Eguana Technologies Inc. (EGT:CA) CTO Brent Harris on how his company’s battery control systems will become part of the mainstream infrastructure, making solar and wind power grid-compatible energy sources.
James West: Brent can you outline for us exactly what the opportunity for investors is in Eguana Technologies?
Brent Harris: Eguana technologies manufactures control systems for energy storage. We offer exposure to the rapidly growing energy storage space without depending on a particular battery chemistry.
James West: So you make batteries?
Brent Harris: We make electronic controls for batteries, and we work with all the different kinds of batteries out there, and we connect them to the grid, to provide a universal interface to the utilities, and to control the batteries.
James West: So where do you sell these battery controllers currently?
Brent Harris: Most of our sales right now are in Germany. It’s the largest market, and the fastest growing market. We’re by default the world leader by selling into that market. We’re selling about 500 units per year. Most of our activity right now is in the US market, getting a position as the first installations start to roll out there as batteries are starting to get certified in the US.
These are for use in homes and businesses (commercial buildings) to basically manage the power flow in and out of the building, most often installed alongside solar, and that’s really what’s driving the big interest, is helping to mange solar. As the cost of solar energy comes down, its growth is phenomenal. And its causing some challenges on the utility grid, because it comes and goes with the sun, but by using a battery, in combination with solar it starts to become a very controllable, very scalable power source. So it’s really starting to take over in new installations and capacities around the world.
James West: I see. So this is the technology we’ve all been waiting for, that allows you to store electriity when its dark outside, or rather, use electricity when its dark outside, and store electricity while its being produced in the daylight for solar power?
Brent Harris: That’s exactly right. That’s what our customers are doing. All these units going into Germany are going into people’s basements, and over the course of a year, they can supply 80% of their own energy from their solar system.
James West: Okay so is this technology usable as well on wind generated power?
Brent Harris: Yeah it can be used with wind, combined heat and power systems, any power generation. Although, solar is by far the most popular these days.
James West: So you are then the manufacturers, designers, marketers, vendors of all this equipment?
Brent Harris: Yes we are. We don’t make batteries, but we make the whole wrap –everything else you need to hang this battery on the wall and connect it to grid.
James West: Ok so you’ve got customers in Germany. The big opportunity for investors I guess is the worldwide rollout of battery storage systems as renewables become bigger.
Brent Harris: That’s right. Its going to follow closely behind, and that’s why we started in Germany. They’ve really driven the market and the interest in it, but the US is about to explode. Hawaii is seeing a lot of pressure because we’re seeing a high penetration: One in nine homes on the island of Oahu now has solar power on the roof. The utility is putting their hand up and trying to slow things down, but nobody is accepting ‘no more solar’ as an answer. They generate 70% of their power from diesel fuel brought in on a boat, and nobody’s happy with that. So that’s where our first pilots and basically putting storage alongside the solar, and lets get to 100% of those roof tops.
James West: In Bloomberg this week there was an article published and the key takeaway from the article was the sentence that says ‘the world is now adding more capacity for renewable energy each year than coal, natural gas, and oil combined, and there’s no going back.
So I guess you guys are at the right place at the right time. We’ve reached this inflection point in the evolution of humanity where we’re moving away from fossil fuels, and moving faster toward renewable power, despite their shortcomings, which has always been the fact that you can’t make electricity from wind when there’s no wind, and you can’t make electricity from sun when there’s no sun. So then, how are you positioned to capture what looks like is going to be a real wave of demand for these types of products?
Brent Harris: Well, we saw this coming a couple of years ago, and switched the focus of our company entirely onto battery systems connected to the grid, so we’ve got the right product in place. We’ve got the right certifications required, and we’ve built the partnerships with the key battery manufacturers. We recently announced a partnership with LG Chem out of Korea. We’ll package a battery plus inverter system and have it fully certified for the US market. We will pursue similar arrangements with other battery manufacturers. We are positioned with all the new battery technologies coming primarily out of the United States – flow batteries and other technologies – and we’re building relationships in the channels out there. So our first channels are into Hawaii and New Jersey, but we’ll also have deployments this summer in California, Colorado and Arizona.
James West: Okay, so what kind of cash flow do you have now…are you profitable at this point?
Brent Harris: We are very close to profitable. As I mentioned, we’re selling 400 to 500 units per month there into Germany. Its been a very rapid ramp there as our customers got their latest products out last summer and really built the volumes going – we’ve found the elasticity in the market, so its growing. We’re managing that growth to keep our costs in line and just getting our margins back to where they belong, and on that basis, we’ll be profitable. Also, we’re conscious that there’s some investment required to reach the US market, so we’re making those investments with our internal capacity, and access to the market as well.
We’re very close and we’ll expect to be there later this year.
James West: Can you tell us a bit about who your partners are? You mentioned LG Chem. Is that a subsidiary of LG Electronics?
Brent Harris: Yes, that’s the battery division of LG Electronics Inc. ($KRX: 066570). They make the battery for the Chevy Volt, and almost a dozen other electric vehicles so they’re really active in the electric vehicle space, and also selling batteries for portable electronics is the bulk of their business. It’s a huge partner – they’re one of the largest manufacturers in the world. Great track record for reliability, so we’ve had a lot of great feedback from customers that that is the battery that they’d be very excited about using.
James West: I see. So who is your partner in Germany?
Brent Harris: In Germany, we’re selling to a company called Sonnenbatterie. That’s a local German company that has integrated battery technology and our inverter and a home control system into a fully integrated package. They’re selling this whole package through regional distributors that are rolling the systems out into people’s basements. So the control whole system they’ve got monitors the flow from the solar system and manages the battery discharge and charge to control that and also controls loads in the home to optimize electrical performance.
James West: Okay, so besides Germany, where are your second and third biggest markets at this point?
Brent Harris: The second biggest market is the US market. And that’s where our focus is, and those will be the two primary markets are going on we’re developing – partly through battery manufacturers and other channels – some partnerships for the Japanese market, which is also starting a little bit more geared more toward reliable power after all the brownouts and things after the Fukushima disaster. There’s also going to be some deregulation there next year that’ going drive some growth in that market.
James West: How do you plan to roll out the products that you’ve developed in terms of the US? I mean, let’s assume that you have explosive demand there…do you have a manufacturing facility that can handle say a 10x growth sudden growth in demand for your products?
Brent Harris: Yes we do. We’re currently setting up that capability in the US. We did the same thing for Germany. So the first units we produced for Germany were all produced out of our facility here in Calgary. We peaked out here at about 270 units per month. Last June, we started a transition to a local contract manufacturer in Germany that’s now producing everything for the German market in Germany. We’ll have a global partnernship with our contract manufacturer to produce in California for the U.S. market as well. So once the U.S. volumes start to get to a stable level in the US, we’ll move the production out of Calgary and closer to the end customer.
James West: What does the competitive landscape look like out there for you? In the U.S. especially?
Brent Harris: The competitive landscape is pretty fragmented. In fact, our competition is really just people patching together their own solutions on a project by project basis at this time. For the residential market, on a technology basis, most of the product comes from the off-grid market – powering peoples’ homes out on the lake in the middle of nowhere, and bringing that onto the grid, they have some performance issues around that, and really not very flexible around integrating these new batteries. That’s really how we get most of our customers locked in is on the flexibility, we’ve got a very software-intensive piece of hardware that we can adapt to meet the requirements of different lithium chemistries, in addition to lead-acid, which most of these systems use, or any of these new flow batteries.
James West: Do you have any sort of patent protection for your processes, or is this just generally available technology?
Brent Harris: No, our patents cover the topology and software controls on our inverter, and the advantage gives us is a four to eight percent efficiency advantage over any of our competition. So you’re getting that much more energy out, versus what you put in. In real terms, that means you can use a 10 kilowatt hour battery system where with other technologies you’d have to buy 11 kilowatt hours.
James West: Okay so what are the things that keep you awake at night that could cause everything to go sideways for you?
Brent Harris: What I’m worried about is making sure we’re in all the right places at the right time. The US market is pretty wild. There’s demand for energy storage everywhere, but it’s a little bit different drivers, so we want to make sure we’re on top of that and keep our market-leading position. Of course we’re going to see some new competition come out as the market grows, so we want to make sure we’re positioned and ready for that, so we’re continuing to invest in our product development and maintain our competitiveness. We’re out in front of everybody and we’ve just got to keep racing like we’re a couple of steps behind.
James West: Tell me a little bit about the shareholding of the company. How much does management and insiders control?
Brent Harris: Management owns about 10% of the company and has continued to invest in all the investment rounds, and so has continued to support the company. Our majority shareholder is Doughty-Hansen Technology Ventures out of London, England. And I believe we’re just over a 40% total on institutional holdings.
James West: That’s a great first interview, Brent. We’re going to come back to you in a few quarters and see how you’re making out – thanks for joining us today.
Brent Harris: Thank you very much.
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