A123 recently began a communications effort to help everyone understand our focus and corporate structure under the ownership of the Wanxiang Group. The first step was a press release which introduced the expanded mission of our R&D organization. A123 Venture Technologies allows us to apply our substantial R&D talent and assets to the commercialization of new battery technologies, particularly at the battery cell design and materials level. In addition to supporting the other A123 divisions, A123 Venture Technologies now acts as a development partner for other battery technology companies.
Last week, our businesses focused on stationary storage of all sizes introduced their rebranding as A123 Energy Solutions. This organization based in Westborough, Massachusetts offers a diverse portfolio ranging from replacement of a single lead-acid battery up to multi-megawatt systems deployed in various grid applications. A123 Energy Solutions has a long history of successful deployments around the world and offers some of the best grid-scale energy storage systems competence in the world.
We are also proud to confirm that our automotive business based in Livonia, Michigan continues to supply the world’s top-tier vehicle manufacturers. In addition to supplying batteries to BMW for their ActiveHybrid 3 and ActiveHybrid 5 models, we’re also ramping up production for the Chevrolet Spark EV which goes on sale later this year as well as a 12-volt battery for a 2014 model year micro-hybrid in Europe. The latter program is a significant milestone in our low voltage hybrid portfolio because our solution is replacing the lead-acid battery in the vehicle and will be the only battery on-board. We also continue to supply Shanghai Automotive (SAIC), which is China’s largest auto manufacturer, and our commercial vehicle business remains healthy with a variety of customers including Daimler and Smith Electric Vehicles among others.
A123 Systems is actively engaging in new customer programs across our businesses and we look forward to sharing more about those activities as they mature. If you have a new application that could benefit from A123’s technology, please contact us.
Yesterday A123 Systems Inc i.e. the "old A123" made an 8-K filing with the SEC which changed its legal name to B456. This change was ironically made to reduce confusion about the difference between the A123 businesses which are now operating successfully under Wanxiang's ownership and those elements of the company still in the bankruptcy process.
The ongoing businesses in automotive, grid energy storage and lead acid replacement continue to operate under the A123 brand and our legal name is A123 Systems LLC. It's certainly forgivable that some media outlets have not correctly made the distinction between the old "Inc" and the new "LLC".
While the headlines emphasized the “50MW Storage Requirement” of California’s recent Long Term Procurement Process decision, the substance is more than skin deep. Like a director-annotated viewing of your favorite Oscar-nominated feature, the use of storage makes even more sense given an in-depth exploration of the Long Term Procurement Planning (LTPP) ruling.
The decision authorizes or requires (depending on your point of view) major utility company Southern California Edison (SCE) to procure between 1400MW and 1800MWs of new resources. Why the uncertainty? There are several, but I will address three reasons: first, no one is sure when existing generators may retire. Second, the actual demand, including demand response, is uncertain within the procurement time horizon. Third, the usefulness of new capacity is highly dependent on location.
The first question may be the most intuitive to grasp. The genesis of this LTPP decision was the anticipated retirement of existing generators accounting for 4900 MWs of capacity. A new rule known as Once-Through Cooling (OTC) restricts the amount of water that generators may use for cooling. Generators can either retrofit to comply with the new OTC rule, or close. The exact number of plants that choose to close is up for significant debate.
Similar to OTC retirement timing, the exact load, and in particular, the amount of demand response, has been debated in the rulemaking. Like the stock market, predicting the economic growth of any region (and by extension, its energy demand) can be a precarious task when done in advance. While the CPUC crafted a compromise position, individual stakeholders may have been happier with the final procurement target had their preferred assumptions been utilized. Suffice to say, disagreement over assumptions is an uncertainty that planners must incorporate.
The final question involves the non-energy production uses of a generator. In many cases, a generator located on the “downstream” end of a transmission interface is more useful than a generator located “upstream,” since the former is located closer to the load. In select instances, the generator is needed not for energy, but to “prop up” the transmission line. A small generator, providing the proper support, can enable a transmission line to deliver power many times the size of the generator.
As an analogy, take a truck looking to increase its towing capacity. The engine can pull the heaver load, but its stock brakes are insufficient to stop safely. Building an “upstream” generator is like the truck upgrading its engine. Yes, a larger engine can help slow down the truck and load, but a more efficient solution would be to use larger brakes. Likewise, sub-optimally located generators could be replaced with upgraded transmission equipment, or smaller, better-located generators.
All of these uncertainty factors point to storage as an ideal solution, given its advantages in deployment speed and flexible operation. Even though some OTC plants may not retire until 2020, replacements are being considered today because new generation can take 7-9 years in the LA basin, and new transmission lines could take 7-10 years. Storage, on the other hand, can be manufactured and deployed in as little as two years. This shorter lead time can enable policymakers to bring in their planning horizons and plan with greater certainty. In addition, as opposed to a generator, the vast majority of a storage asset’s value is manufactured in a factory. Storage assets can be moved where needed without significant sunk costs. In fact, some A123 Grid Storage System assets have already been moved – on flatbed trucks – from stagnant markets to areas with greater economic returns. If California’s circumstances change in the next decade, some LTPP stakeholders are rightly concerned about the costs of potentially redundant capacity. By utilizing storage, California can move the assets where needed, and even sell them to other areas.
Storage also represents operational flexibility. Switching between frequency regulation, voltage support, energy arbitrage, and renewable ramp management applications is as simple as uploading new software. So even if local capacity requirements no longer require storage in a voltage support or energy arbitrage mode, the asset could find value in another usage.
In conclusion, the 50MW headline is indeed good news for storage, but the full story is even more compelling. California’s power system will need to address many uncertainties – the rate of OTC retirements, the share of future renewables, even the rate of economic growth. Storage, with its flexibility and easy deployment, represents an ideal hedge against all of these uncertainties.
Last week’s Advanced Automotive Battery Conference (AABC) in Pasadena, CA covered a range of 12V battery solutions for micro-hybrid systems. Micro-hybrid applications are getting more attention because they offer meaningful fuel economy gains for modest incremental cost. While the development of early generation micro-hybrids (or start-stop systems) focused on smooth engine restarts, next generation systems are looking to recover braking energy as a path to even greater fuel economy. Unfortunately existing lead acid battery technology introduces some design constraints because it can’t be charged very quickly and most of the vehicle’s braking energy is still lost. Energy storage alternatives for micro-hybrids were well discussed at AABC including direct one-battery replacement of today’s lead acid technology as well as hybrid approaches with two batteries in parallel.
Advanced lead acid There are advanced versions of lead acid 12V batteries that support today’s start-stop vehicles, but they still fall short in dynamic charge acceptance capability. Charge acceptance is important because it enables regenerative engine braking or “recuperation”, leading to better fuel economy. The fact that there were no presentations at AABC about advanced lead acid batteries was a strong message that this solution, although low in cost, will not survive long term due to limited capability to contribute to the aggressive CAFE standard increases over the next decade.
Lead acid + small lithium-ion A low-cost traditional lead acid battery coupled with a small, high power lithium ion battery allows each battery to play to its strengths in the system. The lead acid battery is relied on for lower cost energy storage to support long term parking requirements. The more expensive lithium ion battery is reduced in size to allow for enough charge power for improved recuperation and discharge power for cold cranking. A DC-DC converter is not required to regulate voltage between the two batteries if the lithium-ion battery is of lithium iron phosphate or lithium-titanate chemistries, which are able to be configured such that they match the lead acid voltage range. However the integration complexity and additional hardware required is perhaps a weakness as compared to a single battery solution. Additional vehicle weight and packaging is a concern as well since the vehicle must accommodate two batteries instead of one.
Lithium iron phosphate The best performing single battery 12V solution available is lithium iron phosphate (LFP) in both the durability/life and charge acceptance categories. It also provides a net weight savings to the vehicle which is an incremental benefit to fuel economy. Two such solutions were presented by A123 Systems and GS Yuasa at AABC. Significant strides have been made on cold cranking performance, a perceived weakness of LFP starter batteries. From a technical prospective LFP is sound, but there are challenges with the cost of manufacturing LFP battery cells. Dr. Menahem Anderman, AAB President, argued that a system’s incremental cost premium for advanced micro-hybrid solutions must be less than 200€/$270US in order to challenge the position of existing solutions. Lithium ion batteries are on track to meet this target within the coming years.
At the end of the day, most vehicle manufacturers will prefer the least complex solution with proven technology and value. Two-battery solutions come at the price of additional weight and real estate for a second battery, as well as complex algorithms to integrate the two batteries in the start-stop system. Lead acid and lithium ion LFP batteries are the only single battery solutions on the market, and although lead acid is a lower cost solution, it is tapped out with regard to dynamic charge acceptance and contribution to fuel economy improvements. Micro-hybrid vehicles with start-stop are forecasted to become main-stream by 2017 and thus LFP 12V starter batteries are positioned to capture a share of this market. With a first generation battery in production and a second generation battery set to launch this spring, A123 can provide proven technology for a single battery solution with less mass, less package space, and less complexity than other competing solutions.
Mavizen (www.mavizen.com), a premier technology supplier to the electric motorsport industry and A123 Systems' motorsport distributor, will present a showcase of racing technologies at a free workshop during Autosport International (January 10-13, 2013 at the National Exhibition Centre in Birmingham).
Mavizen's workshop will take on Thursday, January 10 at 3:45 p.m. and will cover an overview of electric motorsports with presentations from TTXGP and the latest industry trends. Engineers will present the latest pack designs and case studies of A123 in the race for the next generation of motorsport.
To resevere a spot at Mavizen's free workshop, please visit http://www.the-mia.com/events_diary.cfm/flag/2/e_id/759.
This past weekend, A123 filed a response to various objections that have been raised by Wanxiang, Fisker and others pertaining to A123’s Chapter 11 proceedings, particularly with regard to the proposed bid procedures and process. This blog post attempts to summarize this response to avoid any misinterpretations or potentially misleading reports.
First, to be clear, our response is intended to reinforce A123’s overall objective of creating and maintaining a fair, inclusive and transparent sale process that will promote competitive bidding to maximize the value of A123’s assets to the benefit our stakeholders. We believe our stalking horse asset purchase agreement with Johnson Controls and the proposed bid, auction and sale process (including the timeline) help support this objective.
At a high level, the three primary stated objections assert that:
- The proposed timeline for the bid, auction and sale process is “unreasonably short” and does not allow ample time for other potential bidders to submit proper proposals and/or secure any necessary regulatory approvals.
- The protections in the Johnson Controls stalking horse bid are unfavorable to the value of the A123 estate (for example, the break-up fee included in the asset purchase agreement is deemed as unreasonably high).
- A123 has not clearly defined which of its assets are available for acquisition through the auction process.
Regarding the first objection, A123 believes the contrary to be the case—the proposed sale process (including the timeline) is reasonable and in the best interest of A123’s estate. First, the timeline would provide sufficient time for potential acquirers to compose and submit a bid for A123’s assets. Further, we think that extending the timeline by a substantial amount of time would likely damage the value of A123’s estate.
For instance, a lengthy extension would mean that A123 will continue to spend the cash necessary to maintain ongoing operations, which could translate into a lower recovery for creditors. In addition, the uncertainty about A123’s future created by the Chapter 11 process has increased the risk of losing employees, many of who are seeking employment at other companies. Given that A123—and potential bidders that have expressed interest in acquiring our assets—considers our employee base to be a critical resource and a competitive differentiator, this trend (which is likely to continue and even escalate as more time goes by) would very likely inhibit A123’s ability to maximize the value recovered at the sale.
In response to the second objection, A123 carefully considered the bid protections (which Johnson Controls required before signing the asset purchase agreement), and ultimately we believe that they are fair and reasonable under the circumstances. The asset purchase agreement with Johnson Controls constitutes the best offer we have received and it is the only bid that does not contain what we deem to be “materially unsatisfied” closing conditions, which gives us confidence that the sale of the company’s automotive business to Johnson Controls could be completed within the necessary timeline.
On the third objection, A123 believes that we have adequately identified the company’s assets that we intend to sell at the forthcoming auction. In the proposed bidding procedures, we clearly state that any and all of our assets, including our automotive business as well as our grid, commercial, government and other businesses, are subject to sale at the auction. While we cannot speculate on what companies will ultimately bid on which components of the A123 business, we believe we have made it clear as to how interested parties can structure their proposals.
A few other objections are addressed in our response, but to reiterate, our goal is to promote a sale process that maximizes the value of our assets and benefit to our stakeholders. We continue to be encouraged by the significant level of interest in our automotive, grid, commercial, government and other businesses, and we are confident that benefits of a fair, inclusive and transparent sale process will be reflected in the bids we receive for these assets.
In our continued effort to deliver timely, accurate updates about A123 and our Chapter 11 proceedings, we plan to provide additional information via The Pulse as needed. For instance, we want to clear up any confusion regarding the motion A123 filed on October 28 related to our Debtor-in-Possession (DIP) financing:
Twelve days ago A123 received and the court approved access to up to $15.5 million from Johnson Controls in interim DIP financing. This interim financing was put in place until permanent DIP financing was available and decided on. Three different permanent DIP financing facilities were proposed and reviewed, and this past weekend, A123 reached an agreement with Wanxiang Group Corporation, pursuant to which Wanxiang intends to provide A123 with $50 million in DIP financing. This financing, which is expected to provide A123 with the resources necessary to continue operating our business and working with customers and suppliers, would supplement the prepetition $22.5 million of liquidity and letter of credit support that Wanxiang previously provided to A123 (which will remain in place).
A123 will seek court approval of the DIP financing agreement with Wanxiang at a hearing currently scheduled for Monday, November 5, 2012 at 2:30 p.m. ET (court schedules have been in flux as a result of the impact of Hurricane Sandy on the East Coast). Until that time, the interim DIP financing from Johnson Controls will be extended to enable A123 to continue operating in the normal course. As a result, we have sufficient liquidity to meet our financial obligations until the Wanxiang DIP facility is approved.
As previously announced, Johnson Controls and A123 entered into a stalking horse asset purchase agreement under which Johnson Controls intends to acquire A123’s automotive business assets. We appreciate Johnson Controls’ willingness to extend its interim DIP financing until the November 5 hearing. We want to clarify and emphasize that the selection of this new DIP financing facility has no impact on the stalking horse asset purchase agreement with Johnson Controls. In fact, Johnson Controls has also stated an interest in expanding its bid to acquire A123’s government business.
While we are encouraged by the continued interest from Johnson Controls, Wanxiang and multiple additional parties in acquiring A123’s assets, it is important to note that being the DIP provider does not give Wanxiang or any other party control over or leverage with A123’s court-supervised sale process. A123 and its advisors are confident that this court supervised process provides a level and fair playing field for all participants. As we move through this process, we will continue to act in the best interests of A123, its employees and its other stakeholders.
Hopefully this answers any questions and clarifies any confusion about our agreement with Wanxiang regarding DIP financing, and we expect to provide updates via The Pulse on further developments from time to time. In the interim, remember that court documents are available at www.loganandco.com, and additional information is available by visiting www.a123systems.com.
In October 2011, the Federal Energy Regulatory Commission (FERC) announced Order 755, which established a pay-for-performance compensation model for frequency regulation to recognize the value of the speed, accuracy and controllability advantages of grid energy storage as a fast-response frequency regulation asset.
This week, less than a year later, PJM Interconnection has implemented its version of these performance-based regulation rules as “a means to align compensation with actual performance for resources that provide regulation service.”
This market will showcase the advantages of energy storage as a resource that can compete favorably with traditional generation for delivering regulation services. Both consumers and suppliers, some already providing fast-response frequency regulation to the PJM market via grid energy storage systems, stand to benefit from this additional value and reliability.
Fast-response frequency regulation is an application for grid energy storage that is expected to grow substantially in the coming years—According to Pike Research, the worldwide frequency regulation market is expected to grow from 45GW in 2012 to more than 55GW in 2022.
While much of this will continue to be provided by power generation assets such as coal or natural gas, Pike predicts that by 2022, grid energy storage systems will be delivering between 3GW and 7GW of frequency regulation services.
FERC Order 755 and the PJM implementation of its rule help support this forecast, and while PJM is the first regional operator to go live with its new compensation structure for regulation services, NYISO, ISONE, CAISO and MidwestISO are not far behind—each is expected to implement rules to comply with FERC Order 755 within the next 18 months or so.
The business case for deploying grid energy storage continues to get stronger, and we encourage any utility or independent power producer to contact us to learn how our Grid Storage Solutions can help them realize the benefits of energy storage for fast-response frequency regulation.
As we've written about previously, the Defense Department continues to revamp its energy strategy with a goal of getting 25 percent of its energy from renewable sources by 2025. This should create a demand for energy storage and an opportunity for lithium ion batteries and energy storage, particularly now that the U.S. Army Corps of Engineers has issued a Multiple-Award Task Order (MATOC) Request for Proposal (RFP) for “$7 billion in total contract capacity to procure reliable, locally generated, renewable and alternative energy through power purchase agreements.”
While energy storage is not explicitly included as a required component for bids submitted to the RFP, section C.4.d of the 108-page document includes some very intriguing language:
Wind and Solar renewable energy technologies may be considered variable energy production technologies because energy is not consistently produced to replace base load energy consumption. Geothermal and Biomass are typically considered base loaded energy technologies since they replace electrical energy base load consumption on a continuous basis.
The Contractor shall maintain a system uptime performance that is in the top 25% of the industry in the United States for the technology being implemented given the conditions related to each specific site. For base loaded power providing energy technologies, the Contractor may be required to provide replacement energy at no cost to the Government when the system is not meeting minimum energy production requirements.
And therein lies the opportunity for energy storage.
Since, as the Army RFP notes, generation from renewable energy sources such as wind and solar is unpredictable, it becomes difficult to schedule and manage traditional generation assets to compensate. Fast, flexible and scalable energy storage is proving to be a robust, viable solution for addressing most of the issues associated with variability of renewable energy generation, including by shifting energy in time to “smooth” the output of renewable generation or reduce the peak load on constrained transmission assets.
With significant experience and expertise in proving solutions to both the commercial grid-scale energy storage market as well as the government, A123 is well-positioned to serve as an energy storage partner for any contractor planning to submit bids for the MATOC RFP. We encourage you to contact us to learn how energy storage could help you cash in to this $7 billion opportunity.
With the 34th International Telecommunications Energy Conference (INTELEC) taking place in Scottsdale, Ariz. next week, energy efficiency as a critical component to operational success for the global telecom industry will be undoubtedly be a central topic of discussion….and an appropriate time to revisit the opportunity for lithium ion batteries created by the rapidly growing global demand for mobile services.
An estimated 300,000 new cell tower sites are being built each year in India Africa and other emerging markets, about 75,000 of which are built off-grid. To deal with the energy challenges this creates, operators typically deploy a battery backup system (usually valve-regulated lead acid (VRLA)) along with diesel generator.
This creates a challenge because VRLA batteries have slow charge times and limited cycle life (which is even shortened by repeated cycling)—the charge time required for VRLA batteries is often 10 hours or longer, forcing the diesel generator to operate during most of the day. Further, lead acid systems in many instances need to be replaced about every 18-24 months, which burdens operators with high recurring replacement and maintenance costs.
Conversely, A123’s advanced lithium ion battery solution lasts up to five times longer than VRLA, requiring fewer (or no) replacements over the life of the system, and they charge more quickly, which translates to increased battery availability and reduced reliance on diesel generators. Increasing fuel savings and reducing maintenance costs result is a lower total cost of ownership (TCO) for telecommunications backup applications on the order of 60-70 percent as compared to VRLA.
Further, A123’s newly launched Nanophosphate EXT™ lithium ion battery technology augments these advantages by minimizing or altogether eliminating the need for air conditioning or heating at cell towers in extreme temperature environments. In higher-temperature climates, for example, the air conditioning necessary to properly cool the lead acid batteries can represent up to 50 percent of the total power consumed at each cell tower site.
Interestingly, the GSMA Green Power for Mobile Bi-Annual Report from July 2012 contains a summary of the takeaways from a “Voice of the Customer” session hosted by General Electric held earlier this year to determine how MNOs are thinking about OPEX reduction, especially with respect to energy. According to the report:
“Every single participant was focused on reducing OPEX across their networks. Diesel generator-related expenses were by far the largest contributor to members’ OPEX, and included: Fuel costs (where a diesel generator was the prime source of power); Fuel delivery logistics for remote installation sites; Equipment cooling costs (potentially 60% of the total power consumed on-site); and Generator maintenance.”
In addition, while some MNOs “expressed serious concerns about increasing CAPEX” for the deployment of advanced battery technologies as a more energy efficient solution, they generally agreed that TCO is “the right way to evaluate solutions.”
These findings agree with the discussions we are having with mobile network operators globally, and it is clear that a robust, longer-lasting battery solution will be welcome as a means of increasing energy efficiency and reducing TCO. If you are attending INTELEC next week, we encourage you to stop by A123’s booth (#109) to discuss how our solutions might fit your application needs.