Why it’s not all about lithium batteries

Alan Kohler

Redflow CEO Tim Harris recently briefed Eureka Report’s Alan Kohler about the company’s achievements to date including its recent breakthrough sale to Anaergia in the US.

In the 35-minute interview linked and transcribed below, Tim explains to Alan how zinc-bromine flow batteries are uniquely suited to specific energy storage applications, such as storing power at hot and remote locations such as mobile phone towers in rural areas. 

You can listen to Tim and Alan talking by clicking this link or read the following transcript, which is published with permission from Eureka Report

ALAN: Tim Harris is the CEO of Redflow, the company that makes zinc-bromine batteries and their proposition is that it’s not all about lithium batteries. They’ve got these things called flow batteries as well which are a different technology but have different uses, in particular for mobile phone towers. They’ve just done a deal in California with a company that’s got food waste being converted into electricity which they’re also storing and are going to sell a million bucks’ worth of batteries to them. They’re starting to get there, this has been a long, hard road for this company, it’s been tough and it’s been tough for investors who have not really got anywhere.

The thing’s been up to $1 dollar at one stage, 10 years ago, but it’s been around about 2 cents for a while, but just in the last month or so it’s started to pick up and it looks like they’re starting to get some runs on the board. The stock started this year at 2.5 cents and is now 7 cents, so it’s on the move. They’ve done a deal with Optus in Australia, they’re starting to sell some batteries into Australian mobile phone towers and now, as I say, they’ve got this deal in California. It looks like they are going to get somewhere selling batteries and it isn’t just going to be all about lithium batteries. As to how many batteries they sell, who knows? But they do have some advantages, no doubt about it, over lithium and Tim Harris explains what they are.

Here’s Tim Harris, the CEO of Redflow.

ALAN: Tim, let’s just talk about cash. In your latest quarterly, you’re pretty much cash breakeven but that included $2 million bucks from the government grant. What’s your operational cash burn at the moment and how much cash have you got in the bank?

TIM: Alan, as per our last results that we published at the beginning of the year, we had about $8.7 million dollars in cash and clearly, as you indicated, that includes the R&D rebate that we get from the Government in terms of our research and development efforts. In terms of our cash burn, that’s currently at about $500,000 dollars per month, so that gives us a good runway in terms of scaling up the business and executing on some of the projects that we’ve got today. Clearly, as we look forward, looking for other finance means as we scale up and look to accelerate our growth is clearly on the table.

ALAN: Those government grants which were $2 million in the December quarter…

TIM: That’s right.

ALAN: Do they just keep going or do they stop, what’s the future of those grants?

TIM: Given our profile at the moment, we’re able to tap into those grants as we have done on a regular basis. That provides about 41-42 cents in the dollar for the research and development that we undertake here as a company. A lot of the stuff that we do is pretty unique in the world in terms of that research and development, so it’s great to be able to tap into that. Clearly, we want to maintain our technology leadership, so we expect that to continue over the coming years.

ALAN: When you talk about runway, how does your business plan look in terms of reaching cash breakeven, before you run out of money, is that what you think you’re going to do or do you think you’ll need to raise more?

TIM: I think now that we’re looking at accelerated growth and clearly, over the last couple of months, we’ve found some great projects that we think will be important reference projects as we start to kind of scale up. I think previously we’ve indicated our breakeven point as around about sale of 300 batteries per month. We’ve got an exciting pipeline that’s coming through, clearly, that’s going to depend on us converting some of those opportunities. But what I would say is, as we look forward there’s different sources of capital to fund our growth, whether we’re using things like the government agencies like the Export Finance Agency to finance overseas deals or other capital requirements. I think they’re increasingly available to us as we start to scale up.

But I think the important thing is, from our perspective we think we’ve got some foundations for growth in terms of some great reference customers, some great reference deployments, but also we’ve built that capability in terms of our factory in Thailand that allows us to scale up as well, based on that existing facility.

ALAN: I’ll just get to that in a moment. Tell us about the deal with Optus that was announced on February the 11th with the Government. Is the Government paying for those batteries?

TIM: They are partly funding it. This is a fund that has been put together by the Government to address some of the effects of the bushfire that happened at the start of 2020 – that feels like a lifetime ago – and what I think the Government determined as part of its review was the increasing importance of connectivity and therefore, resiliency of the mobile network when power lines were going down either because of the bushfires or because they had to be proactively shut down because of the fire risk. And so, the Government initiated, I think it was an $18 million dollar network hardening program that’s orientated to increase the resiliency of the mobile network across those bushfire-prone areas. That was a fund that each of the telcos bid into to extend the battery backup or the backup in those cell towers that were deemed as being at high risk.

ALAN: Is this just Optus’s mobile towers or…?

TIM: No, there’s other towers in terms of Vodafone and Telstra that I think are in the mix. We’ve been working with Optus, putting our batteries into their network and at reference sites since 2018. They’ve become quite familiar with our battery and we were delighted to be selected on at least 56 sites as part of that network hardening program. We’ve done the first reference site, that’s going extremely well and passed all tests and so we’re looking to continue that rollout over the coming months.

ALAN: Just to be clear, are you putting batteries on Telstra and TPG mobile towers as well as Optus or not?

TIM: No, just Optus at the moment. Clearly, we think we’ve got a good reference technology that we’d love those companies to take a look at us and hopefully we can continue some of those discussions that we have.

ALAN: In that announcement, you mentioned 467 towers, so you’ve got 56 to begin with. Are they all the Optus towers, 467?

TIM: Yeah, they’re the Optus towers that have been selected using our technology. These are towers where we’ll put probably at least two batteries onto those mobile towers. An interesting thing that we can add, Alan, is we can work alongside the existing lead-acid batteries that are already at those towers and so, part of those towers have also been paid by a blackspot program by the Government. Clearly, the Government is very interested in not throwing away some of those assets and we’re quite unique in our ability to work with those existing lead-acid systems.

ALAN: Is that a deal that you’ve got, that you will put two batteries on each of these 467 towers or is that still to be decided?

TIM: No, it’s just the 56 towers. We’re going through the process at the moment with Optus just to understand the size and scale of the power requirements and the required backup according to each of those sites. Each of those sites is kind of slightly unique in terms of their power requirements and therefore, how many batteries are going to be required at each site, but that’s 56 sites that we’re targeting as part of this program with Optus.

ALAN: What percentage certainty would you put on getting the rest of them?

TIM: I couldn’t put a percentage on that at the moment, Alan. I think we’re focused on executing on the opportunity that we’ve been given by Optus at the moment, but we certainly feel that we’ve got a unique Australian developed technology that has some pretty strong characteristics that are well suited to the Australian environment such as the ability to operate in heat and hot climates, but also that resiliency against fire risk and the risk of thermal run away that other chemistries like lithium have to manage.

ALAN: Okay, but is there any reason why they wouldn’t buy another 900 batteries off you?

TIM: I don’t think there is. We think the opportunity in the telco market for us is significant both here in Australia and elsewhere. I come from a telco background myself and I know the introduction of new technologies into critical infrastructure does take time and you need some time in the saddle and end-customers looking at that technology, making sure it’s working well. I think we’ve succeeded in getting to that point with Optus. We’ve had that deployment in the Daintree that’s been working since 2018 and so they know what the technology can do and we think there’s enormous opportunity here in Australia, but in other markets as well in the telco space. That’s why we were so delighted to get that confirmation of that order from Optus, but especially our Minister Paul Fletcher coming to announce that at our headquarters here in Brisbane.

ALAN: In getting that order, did you pitch against somebody else, in particular, did you pitch against lithium batteries?

TIM: We understand lithium was in the mix. I’m not privy to the tender and the engagement that Optus had as part of that engagement with the Government. But look, we supplied them, they really led a lot of that engagement in pitching our technology as part of their tender process. We provided the information, so clearly, Optus believes in our technology and was confident enough to present that to the Government. And so, hopefully, our hope is to execute on that but start to look at other telco opportunities in the telco market here in Australia and in other markets.

ALAN: But it was a competitive tender?

TIM: Yes, I believe so.

ALAN: What are Telstra and TPG doing, are they buying lithium batteries or are they still using lead-acid for their…?

TIM: I presume they’re using probably a mixture of lead acids and potentially lithium at some of the sites that they’re focused on. We think in terms of, particularly around the blackspot program we’ve got a good unique technology and so, as we start to deploy those clearly our focus is going to be engage with other telcos in Australia and elsewhere and promote the highlights of what our battery can do versus other chemistries.

ALAN: I’m a bit surprised you don’t know exactly what they’re doing.

TIM: Well, look, I think they’ve got part of that program in terms of their technology selection, they’re probably a status quo which is lithium or lead-acid. Clearly, we’re keen to have conversations with them and we see the opportunity with them, but I think as we start to rollout, the benefits of our technology will hopefully become clear.

ALAN: The whole thing with Redflow, everyone’s moving on now, it seems to me, from lead-acid and sort of either complementing lead acid with something else or replacing them and the question is, do you go with zinc-bromine, your flow batteries, or do you go with lithium, right? That’s the issue and you’ve got some benefits and so on, and presumably, they argue benefits as well. The question for investors in Redflow, what share are you going to get of all this? That’s why I’m grilling you on this issue, the extent to which you reckon you’ll get mobile phone towers in general, will you get all of them or maybe just part of them, will you miss out on Telstra and TPG, what do you think?

TIM: I think the opportunity that we can have with the broader market and telco here in Australia and overseas is strong. There’s four million towers in the world, they’re growing at a rate of 3 to 4 per cent. Most of the elements that towers have in Australia are connected to a pretty good grid so your need for battery characteristics such as us is not as prevalent and some markets such as South Africa where the grid is going down every other day and you really need that battery backup to really be the workhorse that flow batteries are well suited to. But look, fundamentally I think the opportunity is there for us. We’ve now got a substantial order from Australia’s second-largest telco that’s taken quite a while for us to get there and as I said before, them getting comfortable with the technology.

The key challenge in opportunity for us is to leverage that order to show and demonstrate what we can do for other telcos and we’ve got a number of discussions going on that point to see how we can expand that into other markets.

ALAN: The good news in Australia is, although it’s a fair grid that doesn’t go down very often, we have bushfires and the Government seems to be prepared to pay for backup for mobile phone towers in bushfire areas.

TIM: I think that’s right and I think the government recognises as part of their experience, as I said before, that connectivity is just so crucial in those environments where the communities are relying on each other to understand what’s going on and the Government can communicate with the rest of that community about what’s happening. And so, I think you’re finding that in those kind of bushfire areas, it does I think underpin the need for resiliency across mobile networks and critical infrastructure in Australia and elsewhere, and this need for increased backup for telco towers is not just an Australian problem, it’s recognised in places like California where there was a recent bill that was submitted to increase the battery backups for mobile towers there up to 72 hours.

This is not just an issue or challenge that’s unique to Australia. Other markets such as California are also facing this big challenge of bushfires that some argue is created by climate change and the frequency and the severity of those are increasing over time.

ALAN: Why don’t you give us the pitch as to why your batteries are better than lithium batteries for this kind of application, for stationary applications like mobile phone towers?

TIM: Well, one thing that we do in terms of our characteristics, we’re the smallest commercially available flow battery in the world, Alan, and at about the size of a small bar fridge, so that means that we can be put in or alongside existing telco cabinets where other flow batteries are very large in size and just the weight and the size of those to get those onto those mobile towers is complex and costly. A couple of other reasons why we’re good for telco towers – we’re good, particularly where you want to use a cycling battery. Flow batteries are made for regular cycling and hard use, and so when you’re wanting to use your…

ALAN: What do you mean by regular cycling and hard use?

TIM: The paradox you often have with other battery chemistries such as lead-acid and lithium, you want to use those as least as possible because the more you use those, the faster they degrade. Actually, the paradox that we had was we actually like being used, so we’re really good at cycling things from 100 per cent to zero and then back up again and using all the energy in the battery. Whereas, if you do that with other battery chemistries such as lead-acid and lithium, you kill those batteries really quickly.

When you’re looking at applications like the deployment that we’ve done with Optus in the Daintree Forest here in Queensland, that’s a cycling application, so that’s offsetting a diesel generator that was previously running 24 by 7, the diesel generator is still running, it’s still charging the site, but it’s also charging our batteries at the same time and then you’re switching that diesel generator off, so you’re saving a considerable amount in terms of the diesel use, but you’re also saving the maintenance of that generator as well, as well as being positive to the environment. That’s one application where we’re really well suited to.

The interesting thing that we’ve done in the bushfire resiliency deployment is we’ve developed a new feature that actually puts our battery into hibernation, so you can charge our battery to 100 per cent, drain the electrolyte off the stack and then leave that at a high state of charge ready to be used when required. That can stay in that kind of hibernation mode for weeks and even months. So, when you’re wanting that kind of battery backup in the event of a bushfire that you can extend the energy backup of that site from 4 hours to 12 hours, with that hibernation mode we’re very well suited to that application as well.

ALAN: Why would you want to drain the electrolyte away?

TIM: It just means that we don’t go into that kind of state of charge. The battery is still at about a 98 per cent state of charge and we don’t have what’s called a trickle charge after that. We can basically lie in that dormant state to be used when required. Other batteries require a trickle charge, a charge that continuously goes down if you’re putting them into that mode, so we have an advantage from that perspective. We think that’s unique and so when you’re wanting to have that energy storage that’s available if you need to turn off the grid power to that site or you have to for other reasons, those batteries can then kick in and support the load. Backup capability is a really strong asset in terms of winning that bushfire resiliency grant with Optus.

ALAN: Are you pitching for other mobile phone tower applications around the world now?

TIM: Yeah, look, we think there’s still continued interest. We were focused a lot on the South African market over the last 18 months that has a number of characteristics that we think are really interesting for us. One, it’s a big market, one of the biggest markets in the world. The second thing is, it has some significant challenges around the grid there. Eskom is in crisis and you’re seeing continued load shedding, which means rolling blackouts across the country, it means that infrastructure and things like cell towers have to rely on their batteries as backup. The second thing around South Africa is there’s a huge problem of battery theft, of existing lead acid and lithium batteries that are stolen on an industrial across the country. We worked quite strongly with Vodacom over there. They took our battery into their testing facility for around 6 months and put an initial order for about 50-odd sites for them. COVID came and hit us pretty hard at a pretty critical stage of that rollout and the situation there was pretty dire around COVID. Those batteries are still being rolled out but we still remain quite positive and optimistic about the market opportunity for us in South Africa and some of those kind of similar markets where we feel our battery and characteristics are well suited to that environment.

ALAN: How many batteries have you sold in South Africa?

TIM: For that deal we sold about 68 of our batteries, that’s to 35 to 40 sites. We also have sold our batteries to another mobile infrastructure company that’s focused on building network infrastructure towers across rural areas as well. We think the opportunity in South Africa is still there, it did get affected a little bit by the headwinds created by COVID. But on a macro level, we still think the opportunity is there for us.

ALAN: How many towers have they got?

TIM: Vodacom, I think, have got about, if I can recall, about 10,000 towers – and clearly, they’re in other markets such as Nigeria and other African markets and clearly they’re part of the Vodafone group which is one of the largest telcos in the world.

ALAN: How much do you sell these batteries for, by the way?

TIM: The sale price we sell at the moment is probably around about $5,000 US dollars, depending on the size and scale and the strategic opportunity that’s in front of us. We’re a wholesaler, so we sell through our integration partners. They help us in terms of installation and the commissioning of those and putting those batteries onsite and making sure they’re installed and well looked after.

ALAN: I didn’t know that, you’re wholesalers?

TIM: Yes, that’s right.

ALAN: And you make them in Thailand?

TIM: Yes, we do. We’ve got a wholly owned facility in Thailand at a place called Chonburi, a free trade zone, that’s about 90 minutes out of Bangkok and that’s been a very good move. We had a couple of tries of going down an outsource manufacturing route that probably wasn’t the right time for us in retrospect, but that facility in Thailand is going very well, it’s a big hub for automotive manufacturing, Alan, and so we have a lot of parallels with that and it’s also got its own deep-sea port. From a quality and manufacturing and market access perspective we’re delighted with that facility.

ALAN: Can you tell us what your margin is?

TIM: No, well we don’t divulge that but I think where we’re at at the moment, the key thing for us is getting cost out of the battery so we can drive further margin into our business and through the move that we made from the previous outsource manufacturing relationship in Mexico and moving into Thailand, we managed to take about 40 per cent of the cost of manufacturing the battery from that move. We’ve got our Gen3 battery that’s currently in customer trials that we’re targeting a further 30 per cent cost out from where we were when we first established that facility and that’s a mixture of good engineering, that’s part of our Gen3 model supply chain and productivity benefits. And so, whilst it’s still our standard 10 kilowatt/hour battery, its major benefit for us is getting that cost down and then setting up ourselves for volume manufacturing. We’re pretty confident as we start to scale up manufacturing, we bring in automation and purchasing power, as we start to scale up we can get those costs down pretty dramatically from where we are, even from where we are today.

ALAN: Is the Gen3 battery better than the Gen2 one?

TIM: It’s got a number of features, Alan. From an end-customer perspective, they don’t really see any difference in terms of performance. We’ve got four major changes that we’ve made to that Gen3 battery. One, is a new stack, that’s really where the heart of our engineering and R&D efforts lie and that’s a next-generation stack that means it uses far less materials and supporting materials from what we use today. We’ve got a new electronics board, we’ve got a new tank and we’ve got a new cooling system. All of that, we think, is probably the result of quite a number of years of engineering and those are currently in customer trials that are going really well. We’re iterating and learning as we put those batteries in the field and we’ll be introducing that Gen3 into the production environment towards the end of this year.

ALAN: You’ve done a deal in California, not for mobile phone towers, but for bio-energy. This is obviously another application for your batteries, tell us about the deal.

TIM: That’s a 2 megawatt/hour energy storage system using about 192 of our flow batteries. The end customer is a company called Anaergia that is a very large food waste to energy company and that facility is going to be installed in what is going to be North America’s largest organic waste digester facility, so that’s going to convert organic waste and bio-solids into natural gas, fertiliser, and energy. It’s about 80 kilometres out of Los Angeles and we’re very delighted to do that. The application of the energy storage system is essentially peak shaving, so being able to deploy that 2 megawatt/hours of energy on a daily basis between about 4 and 9 o’clock means that that facility avoids a peak demand tariff.

But for large companies and large industrial companies, if you’re using lots of energy during that kind of period, that has a very material impact in terms of your overall bill. Companies that can mitigate that kind of peak demand period through using their own energy storage services or solution has a direct commercial impact and that’s what our battery’s going to be doing. It’s going to be charging during the day and then discharging during the night, during that 4 to 9 p.m. peak demand period.

ALAN: Is Anaergia a power company, effectively?

TIM: No, it’s a food waste to energy company. They convert that into natural gas and then fertiliser, so you could say and argue it’s an energy company.

ALAN: But obviously, they’re producing electricity as well?

TIM: That’s right. It’s exciting for us. That’s the largest single sale and will be our largest single deployment of Redflow batteries globally. We’re very excited about the ability for us to establish our presence in California and I think it will be a key sort of flagship project for us targeting that kind of commercial and industrial sector.

ALAN: Yes. Did you pitch against lithium batteries for that or what?

TIM: No, the focus of that – the project itself has been funded in part by a grant by the Californian Energy Commission which was focused on alternative technologies to lithium. Previously, another flow battery company had won that deal but was unable to convert that deal and execute on it, a company we know quite well. We were introduced by Anaergia, they started to review other potential technologies including other flow batteries and we were able to win that deal. We’re quite delighted about that and I think the reason that we won reflects some of the characteristics that we have in terms of the ability to cycle daily without degradation, tolerance for temperature effects, etcetera… We think that’s very exciting for us.

ALAN: In the announcement you said you’re getting USD$1.2 million for the system?

TIM: Yes, that’s right.

ALAN: That’s for how many batteries, 192?

TIM: Yeah, that’s 192 batteries and that’s for the overall system and that includes some of the converter systems and surrounding infrastructure that will be required to deploy that system. The approach that we’re taking on that one, Alan is we’re deploying our batteries in what we’re calling our energy pod which is essentially an external enclosure comprising of 16 of our batteries in one kind of single steel container that can be stored outside, that’s the other element of the cost of that and that kind of replicable model we’ll use as we get other bigger systems using that kind of energy pod approach.

ALAN: That’s more than $8,000 bucks a battery, I suppose it’s the other stuff around it that bumps the price up?

TIM: That’s right.

ALAN: Anaergia’s Chief, in your announcement, Yaniv Scherson, said they’ve selected your battery because they’re uniquely suited to meet the demands of the Rialto site. What is it about your batteries that work better? Also, did you pitch for that against lithium batteries?

TIM: As I said, that was orientated towards non-lithium batteries as part of the California Energy Commission’s sort of program – and I’ll go into that a little bit later. In terms of why we won, I think it is due to the ability for our battery to do that kind of daily cycling day in and day out, Alan, without any degradation in terms of performance. As I referred back to earlier, Redflow batteries and flow batteries in particular are really well suited to daily cycling and using all of the energy that we have in the battery. Imagine a glass of water being filled up to the brim and then emptied again and doing that every day. That’s a really good characteristic and a good application for flow batteries because you can use 100 per cent of energy and when you’re doing that, you’re actually using our core chemistry in the best way possible. That’s one of the reasons I think that they decided that it meets the demands of what they’re looking for in terms of that peak demand shaving.

Just the other comment I suppose, Alan, around California and the characteristics I talked about before, California is clearly the fifth largest economy in the world, I think, but it’s got a legislated requirement to reduce its carbon emissions to decarbonise by 2045 and so it’s quite progressive in terms of its absorption of renewable energy and the recognition that medium and longer-term energy storage is the heart of getting to that point. The Californian Energy Commission has been very active in terms of supporting projects and alternative technologies to lithium because there is a view that when you start to get into medium and longer-term generation, alternative technologies outside of lithium provide the most promise. Strategically, we think it’s a great move for us to be in California because we think it’s going to be such a big driver of the renewable energy agenda in California, but also across the US as well.

ALAN: What sort of potential does it open up for you?

TIM: There’s significant opportunities there. I think California has indicated by 2045 they’re going to need between 45 and 55 gigawatts of long-duration storage, so the opportunity there is huge. We think there’s opportunities for us in the commercial and industrial space, so replicating what we’ve done for Anaergia in terms of peak shaving or solar shifting which, again, using a battery’s characteristics of charging and then discharging on a daily basis which is really great for us and we think the telco environment is positive and strong and I think I referred to before about the challenges that California has faced around bushfires, and that’s not just in the telco space but it’s also in the community space as well.

Due to the recent bushfires over the last couple of years, some of the utilities have been successfully sued for the damages that they’ve caused by the bushfires by their power lines and so you’ve got an extremely risk-averse environment there where the utilities are now turning off their power lines at any hint of high winds that may cause their power lines to drop. So you’re getting a lot of decentralisation of energy and energy resiliency because of that factor. The increase in community batteries and community energy assistance is strong as well. I think you’re starting to see that emergence in the US of the recognition of flow batteries. The energy storage systems are clearly still dominated by lithium, but you’re starting to see from our perspective, a little bit of recognition of the role of flow batteries as the requirement for energy storage moves out from short-term frequency, grid stabilisation requirements, through to that solar shifting.

I think even it was last week in March, the US Secretary of Energy Jennifer Granholm cited flow batteries as being very good for grid storage. We think there’s a number of really strong macro factors there that are creating some very good momentum for companies and utilities and other potential end customers to start to look at flow batteries.

ALAN: Did you say you’ve got the smallest flow batteries in the world?

TIM: That’s right. Ours is a 10 kilowatt/hour battery. I think from our perspective that provides us with a couple of advantages. One, it means that we can be put into high-end residential or telco and small commercial sites, but it also means our modular approach means that we can scale up to megawatt hour as we’re doing with this Anaergia project. But the benefits, we also think, is the kind of philosophy that small is beautiful and by having a smaller form factor size, we think that allows us to get to the automation and cost down curve a lot, lot sooner than other flow batteries that are usually very large and much larger in size and scale. Staring into that kind of automation and as we start to ramp up volume, is something that we’re actively exploring at the moment.

We think as we start to ramp up, we use the cheapest and most abundant core minerals in terms of zinc and bromine in the world and essentially our battery’s made up of heavy duty plastics, pumps and tanks and some electronics, so the cost down curve we think we can get, even compared to where lithium is that’s had many billions of dollars and decades of investment, is actually quite attractive.

ALAN: I think we’ll have to leave it there, we’ve been going longer than usual but it’s been great talking to you, thanks very much, Tim.

TIM: Alan, thanks very much and look forward to keeping your listeners updated as we progress.

ALAN: That was Tim Harris, the CEO of Redflow.