Courtesy of Fortune Magazine
by Katie Fehrenbacher
MAY 23, 2016
Is this brand new type of battery the key to clean energy and off-grid electricity?
Lithium-ion batteries are having a moment. After becoming the de facto battery in laptops and cell phones over the years, they’re now starting to power electric cars (like those made by Tesla) and plug into the power grid.
But lithium-ion batteries aren’t the only battery type in town. Some brand new battery varieties could actually be more promising than lithium-ion when it comes to storing energy generated by solar panels or used to power remote villages in Africa, India, and Asia.
Many of these new battery types are highly experimental in nature and are just coming out of university and corporate labs. But one of these new batteries isn’t a pipe dream, and it has quietly been sold to major telecom companies, utilities, and governments across the developing world over the last five years.
This new battery, which unusually stores electricity through a combination of metal and air, is being produced by a startup called Fluidic Energy, based in Scottsdale, Arizona. While many of Fluidic Energy’s battery startup competitors have hit speed bumps and faltered over the years, Fluidic Energy has been growing its customer list under the radar.
The company has now deployed 75,000 batteries at 1,200 different sites across the world, which is far more than many of its competitors. Last year, the company scored an important distribution partner (and investor) in construction and mining gear giant Caterpillar CAT -1.22% . Over the last decade, Fluidic Energy has managed to raise $200 million in funding to grow its business.
The company’s progress—little discussed publicly until now—is a big deal and a major milestone for the new types of batteries that can store energy at a low cost for the power grid or be paired with solar panels to house energy at night. Lithium-ion batteries are great at delivering energy for short bursts of time, but they are less well-suited for discharging energy for many hours of duration. New types of batteries could help unlock clean energy and power off-grid villages like never before.
If Fluidic Energy is able to sell more batteries to more customers, it could grab a major piece of these potentially massive new markets that are emerging for batteries. Companies across sectors, both big and small, are racing to compete in these new industries, including Tesla TSLA -2.62% , LG, Panasonic, Johnson Controls JCI 0.56% , and others. Will Fluidic Energy be the rare battery manufacturing startup that actually breaks out and makes it big?
One part metal, one part air
Researchers the world over have long coveted the metal air battery. A battery is usually made up of an anode on one side, a cathode on the other, and an electrolyte in between. For a lithium-ion battery, lithium ions moves from the anode to the cathode (and back) through the electrolyte during charging and discharging.
The idea behind a metal air battery is to use air—which is free, lightweight, and widely available—for the cathode part of the battery. Metal air batteries basically suck in the freely-available air and can ditch the heavy casing that would normally hold the anode material inside the battery. Using air basically makes these batteries fundamentally lighter and cheaper.
Fluidic Energy makes a specific type of metal air battery called a zinc-air battery. Zinc, which is abundant and low cost, is the key material that sits in the electrolyte of their battery and moves onto the anode during charging and discharging.
“Fundamentally zinc is the lowest cost winner for energy storage,” says Fluidic Energy’s CEO Steve Scharnhorst during an interview with Fortune in San Francisco last month. Zinc has been used in batteries for years (like button batteries for hearing aids), but many of these zinc batteries haven’t been able to be recharged. Once the energy stored in them is used up, they’re kaput.
That was one of the key breakthroughs that Fluidic Energy’s early team worked on: making a zinc battery that can be recharged. It all started back in 2004 and 2005 when Chuck Ensign and partner Mike Pierce, longtime investors and entrepreneurs, decided to take a hard look at emerging ways to store energy.
Around that time, Ensign had been working with True North Partners, a private equity firm co-founded by John Walton, the son of the founder of Walmart WMT -0.27% . True North Partners invested early in solar panel giant First Solar FSLR -0.94% and wind materials company TPI Composites.
After Walton passed away suddenly in a tragic airplane accident in the summer of 2015, Ensign formed TN2 (True North Two) with a similar strategy to focus on difficult science-based technology, including tackling world energy challenges. Though, without access to the Walton funding, TN2 had a smaller purse to work with.
Few have likely heard of TN2 and its partners. They have no website and rarely give interviews. Ensign describes the firm in an interview with Fortune only as an investment vehicle to fund promising startups. But if Fluidic Energy scores it big, TN2 could be one of the biggest winners. The firm is the largest shareholder and has invested in almost every round that Fluidic Energy has raised.
A decade ago, under TN2, Ensign started researching energy storage long before many venture capitalists or many large corporations were eying the sector. His interest led him to Arizona State University and the labs of ASU Professor Cody Friesen, who was working on designs for a rechargeable metal air battery.
Over the next few years, Friesen, Ensign, and a handful of PhDs worked on developing a zinc-air battery that would be reliable, long-lasting, low cost, and attractive to customers in the developing world. Ensign says along the way the team changed technical strategies a few times, but they always focused on building a product that a customer would want to buy.
The U.S. government also played a helpful role in these early years. In 2009, the Department of Energy launchedits ARPA-E program, which gives small grants ($1 million or so) to early stage, high-risk startups looking to achieve “moonshots” (an industry term for very difficult goals) in energy. At the time, Fluidic Energy was one of those lab startups struggling to figure out how to get its battery to achieve ambitious milestones.
Today, Fluidic Energy is one of the poster children of the ARPA-E program. Every year at the annual ARPA-E Summit in February in Washington D.C., where the projects that the ARPA-E progam has funded show off their progress, Fluidic Energy is often highlighted as what the ARPA-E program can achieve. It’s rare that the ARPA-E Program’s moonshots actually reach a commercial stage like Fluidic Energy has.
Calling on telecom
Fluidic Energy’s market strategy, like its chemistry, has been unusual. Ensign says the company wanted to find a beachhead or an early market where the company could initially test out its technology and find some core customers before expanding more broadly.
That beachhead turned out to be telecom in the developing world. Fluidic Energy has sold its batteries to close to a dozen major telecom companies in Indonesia, Central America, and Africa.
These telcos have many cell phone customers living in remote, rural areas far from a reliable power grid. The telcos need to keep cellular signals up and running for these customers by using their base stations, but without relying on a reliable grid to power their network gear.
Often times, these off-grid—or “weak grid” as Fluidic Energy’s CEO Scharnhorst calls them—base stations use diesel generators for power or for backup power. But the problem with diesel generators is that they require a lot of expensive and dirty fuel to run. That fuel can get exorbitantly expensive the more remote the location is, like on an island off the coast of Indonesia.
Fluidic Energy says it can cost-effectively replace diesel generators in these types of markets. While Scharnhorst is quiet on the exact cost of Fluidic Energy’s batteries, he said they’re currently competitive with lead acid batteries, which are one of the lowest cost battery options available for the power grid. Lead acid batteries (the kind that are used in traditional gas-powered cars) are much cheaper than lithium-ion batteries.
Beyond telecom, Fluidic Energy is selling its batteries to utilities and governments in developing countries to be paired with clean energy, like solar panels, and to provide power for off-grid villages. In these areas, Fluidic Energy’s batteries are providing energy for people that earn less than $5 a day and likely wouldn’t have access to the power grid for another ten years, says Scharnhorst. In that way, “it’s a good social feeling to bring power to these people,” he adds.
Providing energy storage for these off-grid villages could be a huge opportunity for Fluidic. A few weeks ago, the company announced that its batteries will be used in a project to bring power to 400,000 people in rural areas ofMadagascar while working with the government ofMadagascar.
Last year, Indonesia’s state-owned utility, called PLN, announced that it will use Fluidic Energy batteries to bring power to 500 remote villages in the country. Working with Caterpillar, the batteries will be paired with solar panels and used to create and store electricity for 325,000 households, encompassing 1.7 million people. It’s one of the largest off-grid clean energy microgrid projects under development in the world.
For a battery startup, Fluidic Energy has come a long way. Still, the company is small, new, and young compared to some of the major global battery players out there looking to sell into the same markets.
Asian giants like LG, Samsung, and Panasonic have spent decades pushing down the costs of lithium-ion batteries and making them ultra reliable. Innovators like Tesla are now packaging up these lithium-ion batteries and selling them to utilities and other companies to be paired with solar panels and used on the power grid. Last year, Teslalaunched its grid battery business, which uses similar batteries to the ones powering its electric cars.
Industry watchers debate if lithium-ion batteries will eventually become cheap enough to completely undercut the novel battery makers like Fluidic Energy. If lithium-ion battery prices plummet—like silicon solar panels have over the years—they could be cheap enough that very few or no new battery chemistries could cost effectively compete. If that happens, many of the battery manufacturing startups will struggle, potentially including Ambri, Aquion Energy, and even Fluidic Energy.
Fluidic Energy is also competing against low-cost, lead-acid batteries, which some of its customers, like telcos, are already using. But Fluidic’s Scharnhorst notes that its batteries can be lower cost than lead-acid and still have other features like integrated smart software, a longer life, and more reliability.
Competing with major battery conglomerates—both lithium-ion makers and lead-acid firms—will take a lot of cash. Fluidic Energy has a post-money valuation of just $200 million (after its recent raise), according to the company, which is tiny in comparison to the Asian giants.
But Fluidic Energy has a head start when it comes to metal air battery tech. Though, we’ll have to see if that’s enough. As both Scharnhorst and Ensign concur, materials science innovations can be extremely difficult for startups to pull off.
However, for all the startups that have failed in energy tech, there are a few outliers that have wildly succeeded beyond expectations. Years ago, SunPower SPWR -3.05% founder Dick Swanson beat all odds when he helped the solar panel maker eventually succeed. The same went for First Solar, True North Partners helped break out. Tesla is another, and even though it isn’t yet profitable, it has passed major hurdles that would have felled most others.
Will Fluidic Energy rise to the ranks of solar panel giants SunPower and First Solar, or even Tesla? That remains to be seen. But if more and more customers across the world are willing to buy its batteries, it just might have a chance.