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ESS seeks to expand energy storage universe after stock market blastoff

SNL Image

Flow battery developer ESS looks to leverage its listing on the NYSE
to supercharge its rollout of longer-lasting energy storage.

Source: ESS Tech Inc.

In its first two days on the NYSE, battery storage startup ESS Tech Inc. saw its share price nearly triple to $23.80 by market close Oct. 12, giving the Wilsonville, Ore.-based company a value of roughly $3.6 billion. The stock reversed course Oct. 13, shedding more than 20% in morning trading, welcoming ESS to the ups and downs of the stock market.

For CEO Eric Dresselhuys, however, the more important aspect of ESS' debut as a publicly traded company is the energy storage evolution it could help to unlock. The company's mission is to produce more environmentally friendly, longer-lasting, less expensive and safer batteries than the lithium-ion chemistries currently dominating the energy storage marketplace.

Different than relying on cobalt, lithium, nickel and other metals sourced from the Democratic Republic of Congo, Chile and China, ESS relies on large tanks filled with locally sourced iron, salt and water that are packaged with other materials and electronics inside standard shipping containers.

"This is really a core component, really in some ways the missing link, to make the energy transition work," Dresselhuys said in an interview. "But to do it, you have to be able to do it at large scale, gigawatt-hour scale."

To complete the transformation from an upstart — co-founded in 2011 by ESS President Craig Evans and Chief Technology Officer Julia Song — into a major commercial competitor, ESS needed a big financial push. And it just got one.

In going public, through a merger with a special purpose acquisition company, ESS hauled in $308 million in cash to underpin its expansion. The investment included contributions from Fidelity Management & Research Co. LLC, Tortoise Capital Advisors LLC and SB Energy Global Holdings Ltd., a subsidiary of SoftBank Group Corp.

Major energy storage investors Koch Industries Inc. and Breakthrough Energy Ventures, led by billionaires Charles Koch and Bill Gates, respectively, also pitched in, as did BASF Venture Capital, an affiliate of German chemicals giant BASF SE that was an early investor in ESS.

Poised for rapid growth

The capital injection was less than the $465 million in net proceeds ESS had hoped to raise, but Dresselhuys views the transaction as sufficient to supercharge the company's growth strategy. With its expanded pocketbook and greater access to capital, ESS plans to boost the manufacturing capacity of its Oregon factory to 2 GWh annually by the end of 2022 and to 6 GWh by the end of 2023, up from just 250 MWh currently.

ESS is also exploring additional facilities in other parts of the U.S. as well as in Asia and Europe.

"Iron, salt, water, the electronics, the plumbing ... we can source those materials almost anywhere," Dresselhuys said. "And we think that's going to be one of our greatest advantages: minimizing our carbon footprint, being able to build locally, being more responsive to local market conditions."

Based on projects the company has booked, been awarded or is negotiating, ESS anticipates revenues of $37 million in 2022, from an estimated $2 million in 2021. It expects continued expansion in subsequent years to $300 million in 2023, $803 million in 2024 and roughly $1.65 billion in 2025.

"We currently anticipate that we're going to hit profitability in late 2023 to early 2024," Dresselhuys said.

Project pipeline in California

ESS sees some $7 billion in potential opportunities through 2027. Among its early customers are operators of microgrids in California, where utilities and commercial businesses are increasingly seeking alternatives to the grid when the lights go out because of precautionary power outages during periods of wildfire risk.

ESS offers up to 12 hours of energy storage, at least three times the duration of most lithium-ion battery systems being installed today.

SB Energy signed on for 2 GWh of ESS flow batteries through 2026, the companies announced Sept. 30. The developer plans to couple several projects with solar farms in California and Texas. Also in September, Enel Green Power España SLU, an affiliate of Italian energy giant Enel SpA, ordered 17 flow battery systems to add to a solar farm in Spain.

To address early customer concerns over technology risk, ESS offers a 10-year warranty covering its battery modules. It is underwritten by major German insurance company Munich Re.

Ultimately, Dresselhuys sees flow batteries and other non-lithium-ion forms of energy storage taking over the market for grid-connected batteries. The CEO and his company are not anti-lithium-ion, however.

"But we believe that lithium has a higher value proposition in transport and consumer electronics," Dresselhuys said.