3



Year end June 2016A 2017A 2018E 2019E 2020E Goodwill 0.0 0.0 0.0 0.0 0.0 Intangible fixed assets 0.0 0.0 0.0 0.0 0.0 Tangible fixed assets 0.4 0.4 0.9 0.9 0.9 Net working capital 4.5 2.4 2.5 2.7 3.4 Assets employed 4.9 2.8 3.4 3.6 4.3 Other assets/(liabilities) 0.2 0.2 0.2 0.2 0.2 Net cash/(debt) -0.7 3.9 1.5 0.4 0.3 Pension deficit 0.0 0.0 0.0 0.0 0.0 Deferred tax 0.0 0.0 0.0 0.0 0.0 Provisions -0.7 -0.8 -0.8 -0.9 -0.9 Net assets 3.7 6.1 4.3 3.4 4.0 Minority interests 0.0 0.0 0.0 0.0 0.0 Shareholders funds 3.7 6.1 4.3 3.4 4.0


Valuation Metrics

Year end June 2016A 2017A 2018E 2019E 2020E EV / Revenue (x) 5.8 6.9 5.8 4.7 3.1 EV / Adjusted EBITDA (x) -26.0 -19.4 -16.9 -36.0 36.4 EV / Adjusted EBIT (x) -22.2 -17.5 -15.3 -29.6 46.7 PER (x) -21.0 -17.1 -16.6 -31.7 48.2 Yield (%) 0.0 0.0 0.0 0.0 0.0 FCF yield (%) -5.1 2.4 -7.8 -3.8 0.0 NAV/Share (p) 1.4 2.1 1.4 1.1 1.3


Fuel flexible fuel cell Ceres Power’s fuel cell technology has key advantages over most competing fuel cell technologies. Most critically it is a resilient cell that can run on a wide variety of fuels without the need for external reformation. This makes it an ideal cell for automotive as well as stationary applications. It is making progress with a range of partners including leading Chinese automobile OEM, Weichai Power and with technology supplier Bosch Group.

Fuel cells with fuel flexibility Ceres has developed a solid oxide fuel cell (“SOFC”) with a difference. Most SOFCs run at a very high temperature. The Ceres cell, known as SteelCellTM, runs at lower temperatures while retaining the ability to use a range of fuels flexibly. This means it can work with existing natural gas, low grade hydrogen or sustainable fuels such as biogas. The lower temperature also gives SteelCellTM a wide range of applications both stationery and mobile.

Strong partnerships Commercially, Ceres has signed partnership agreements with a number of major players including Cummins, Honda and Nissan. These include extended range EVs, data centre power, commercial CHP and biofuel propulsion. While the relationships are development relationships, key technical milestones have been passed including the successful completion of field trials confirming the efficiency, flexibility and reliability of the cell in real world conditions.

Major Chinese e-bus interest In May, Ceres announced that it had agreed a strategic partnership with Weichai Power, a vertically integrated Chinese automobile manufacturer. Weichai is a major player with over £17bn in revenue in 2017 and 32% Chinese market share in heavy duty truck engines, producing 600,000 engines per annum. The initial relationship is to jointly develop a fuel cell based range extender system for the bus market. Weichai has businesses selling c.30,000 buses per annum. The agreement includes a £17m equity investment by Weichai in Ceres and a potential further £23.2m.

21 August 2018 | Flash Note | Alternative Energy and Resource Efficiency


Ceres Power ( AIM : CWR LN )

NOT COVERED

Share price 154p Market cap (£m) 198.6 Net cash (£m) 13.2 Enterprise value (£m) 185.1 No. of shares (m) 128.3 Free float (%) 63.9 Average daily vol (‘000, 3m) 70 12 month high/low 180p/100p (%) 1m 3m 12m Absolute -7.9 207. 27.4 FTA relative -5.9 24.3 25.5 Price & price relative (-2 year)

Source: Datastream Next News Prelims – Q4 2018 Business Low temperature solid oxide fuel cell developer www.cerespower.com


0

2

4

6

8

10

12

14

16

18

20


Price Relative

Long duration storage developer RedT has recently achieved a significant breakthrough for its vanadium flow battery technology with a significant deal in German for more than 700MWh of grid support storage. While the company had made good progress with a number of smaller projects this moves it to a new level and moves the technology into the mainstream in our view.

3rd generation flow battery RedT has developed a Vanadium flow battery and has now deployed 3.4MWh of this storage capacity globally with 1.8m operating hours of experience. RedT has rolled out its early stage units in a deliberately wide variety of projects in order to prove the concept. It has also developed its technology and has just launched the third generation solution which is a fully commercial offering.

4 – 6 hours of competitive storage The Gen 3 unit is optimised for industrial applications requiring 100kW to 2MW of power and grid units of between 2.5MW to 10MW. It can offer between four and six hours of storage duration which confirms where we think flow batteries will be strongly competitive. RedT is also offering its flow battery as a hybrid option with lithium batteries. This will allow the lithium to respond to shorter term needs but will also place less stress on the more delicate lithium technology, reducing the impact of degradation and extending their life.

Major deal in Germany evidences real traction RedT raised £3.85m in April to fund continued growth. A £750,000 UK government grant has also been awarded for R&D. We would expect further capital to be required but if the company can demonstrate traction with its Gen 3 unit this should not be a problem in our view. The value of orders in final stage customer selection was €11m as at the end of Q1 18. The company has subsequently announced a major exclusive deal to deliver more than 700MWh of grid support projects in Germany with an initial order of 80MWh as first phase deployment. The deal portfolio value at US$400m could underwrite most of the market forecasts for the next two years. A further deal with Anglian Water for a 300kWh has been announced as part of a collaborative partnership.



RedT ( AID : RED ln )

NOT COVERED

Share price 7.0p Market cap (£m) 47.5 Net cash (£m) 1.9 Enterprise value (£m) 45.5 No. of shares (m) 719.3 Free float (%) 75.8 Average daily vol (‘000, 3m) 1,937 12 month high/low 13p/5p (%) 1m 3m 12m Absolute 34.7 -12.2 -4.0 FTA relative 37.6 -9.6 -5.5 Price & price relative (-2 year)

Source: Datastream Next News Interims – Q4 2018 Business Vanadium flow battery developer www.redtenergy.com


0

2

4

6

8

10

12

14

16

18


Price Relative

Hydrogen generation using electrolysis ITM is the UK’s leading manufacturer of hydrogen energy systems and is moving into a fully commercial mode with a significant pipeline of projects. The company is expanding manufacturing to meet demand and to widen the offering into industrial applications. We see it as a leading player in the hydrogen economy in the UK and beyond.

Responsive, high pressure electrolyser ITM manufactures integrated hydrogen energy systems. The heart of its technology is a PEM electrolyser. While more expensive than alkaline based electrolysers, PEM technology has better performance and is more widely used as a result. The ITM electrolyser can respond rapidly making it suitable for fast response services such as grid balancing. It also operates at pressures of up to 80 bar allowing direct injection into a gas grid. ITM is also providing fuelling solutions for hydrogen users including power to gas and transportation fuel and renewable chemistry.

Expanding manufacturing to meet opportunity ITM seeks revenue from direct sales of electrolysers as well as through its own development of hydrogen refuelling stations where the revenues come from hydrogen sales. Manufacturing is carried out in house and the company is planning an expansion to allow it to manufacture 100MW units. This larger size will allow it to target large scale industrial applications in the chemical industry and it is deploying the world’s largest PEM electrolyser at Shell’s Wesseling Refinery. A strategic partnership agreement with Sumitomo will target multi-megawatt projects in Japan based on ITM’s electrolysers.

Strong project pipeline With over 55 projects tendered, the company has an opportunity pipeline valued at over £250m and a deal pipeline of £30.6m with £24.1m under contract. The company is at a key point as it moves from a R&D and grant supported model towards significant commercial sales. The company raised £29.4m in new equity in October for working capital to accelerate growth including larger orders and to increase production capacity.



ITM Power ( AIM : ITM LN )

NOT COVERED

Share price 29p Market cap (£m) 94.3 Net cash (£m) 20.4 Enterprise value (£m) 73.9 No. of shares (m) 324.0 Free float (%) 80.1 Average daily vol (‘000, 3m) 316 12 month high/low 61p/27p (%) 1m 3m 12m Absolute -12.9 -15.0 3.2 FTA relative -11.0 -12.5 1.7 Price & price relative (-2 year)

Source: Datastream Next News AGM – Q3 2018 Business Manufacturer of hydrogen energy systems using electrolysis www.itm-power.com


0

10

20

30

40

50

60


Price Relative

Solid state batteries and innovative materials Ilika has developed solid state battery technology aimed principally at IoT applications ranging from medical devices to wind turbine monitoring. The company continues to collaborate on new battery technology and on large format solid state batteries for automotive.

A better battery Ilika has developed a solid state battery using a ceramic ion conductor and silicon anode. This has some major advantages over lithium ion technology including rapid charging (6C), long life and a wide temperature range. The batteries do not contain any free lithium, improving their cycle life and biocompatibility. The cell can be made on silicon wafers as a solid state component. This is an ideal solution for the energy needs of internet of things devices.

Commercial projects underway The Stereax battery is targeting medical, industrial, transportation and agriculture applications. The company has initial commercial projects underway with a medical device company, a producer of autonomous vehicle sensors and a wind turbine blade monitoring solution. Ilika is also collaborating with Lightricity (formerly Sharp Laboratories of Europe) on an integrated battery and PV device to create the world’s first thin-film power source.

Materials progress Ilika originated at the University of Southampton and operates as a materials innovation specialist specialising in advanced solid state technology. In addition to its main battery programme, it offers development services to a range of high profile clients on a range of materials programmes. This provides the company with a supportive revenue stream giving it a solid base to develop from and reducing the cashburn associated with the relatively early stage of development. It may also lead to further battery opportunities. In this regard it is currently working with Johnson Matthey on lithium sulphur anodes and advanced battery materials and catalysts with the Toyota Research Institute. It has recently won a £4.1m Faraday Challenge grant to develop large format solid state cells for automotive use.



Ilika ( AIM : IKA LN )

NOT COVERED

Share price 21p Market cap (£m) 20.6 Net cash (£m) -6.2 Enterprise value (£m) 14.4 No. of shares (m) 100.7 Free float (%) 89.0 Average daily vol (‘000, 3m) 81 12 month high/low 34p/19p (%) 1m 3m 12m Absolute -8.9 -6.1 -39.2 FTA relative -6.9 -3.3 -40.1 Price & price relative (-2 year)

Source: Datastream Next News AGM – Q3 2018 Business Solid state battery developer and materials specialist www.ilika.com


0

2

4

6

8

10

12

14

16

18

20


Price Relative

Equity Research disclaimer

Analyst certification

The Research Analyst(s) on the front cover of this research note certifies (or, where multiple Research Analysts are primarily responsible for this research note, with respect to each security that the Research Analyst covers in this research) that; 1) all of the views expressed in this research note accurately reflect his or her personal views about any and all of the subject companies and their securities; and 2) no part of any of the Research Analyst’s compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed by the Research Analyst(s) in this research note.

General disclosures

Cantor Fitzgerald Europe (“CFE”) is authorised and regulated by the Financial Conduct Authority (“FCA”).

“Research” is as that term is defined by the Markets in Financial Instrument Directive 2014/65/EU.

“CFE Research” means Cantor Fitzgerald Europe Equity Research.

“TP” means Target Price or Price Target.

“UR” means Under Review.

“NC” means this company is not being formally covered / has not been initiated on by any of the CFE Research team or any other affiliated Research team within the Cantor

Fitzgerald Group. (Please note that the Cantor Fitzgerald Group does not include BGC Partners, Inc. and its Subsidiaries).

Our research recommendations are defined with reference to the absolute return we expect on a long-term view:

“BUY recommendation” means we expect the relevant financial instrument to produce a return of 10% or better in the next 12 months.

“SELL” recommendation means that we expect the relevant financial instrument to decline by 10% or more in the next 12 months.

“HOLD” recommendation means that we believe the financial instrument is fairly valued.

This is Non-Independent Research and a marketing communication under the FCA’s Conduct of Business Rules. It is not Investment Research as defined by the FCA’s Rules and has not been prepared in accordance with legal requirements designed to promote Investment Research independence and is also not subject to any legal prohibition on dealing ahead of the dissemination of Investment Research. Notwithstanding this, CFE has procedures in place to manage conflicts of interest which may arise in the production of Research, which include measures designed to prevent dealing ahead of Research

This Research is a minor non-monetary benefit as set out in Article 12 (3) of the Commission Delegated Directive (EU) 2017/593 (e.g. the Research is paid for by a corporate client of CFE) and can be distributed free of charge.

No representation or warranty is made as to the accuracy or completeness of the information included in this Research and opinions expressed may be subject to change without notice. Any or all forward-looking statements in this Research may prove to be incorrect and such statements may be affected by inaccurate assumptions or by known or unknown risks and uncertainties. CFE does not undertake any obligation to revise such forward-looking statements to reflect the occurrence of unanticipated events or changed circumstances. Estimates and projections set forth herein are based on assumptions that may not prove to be correct or otherwise realised. Past performance is not necessarily a guide to future performance.

This Research is designed for information purposes only. Neither the information included herein, nor any opinion expressed, are deemed to constitute an offer or invitation to make an offer, to buy or sell any financial instrument or any option, futures or other related derivatives. Investors should consider this Research as only a single factor in making any investment decision. This Research is published on the basis that CFE is not acting in a fiduciary capacity. It is also published without regard to the recipient’s specific investment objectives of recipients and is not a personal recommendation. The value of any financial instrument, or the income derived from it, may fluctuate.

Certain financial instruments and/or transactions give rise to substantial risks and are not suitable for all investors. Investors must undertake independent analysis with their own legal, tax and financial advisers and reach their own conclusions regarding the economic benefits and risks of the financial instruments referred to herein and the legal, credit and tax aspects of any anticipated transaction. Where a financial instrument is denominated in a currency other than the local currency of the recipient, changes in exchange rates may have an adverse effect on the value of the financial instrument.

CFE, its officers, employees and affiliates may have a financial interest in the financial instruments described in this Research or otherwise buy, make markets in, hold trade or sell any financial instrument or financial instruments described herein or provide services to issuers discussed herein. The financial instruments mentioned herein may not be eligible for sale in some jurisdictions and may not be suitable for all types of investor. Investors should contact their CFE representative or third party advisor or broker if they have any questions or wish to discuss the contents of this Research.

This Research is only intended for publication to Eligible counterparties and Professional clients and not Retail clients (as those terms are defined by the FCA’s Rules). CFE staff, other than Research Analysts, may provide our clients with oral or written market commentary or trading strategies that reflect opinions that are contrary to the opinions expressed in this Research. This Research is strictly confidential and is intended for the named recipient or recipients only. It may not be circulated or copied to any other party without the express permission of CFE. All rights reserved. This Research complies with CFE’s Policy on the management of conflicts of interest in relation to research.

Disclosures required by United States laws and regulations

This research has been prepared by equity research analysts based outside the US who are not registered / qualified as research analysts with FINRA. This research note has not been reviewed or approved by Cantor Fitzgerald & Co., a member of FINRA. This research note is not permitted to be distributed into the United States by any person or entity.

Canada

This research note has been prepared by equity research analysts of Cantor Fitzgerald Europe not by Cantor Fitzgerald Canada Corporation (“CFCC”). This research note has not been prepared subject to the disclosure requirements of Dealer Member Rule 3400 – Research Restrictions and Disclosure Requirements of the Investment Industry Regulatory Organisation of Canada (“IIROC”). If this research note had been prepared by CFCC in compliance with IIROC’s disclosure requirements, CFCC would have been required to disclose when it and its affiliates collectively beneficially own 1% or more of any class of equity securities issued by the companies mentioned in this research note. However under FCA Rules, CFE must only disclose when it or any of its affiliates hold major shareholdings in the companies mentioned in this research note, including shareholdings exceeding 5% of such company’s total issued share capital. Cantor Fitzgerald Canada Corporation may distribute research notes prepared by any of its affiliates.

Other jurisdictional disclosures

The distribution of this Research note in other jurisdictions may be restricted by law and persons into whose possession this research note comes should inform themselves about and observe any such restrictions. By accepting this research note you agree to be bound by the foregoing instructions.

Market Abuse Regulation

In accordance with the Market Abuse Regulation, we formally disclose by issuer the conflicts of interest relating to Cantor Fitzgerald Europe, our research analysts and relevant employees, referenced to the points below.

The following tables set out conflicts of interest disclosable under the Market Abuse Regulation.

Company Name Disclosure reference (see Key below)

AFC Energy (AFC LN) A, H, J & K

CAP-XX (CPX LN) A & H

Electro Power Systems (EPS FP) A, B & K

Leclanche (LECN SW) A, B & J

Plutus Powergen (PPG LN) B, E, H & J

SiMEC Atlantis (SAE LN) H, I & J

Windar Photonics (WPHO LN) A, B, H & J

Ceres Power(CWR LN) A & H

Ilika (IKA LN) A & H

ITM Power (ITM LN) A & H

RedT (RED LN) A & H

ADS-TEC (Private Company) None

Advent Technologies (Private Company) None

Aggreko (AGK LN) H

Beacon Energy (Private Company) None

Berkshire Hathaway Energy (Private Company) None

Bloom Energy (BLOOM US) H

Cadent Gas (Private Company) None

Centrica (CNA LN) H

De Nora (Private Company) None

Energizer (ENR US) H

Engie (ENGI FP) H

ESS (Private Company) None

Eurazeo Croissanse (Private Company) None

Exide (EXID IN) None

Exxon (XOM US) H

FEFAM (Private Company) None

Gécamubes (342802Z US) None

Gelion (Private Company) None

Glencore (GLEN LN) H

JCB (Private Company) None

Johnson Matthey (JMAT LN) None

LO3 Energy (Private Company) None

London Devonshire Trust (2894819Z LN) None

Maxwell Technologies (MXWL US) H

Murata (6981 JP) H

National Grid (NG/ LN) H

Northern Gas Networks (Private Company) None

OM Group (Private Company) None

Oxis (Privvate Company) None

Power Ledger (Private Company) None

SIMEC (Private Company) None

Sony (6758 JP) H

Total (FP FP) H

Vattenfall (VATT US) None

Vestas (VWS DC) H

Wartsila (WRT1V FH) None

WeiChai (000880 CH) None

Where a recommendation has changed during last 12 months

Company Name Previous recommendation Date of change of recommendation

Electro Power Systems (EPS PA) BUY from HOLD 14/08/18

Electro Power Systems (EPS PA) HOLD from BUY 01/11/17

Leclanché (LECN SW) HOLD from BUY 28/07/17

Leclanché (LECN SW) Under Review from HOLD 28/06/18

Leclanché (LECN SW) BUY from Under Review 27/07/18

Plutus Powergen (PPG LN) BUY from HOLD 19/10/17

Windar Photonics (WPHO LN) BUY from HOLD 02/08/18

Key

A This research report has been sent to the issuer and it has been amended. B Recommendation differs from previous recommendation made during preceding 12 months in relation to the same financial instrument. C The author(s) of this publication has a net long position of more than 0.5% in the issued share capital of the named company. D The author of this publication has a net short position of 0.5% or more in the issued share capital of the named company. E Cantor Fitzgerald Europe owns a net long position exceeding 0.5% of the total issued share capital of the named company. F Cantor Fitzgerald Europe owns a net short position exceeding 0.5% of the total issued share capital of the named company. G The named company holds in excess of 5% of the total issued share capital of Cantor Fitzgerald Europe. H Cantor Fitzgerald Europe or one its affiliates is a market maker or liquidity provider in the securities of the relevant issuer I Cantor Fitzgerald Europe, or one of its affiliates, has been a lead manager or co-lead manager over the previous 12 months in a publicly disclosed offer of financial

instruments of the named company J Cantor Fitzgerald Europe, or one of its affiliates, is party to an agreement with the named company relating to the provision of services of investment firms, and this

agreement has been in effect over the past 12 months or has given rise during the same period to the obligation to pay or receive compensation K Cantor Fitzgerald Europe, or one of its affiliates, is party to an agreement with the named company relating to the production of this recommendation. Other disclosable conflicts of interest

Company Name Nature of conflict

NA NA

Please see our webpage www.cantor.com/legal/marinvestmentrecommendation for additional disclosures in relation to the Market Abuse Regulation including:

• Analysts methodologies and proprietary models;

• Internal controls in relation to conflicts of interest;

• Remuneration;

• History of investment recommendations; and

• Quarterly data on investment recommendations. Global Data Protection Regulation

For further information about the way we use your personal data please see our Third Party Privacy Notice www.cantor.com/global/europe/notices/ or at such other place as we may provide notice of from time to time. We may contact you about industry news, offers and information relating to our products and services which we think would be of interest to you. You can tell us you do not wish to receive such communications by emailing [email protected].

http://www.cantor.com/global/europe/notices/

mailto:[email protected]

Cantor Fitzgerald Europe One Churchill Place, 20th Floor, Canary Wharf London, England, E14 5RB Registered Address – One Churchill Place, Canary Wharf, London, E14 5RB Registered in England No. 02505767

Switchboard: +44 (0)20 7894 7000 www.cantor.com

CFE Research Team

Name Phone E-Mail Adam Forsyth | Alternative Energy & Resource Efficiency +44 (0) 207 894 7214 [email protected] Mark Photiades | Consumer – General Retail +44 (0) 207 894 7560 [email protected] Stephen Anstee | Generalist – Smaller Companies +44 (0) 207 894 8298 [email protected] Kevin Lapwood | Generalist – Smaller Companies +44 (0) 207 894 7560 [email protected] Ian Poulter | Generalist – Smaller Companies +44 (0) 207 894 8298 [email protected] Brian White | Healthcare +44 (0) 207 786 3724 [email protected] Markuz Jaffe | Investment Companies +44 (0) 207 894 8623 [email protected] Ashley Kelty | Oil & Gas +44 (0) 131 257 4631 [email protected] Jack Allardyce | Oil & Gas +44 (0) 131 257 4632 [email protected] Kevin Ashton | Technology +44 (0) 207 894 7851 [email protected] Robin Byde | Industrials & Transport +44 (0) 207 894 7859 [email protected]

Jenny Phillips | Research Production +44 (0) 207 894 7568 [email protected] Debbie Santell | Research Production +44 (0) 207 894 8334 [email protected]

CFE Research Sales Team

Name Phone E-Mail Keith Dowsing +44 (0) 207 894 7908 [email protected] Andrew Keith +44 (0) 207 786 3733 [email protected] Gregor Paterson +44 (0) 131 257 4633 [email protected] Caspar Shand Kydd +44 (0) 207 894 7140 [email protected] Richard Sloss +44 (0) 207 786 3734 [email protected]

Global Equity Research locations

Cantor Fitzgerald & Co Cantor Fitzgerald Canada Corporation Cantor Fitzgerald (HK) Capital Markets Ltd

499 Park Ave 181 University Avenue 6707-6712, The Center NY 10022 Suite 1500 99 Queens Road Central New York, USA Toronto, ON M5H 3M7, Canada Central Hong Kong, SAR China (212) 938-5000 (416) 350-3671 (852) 3477 7899










Documents

The positives and negatives of electricity storage