Energy Storage: Power to the People

Energy Storage: Power to the People
Adam Dickens*
Head of EMEA Utilities Research
HSBC Bank plc
+44 20 7991 6798
[email protected]
Utilities/Mid-cap Capital Goods
September 2014
Adam is a utilities analyst covering the European power and downstream gas sectors. He has 16 years experience covering the utilities
industry, working in Paris and London. He re-joined HSBC in June 2008.
Charanjit Singh joined HSBC in 2006 and is a member of the Alternative Energy team and Climate Change Centre of Excellence. He has
been a financial and policy analyst since 2000. Prior to joining HSBC, he worked with an energy major and a leading rating company.
Charanjit is a Chevening fellow from the University of Edinburgh. He holds a bachelor’s degree in engineering and a master’s degree
in management.
Energy Storage
Charanjit Singh*
Analyst
HSBC Bank plc
+91 80 3001 3776
[email protected]
Energy Storage
Power to the People
Pierre Bosset*
Head of French Mid-cap research
HSBC Bank plc, Paris branch
+33 1 5652 4310
[email protected]
Pierre Bosset joined HSBC Securities (formerly James Capel) in 1989 as pan-European construction analyst. He graduated from
a civil engineering school (ESTP in France) in 1983 and completed an MBA (from Institut Superieur des Affaires) in 1985. He was
consistently ranked among the top three European analysts in the construction sector until 1995, when he was appointed managing
director of HSBC Securities (France) SA. After the acquisition of CCF by HSBC, Pierre was appointed head of French research for HSBC CCF
Securities, and later, head of pan-European mid cap research for HSBC Securities.
Verity Mitchell is the HSBC utilities analyst covering UK water and electricity utilities and French and US water utilities, a position she
has held since 1998. Prior to that she worked in project finance for HSBC advising on infrastructure projects including mandates in the
water, transport and defence sectors. Before joining HSBC she worked briefly for what was then DTI, now the Department for Business,
Innovation and Skills.
Jenny Cosgrove*
Regional Head of Utilities and Alternative Energy Research
HSBC Markets (Asia) Ltd
+852 2996 6619
[email protected]
Utilities/Mid-cap Capital Goods
Verity Mitchell*
Associate Director – European Utilities Research
HSBC Bank plc
+44 20 7991 6840
[email protected]
Storage will be a big theme of the energy industry
starting in the home with solar power
The driver is the need for energy efficiency, as
European companies and consumers are paying
more for their electricity than other regions
Potential winners are battery manufacturers and
renewable generators but all is not lost for the
big utilities
Jenny Cosgrove joined HSBC as Asia-Pacific Head of Utilities and Alternative Energy Research in 2012. Before joining HSBC, she
worked in Hong Kong at a European brokerage and in Australia at a financial services firm from 2005, covering the same space.
From 1999 to 2004, she worked at a leading Swiss investment bank as Asia regional head of utilities and, prior to this, for the
Commonwealth Department of Finance in Australia. Jenny holds a bachelor of economics (honors) from The University of Tasmania
and is a CFA charterholder.
By Adam Dickens, Charanjit Singh, Pierre Bosset,
Verity Mitchell, Pablo Cuadrado, Jenny Cosgrove
and Sean McLoughlin
Sean McLoughlin*
European Research – Value and Growth
HSBC Bank plc
+44 20 7991 3464
[email protected]
Sean McLoughlin is an equity research analyst in the Capital Goods team covering UK industrials and alternative energy and
renewables. Before joining HSBC in August 2011 he helped build out coverage of the clean technology sector at an international
middle-market investment bank as part of an Extel rated team. Sean has a PhD in Materials Science and Engineering, and before
becoming an equity analyst in 2007 he worked in the clean tech industry.
Pablo Cuadrado*
Southern Europe Utilities analyst
HSBC Bank, Sucursal en Espana
+34 91 456 6240
[email protected]
Pablo Cuadrado is the HSBC utility analyst covering Southern Europe, focussed on integrated and regulated utilities in Spain, Portugal
and Italy. He joined the Utilities team at the beginning of 2014. He has 12 years of experience covering energy markets (focusing on the
utility industry since 2004). Before joining HSBC he worked at several local and international equity brokers in Madrid and in London.
*Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations.
Play Video with
Adam Dickens
Issuer of report: HSBC Bank plc
September 2014
Disclosures and Disclaimer This report must be read with the disclosures and analyst
certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it
Utilities/Mid-cap Capital Goods
Energy Storage
September 2014
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What is this report about?
 The German public has essentially paid for a vast boom in solar
and wind, with other countries (not just EU but also China, US,
India etc) also focused on expanding their renewables
 EU has a problem: its retail consumers will no longer put up with
renewables-subsidising, inflation-busting tariff rises; its industry
pays more for its power than US peers
 Is there a solution to this problem? We discuss how costs can be
controlled whilst renewables capacity continues to expand
 Efficiency is the aim: smarter energy usage, sharply-falling cost of
wind and solar production in anticipation of post-2020 expiry of
guaranteed tariffs, avoidance of investment
 Storage fits the bill: the German energy transition encourages the
retail customer to become a 'pro-sumer'; we discuss why domestic
storage of solar-generated power is set to take off
 This is just the start – large-scale energy storage is on the horizon
 Conventional generation is at a disadvantage: the major utilities
could lose out unless they leverage their client base and their
level of integration by becoming full-service providers; battery
manufacturers and renewable generators the winners
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Contents
What is this report about?
1
Power to the people
3
EU’s energy challenge
7
Addressing efficiency
11
Storage technologies
17
Batteries: the way forward
25
Potential winners and losers
33
E.ON
35
RWE
41
Saft Groupe SA
46
Blue Solutions
51
Sub-optimal EU renewables
58
Energy storage players
66
Disclosure appendix
67
Disclaimer
72
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Power to the people
 Problem: the cost of power in EU is rising in tandem with
commitment to further expansion of renewables
 Solution: greater efficiency could limit cost pressures over time,
with energy storage gradually gaining in significance
 Germany to lead the way as its rapid energy transformation
continues
Green is great but not at any price
With 88GW of renewables capacity and a target of a renewables share of 80% in power consumption by
2050, the German power market revolution (Energiewende) continues despite new taxes on self-consumed
electricity from 1 August. But sharp rises in retail and commercial tariffs plus uncompetitive wholesale
prices for Germany’s industrial exporters have dampened, to an extent, the German public’s ideological
backing for the Energiewende.
German grid operators draft network development plan, May 2014
% supply from renewables
Capacity mix GW
Nuclear
Lignite
Coal
Gas
Other conventional
Total conventional
Wind, solar
Other renewables
Total renewables
Total
2013
2025 A
2025 B
2025 C
2035
28.3%
40%
45%
47%
55-60%
12.1
21.2
26.2
26.5
15.2
101.2
68.8
11.4
81.2
181.4
0
20.3
26.1
23.0
13.6
83.0
117.2
11.4
128.6
211.6
0
19.6
24.6
26.3
13.7
84.2
126.4
12.8
139.2
223.3
0
17.4
22.2
21.5
10.5
71.6
130.0
12.7
142.7
214.3
0
13.9
14.9
37.5
17.0
83.3
161.4
14.3
175.7
259.0
Source: German TSOs
Renewable installation costs are falling fast ahead of feed-in
tariff expiries
Cost efficiencies will be a major focus in the years to come. The German government appears, thus far at
least, to be reluctant to implement a capacity mechanism which we believe would add to costs; but the
cost of renewables will continue to expand as further capacity (albeit less attractively remunerated than in
the past following changes to the EEG subsidy mechanism from August 2014) adds to existing plant
enjoying 20-year feed-in tariffs (ie long-term contracts to produce at attractive returns). But with feed-in
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tariffs due to expire from around 2020 for renewable units, installation costs are falling rapidly as wind
and solar markets grow in global scale (we forecast a 37% rise in solar installations in the two years to
December 2015), to the extent that in some sunnier US regions, unsubsidised solar could already compete
with gas-fired power plants.
Cost of solar electricity with storage in Germany is on its
way to being lower than the residential electricity price
500
Comparison of EU retail prices (EUR/MWh)
PV FiT
Electricity price (household)
Solar LCOE + Storage
Solar LCOE + EEG + Storage
400
300
200
100
0
2009 2010 2011 2012 2013 2014 2015 2016 2017
Note: From Sept 2014 onwards PV FiT is estimated to decline by 0.5% per month. For
2015 onwards retail electricity prices are estimated to increase by 2% Y-O-Y
Source: Source Eurostat, E.ON, Federal Network Agency, Germany
(bundesnetzagentur.de)
Source: Eurostat
German public to drive growth of battery-based storage of solar,
showing the way as the global solar market gains critical mass
At lunchtime on Monday 9 June this year, solar supply reached 23.1GW, accounting for no less than half
of demand and creating pressures on the system that storage would address. And with over 55GW of
wind and solar capacity opened over the last 10 years with limited infrastructural advances, Germany now
has a problem of curtailment of renewables power, meaning that at times the grid cannot absorb 100% of
(especially wind) output on surges following weather changes.
The German government is, more than any other, promoting a localised system within which households
(or collectives) actually own the generation. Given that (i) the unit size of 30% (and rising to 50% by 2025,
we estimate) of German generation capacity is less than 10MW, (ii) the process of re-localisation of power
production appears unstoppable, (iii) the German public has engaged massively with solar PV generation
(now over 37GW installed, by far the largest worldwide), and (iv) as a result self-generated power is on the
rise (even after adding the self-consumption levy of EUR30/MWh (after VAT), total costs are falling near
to the residential retail tariff of cEUR300/MWh), we expect storage to pay an increasing role over the
coming years. Initially we expect that this will be small-scale in the form of household-based battery
storage of solar-generated power, and, further ahead, large-scale conversion of hydro-power to green gas
for storage in the gas network.
Germany has more than 4,000 residential storage systems as a result of a national subsidy programme that
offers loans to install battery storage systems alongside solar PV panels. The scheme is designed to drive
the development of battery storage systems for PV. Comparing the LCOE from solar systems with battery
back-up against the retail tariff for households, one can conclude that these systems will soon start to be
economically viable. According to a report by Germany Trade and Invest (Photovoltaic Industry
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Overview, 2014-15), the solar PV battery market is forecast to reach more than 100,000 systems to be
sold annually by 2018 (from 6,000 in 2013). We are now seeing a number of countries following
Germany’s lead and incentivising the deployment of battery storage, especially for renewables and
distributed energy use, which we expect will further drive deployment.
We believe that German households will, initially gradually but soon more rapidly, take to solar systems
with battery storage, to a small degree because they approve of the concept of being more in control of their
own (renewables-based) power supply and to a larger degree because they see future financial viability. We
agree with the view of a US-based solar provider CEO that storage is where solar was 5-10 years ago.
Battery storage cumulative installations (in GW)
160
Annual global sales of storage technologies (in EURbn)
30
140
25
120
20
100
80
150
60
15
26
10
40
20
15
1-2
5
2-3
25
6
0
0
2012
2020
2030
Source: IRENA, IEA
2012
2015
2020
2030
Source: BCG
Storage: just the start
We examine the available battery storage technologies: our expectation is that lithium ion batteries will
continue to dominate the small scale battery market over the coming years for solar systems at consumer
locations. Further ahead, we expect that larger-scale storage, through conversion of hydro to green gas
(ie eligible for support), will assume the mantle as energy storage grows in scale and flexibility: E.ON
operates a successful power-to-gas (P2G) project in Germany. It is important to stress that energy storage,
although it might at first appear costly, would permit smoother supply-demand variations (initially over
24-hour periods from solar storage, latterly over longer periods through large-scale storage), and
potentially reduce costs elsewhere in the sector (lower investment requirements for grid, lower peak
demand and reduced need for back-up capacity).
We compare various energy storage technologies on their respective stage of development, efficiency,
installation costs, device size, discharge time and suitability to different energy storage applications.
Based on our initial assessment, we focus on ‘battery storage’ and ‘power to gas,’ as we see more action
and developments across these two segments.
Potential winners and losers
Potential winners: battery companies and wind/solar energy producers
Potential winners from this revolution include: 1) battery companies, through the development of a new
market for product; we identify in particular SAFT Groupe SA (TP EUR32, OW) and Blue Solutions
(TP EUR20, UW(V)); and 2) wind/solar energy producers (we identify Enel Green Power (EGPW IM,
EUR2.02, NR) and EDP Renovaveis (EDPR PL, EUR5.46, NR), as storage will allow for higher generation
from existing plants and a higher penetration of intermittent energy in the grid. In Asia, GCL-Poly Energy
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(3800 HK, HKD2.99, N(V), TP HKD2.8) could be a potential winner, being well-positioned, in our view, as
an industry cost leader in poly and wafer with a developing solar farm business.
Potential losers: if the incumbent energy utilities can adapt fast enough, they
have the business range to avoid being losers
Conventional generation threatened, but opportunities in distribution and supply
Conventional power generators are the obvious potential losers. They would suffer from a higher
penetration of renewable energy in the grid as renewable energy is typically used by the grid with priority,
as it entails no fuel cost and therefore has a low marginal cost. Grid companies may also be able to use
battery storage for smart grid enhancements, which is also to the disadvantage to conventional power
generators. Therefore, in anticipating the trend towards smarter energy use, we believe the energy utilities
E.ON and RWE should leverage on the strength provided by their integrated structure which brings:
 A substantial number of retail, commercial and industrial customers
 Ownership and operation of power distribution networks (bases for local smart grids)
 Ownership of gas transport and storage
 Conventional generation with increasing exposure to wind and solar
In addition, we believe the utilities can maximise relationships with end users through offering any
number of tailored solutions for savings on the energy bill, participate fully in the trend to localisation,
forge partnerships with smart-meter, solar battery, and solar panel providers, and, essentially, present
themselves as full-service providers.
If they succeed in this, we do not subscribe to the view that they will inevitably lose from the dash to
localised, renewables-based power with increased storage. With reference to the utility business in
Germany, earnings in distribution and downstream supply have scope to rise significantly over time;
earnings in generation could recover gradually, regardless of underlying market prices and the absence of
capacity markets, as the transmission grid operators pay the generators to make capacity available over
short periods to maintain stability of the power system. We do however concede that there is no prospect of
any return to anywhere near the level of profitability seen in the latter part of the last decade in generation.
Our ratings for the incumbent energy utilities are: UW for RWE (TP EUR27) and E.ON (TP EUR13);
OW for GDF Suez (TP EUR24), the global leader in energy services; and N for EDF (TP EUR28).
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EU’s energy challenge
 EU nations continue to face the challenge of high-cost energy
 EU renewables: emphasis on mitigating the costs with gains in
efficiency
 Energy storage set to play an increasing part, initially small-scale
solar storage, in the longer-term power-to-gas; the incumbents
need to adapt
EU has a cost-of-energy crisis, partly self-inflicted
The European Commission’s 22 January paper on energy and climate belatedly admitted that Europe is
uncompetitive in energy costs (Charts 1& 2). We have been highlighting this point in our various reports
(see Power struggle: Environment versus Affordability, 13 March 2014 and Energy demand to lag GDP by a
widening margin, 10 April 2013). The key reasons for this high energy costs differential include:
 Availability of cheap shale gas in the US
 EU’s lack of energy self-sufficiency and the need to import gas (which has no global market price) at
high prices
 The runaway cost of environmental policy: not so much the cost of emitting carbon, but far more the
generous tariff systems implemented to encourage renewables investment together with the consequent
cost of connection and maintaining conventional plant available for times when sun is not shining and
Chart 1: EU’s competitive disadvantage in energy costs: US and
EU average electricity wholesale tariffs
Chart 2: EU’s widening competitive disadvantage in energy
costs: US and EU average electricity retail tariffs (H1 2014)
EUR/MWh
60
EURc/KWh
35
30
25
20
15
10
5
0
30
Germany
20
10
0
2012
2013
2014 (YTD)
Source: Bloomberg. Note: US average includes forward price of off-peak electricity in PJM
interconnection, NEPOOL, New York, California and Mid-Columbia. EU average includes far
word price of base load electricity price of France, Germany and UK.
New Jersey
98
%
California
43%
62%
94%
US
NewYork
40
Industria l
EU
UK
50
Residentia l
Spain
Europe Avg
Italy
US Avg
Source: Eurostat, EIA; Note: For Germany & Spain, the Industrial prices are during H2 2013.
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wind is not blowing. Also much of the EU renewables capacity is located in sub-optimal places. We
discuss this is more detail particularly for the three key EU renewable markets – Germany, Spain and Italy
– in the Annex section of this report entitled Sub-optimal EU renewables.
In many EU nations, there exists little room for manoeuvre on prices, as:
 The industry is hesitant to invest in domestic markets – for example in Germany where large industry is
exempt from the EEG renewables surcharge, the power price is still viewed as expensive at least relative
to the US (see Chart 1); BASF aims to reduce the proportion of its capex in Germany from one-third to
one-quarter
 At household level, it will be politically difficult to continue raising renewables subsidies thereby
triggering inflation-beating end-user tariff rises
Commitment to renewables targets implies further upward
pressure
The EU Commission in its 22 January 2014 paper stated that:
Specifically for electricity, costs are likely to increase up to 2020, due to rising fossil fuel costs coupled with
necessary investment in infrastructure and generation capacity. Beyond 2020, costs are expected to stabilise
and then slightly decrease as fossil fuels are replaced by renewable energy. Capital costs, however, decrease
only slightly while tax/ETS auction payments rise.
Energy costs will also rise outside the EU as renewables expand on a global basis. Not only for the EU nations
but others are making efforts to increase the carbon footprint in the energy mix. We list some of the targets
/proposed targets of key countries such as the US, China and India.
 In June 2014, the US EPA (Environment Protection Agency) announced its Clean Power Plan proposal
which is targeting a 30% reduction in carbon from power generation by 2030 from 2005 levels. It is
effectively the second part of a “less coal strategy” which began in September 2013 when the EPA issued
draft carbon standards for new power plants which effectively ensures that no new coal generation facility
is built without CCS (see our reports US: new rules cap coal emissions, 25 September 2013 and
US: Climate boost for Paris 2015, 3 June 2014)
Chart 3: % share of renewable electricity excluding hydro in total
generation (2013)
Table 1: Renewable share of electricity mix
2007 REN 2013 REN
capacity capacity
(in GW) (in GW)
%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
8%
6%
5%
4%
EU
Source: EIA, Eurostat, BP statistics 2013.
8
2007 REN 2013 REN 2020 REN
share of
share of target share
electricity electricity of electricity
generation generation
demand
US
India
China
France
Germany
Italy
Spain
UK
4
31
5
16
4
39
88
47
50
12
12%
14%
16%
19%
5%
17%
28%
38%
39%
15%
27%
39%
26%
36%
31%
Source: Germany 2013 data is from TSO; other data from Entso-e , Eurostat, EU Commission, HSBC, BP
statistics, NREAP Note: Spain target is as percentage of gross electricity production .
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 As discussed in our report China’s Choking Point, January 2014, China is targeting 15% low carbon share
in its energy consumption by 2020 from 9.8% in 2013. This 2020 target includes cumulative installations
of 200GW for wind and 360GW of hydro. China has a 70GW solar installation target for 2017
 The previous government in India was targeting a 15% renewable share in the electricity mix, though
achievement of this target is likely to be challenging, in our view
Looking forward, despite the low carbon energy ambitions of other countries, we do not expect any significant
reduction in the energy cost-gap between the EU and others. Four key reasons driving our view are:
 Significant growth still likely in renewable share during 2014-20: The EU has a binding target for
20% renewables by 2020 in consumed energy and is promoting a 27% binding target for 2030, which
implies growth. A 20% renewable energy target implies renewable electricity capacity in the
generation mix at c34% by 2020 vs c20.5% in 2013. Of this 20.5%, around 12.5% is supplied by
hydro and the remaining 8% from other renewables primarily wind and solar (largely added during
2007-13, Chart 3). Achieving a renewable electricity target of 34% by 2020 implies that during the
next seven years (2014-20) new wind and solar capacity are likely at least at the level seen in the past
seven years (see table 1). Off-shore and solar are likely to lead, but countries such as Spain and Italy,
having over-reached, are likely to see no more than sluggish growth
 Shale gas developments likely to be constrained in the region: Shale gas progress in Europe is slow,
mainly on environmental grounds but also, to a lesser extent, on economic grounds. France, Bulgaria and
Romania have banned shale gas operations while political and local opposition remains a hurdle in the UK.
Europe’s higher population density and environmental sensitivity vis-a-vis the US could delay a shale gas
revolution. Furthermore, sub-surface ownership rights belong to the state in most European countries,
implying reduced incentive for landowners to allow drilling. Lastly, many European companies are stateowned and thus have differing goals in comparison to small, independent companies operating in the US.
As a result a significant shale impact in Europe will likely take time before its effects start to become
apparent. For country specific shale gas developments see table 2 below
Table 2: Progress on Shale gas in key countries
Key Country/Region
Current status
Poland
Most advanced in Europe. Some high profile exits (ExxonMobil, Eni) after disappointing initial well results.
Government in late stages of preparing attractive fiscal package.
UK
Political opposition greater than Poland but less than in France or Germany. Shale testing at an early stage but
government backing has increased in the recent past
France
Though licenses have been given to study shale gas potential, these do not include drilling permits. Hydraulic
fracturing remains under moratorium
Eastern Europe (Bulgaria,
Romania, Ukraine)
Shale exploration underway in Ukraine. On hold in Romania and Bulgaria with no shale-specific regulations in
place. A Geological Research and Production Centre in Ukraine co-ordinates shale studies and monitors water
quality in drilling areas.
Source: Advance Resource International, EIA

Significant investments required in the transmission and distribution (T&D) system: According
to a 2013 report from eurelectric, the EU will need investments of EUR600bn by 2020 in its energy
(T&D) system of which two-thirds will be in distribution. These investments include building new
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capacity and refurbishing/replacing existing assets as they reach the end of their technical lifetime.
Investments are also driven by a changing distribution system, which (rather than the transmission
grid) is connected to localised solar and wind installations, and with will have a greater role for new
loads such as electric vehicles, and for smart meters.
 The intermittency challenge of renewables: Renewables such as solar or wind energy, output of
which can change abruptly as weather conditions change, are increasing their share of the total grid
supply. Since solar is a self-generated energy, domestic PV owners (or “prosumers” who use a
portion of the power they generate and sell the remainder to the grid) avoid the usual grid fees paid
by standard (“non-prosumer”) customers, which we estimate account for around 30% of the total
retail invoice (including VAT).Taking the extreme example of Germany, the country had 88GW of
renewable electricity capacity at the end of 2013, which is c48% of total installed generation capacity
(wind and solar together have 38% share while the remaining is hydro and other renewables). This in
theory is more than enough to cover peak demand (83.1GW in 2013). In the electricity supply mix,
28% of supply comes from renewables (wind and solar is 14%); the country targets at least 80% of
power from renewables by 2050. German grid operators, increasingly, are unable to accommodate
entire surges of wind output from sudden changes in weather conditions.
As the renewable share increases further around the world, the need to have reliable electricity supply
when the sun is not shining or the wind not blowing is even more imperative. This intermittency issue in
the supply of renewable electricity can be managed through energy storage or building ever more back-up
thermal generation capacity or expanding grid capacities. All of these measures, however, will add to
costs for energy users in the EU, which is already at a cost disadvantage. The onus is therefore on
governments and industry to mitigate this upside pressure with measures to boost the efficiency of the EU
power systems.
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Addressing efficiency
 Expiry of feed-in tariffs adds urgency to cutting renewables costs
 We examine prospects for energy storage and the technologies
involved
 As solar is set to grow further, battery storage should also grow
in importance
Summary: renewables yes, but little room for rising prices
We examine the potential for energy storage to contribute to smoother supply patterns, increased
efficiency, and cost savings for the energy industry as well as its customers. With feed-in tariffs to be
replaced progressively by market prices from 2020, all efforts will be on reducing the cost of generating
power via solar and wind. Over the next decade, we believe that small-scale battery storage of solar will
develop rapidly, such that batteries become the norm for any new houses incorporating rooftop solar
panels. Although initially this could add to costs, we believe that the German public (generally with a
high per-capita income and ideologically firmly behind the transition to a renewables-based economy) is
an ideal vehicle for such a development.
However, the uncomfortable reality remains that, for the EU industry as a whole and for much of the
public in countries where renewables have gained a strong position, the cost of energy in general and
electricity in particular is too high, in many cases leading to what under the UK definition would be
termed as residential consumer fuel poverty (table 3).
Table 3: Fuel poverty in Europe
Note: Fuel poverty for a country is defined as the proportion of households having to spend over 10% of their disposable income to pay for
adequate energy services
Fuel poverty
UK
France
Czech Republic
Luxembourg
Ireland
Finland
Germany
Denmark
Slovenia
Austria
Sweden
Belgium
Netherlands
19.2%
16.2%
14.5%
13.6%
13.5%
13.0%
12.6%
12.4%
12.0%
11.9%
11.2%
8.9%
8.1%
Source: Energy Bill Revolution 28 March 2013
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Factors that can check the EU’s power costs
Energy efficiency
The EU is targeting 20% efficiency in its primary energy use by 2020. However, the target is non-binding and
with the full implementation of the Energy Efficiency Directive (EED), the European Commission expects
the EU to achieve only 17% energy savings by 2020. The EU Commission’s 2030 climate and energy
package proposals has stated that the role of energy efficiency in the 2030 framework will be considered once
the review of the Energy Efficiency Directive (EED) is concluded during 2014. The Commission’s analysis
has also shown that a 2030 GHG emissions reduction target of 40% requires an increased level of energy
savings of approximately 25% in 2030. We see energy efficiency as the lowest-cost option to EU’s energy
cost difficulties.
In 2014, various EU nations have released their National Action Plan on energy efficiency. We expect
governments to increase their emphasis on this area. Across most of the key EU nations we expect
energy/electricity demand to decline during 2012-20 (Chart 4&5). For more details and our estimates on
country level reductions see our report Energy demand to lag GDP by a widening margin, 10 April 2013.
Chart 4: Disconnect widens between GDP and energy demand
(GDP growth vs energy demand growth)
Chart 5: Change in energy, electricity and heat demand over
2012-20
2.0%
0%
1.5%
-2%
1.0%
-4%
0.5%
-6%
0.0%
-8%
-0.5%
-1.0%
-10%
-1.5%
-12%
2005-12e
GDP growth
Source: Eurostat, NREAP, HSBC estimates
2012-20f
Energy grow th
-14%
Energy
Heating
Electricity
Source: HSBC estimates
Demand and supply side management: These efficiency improvements require both supply and demand side
energy management.
 On the supply side, the focus is to optimise the use of renewable energy production and reduce energy loss
in the conversion process by capturing/saving this energy, implying the need for energy storage solutions.
The aim must be to restore the average load factor of the EU power system (see Chart 6), which has fallen
from 30% to 25% in the five years to 2012. Although this can be put down to weak demand and expanding
renewables, storage as well as capacity markets can contribute to a recovery since they will reduce the
extent of back-up capacity needed.
 Demand side management will require changes in consumer behaviour primarily through shifting
demand and technology use. This requires installation of smart meters, investments in energy-efficient
appliances and adoption of time-of-day (ToD) tariff. Over time, it will mean innovations such as smart
chips in electricity-intense appliances bringing in electricity cost savings. Home thermostats being
designed by Google and Apple aim to minimise the power costs/ use and can also address the issue of
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variations in supply from renewables. These chips will switch “on” the appliance only when supply is
plenty and electricity prices are low. This implies power prices would vary in real time rather than being
averaged over a month, and price spikes can encourage the households in conservation of power.
For a status update on the progress of key EU countries on their 2020 smart meters installation targets,
see table 4.
Chart 6: EU: Renewable installations and the load factor
GW
Combustion fuels
Nuclear
Hydro
Renewables
Others
LF (%, RHS)
Table 4: Status of smart meter plan for some of the EU nations
Current status
1200
80%
70%
60%
50%
40%
30%
20%
10%
0%
1000
800
600
400
200
0
2007
2008
2009
2010
2011
Spain
France
UK
Germany
Italy
Upcoming
installations by
2020 (in million)
Plan under way
Initiated plan
To start implementation in 2014
Only pilot projects, does not see
economic benefits, delayed till 2020
Mass roll out completed in 2010
achieving close to 100% penetration
29
35
53
-
Source: USITC
2012
Source: Eurostat
A gradual end to feed-in-tariffs (FiT)
During recent years, countries such as Spain, Germany, Italy and UK have seen reduced government support
and FiTs for the renewable energy sector. We describe this in some detail in the Annex. This cut in support
has been driven by increasing pressure on government finances and end-customers alongside the declining
costs of some renewables generation/technologies. Only Spain has implemented remuneration cuts on
already-operational units, and only Italy has withdrawn all support for new projects. We expect further
reduction in FiTs with a likely end in preferential tariffs towards the end of this decade or early 2020s in the
countries providing these incentives, to be replaced by unsubsidised market prices.
Cutting installation costs of renewables
Such prospects raise the urgency to cut the cost of renewables-based generation and have, to varying
degrees, curtailed the trend of runaway expansion in 2007-12. By creating such enormous demand for
wind turbines and photovoltaic panels, Germany has created something of a virtuous circle by attracting
Chinese manufacturers thereby accelerating the fall in components costs with a 70% drop in the price of
panels over the last five years, a doubling of global solar panel volumes every 21 months over the last
decade, and with 20% cost drops for each doubling of global volumes (source: NY Times article,
13 September 2014). In addition, in off-shore wind DONG Energy (2GW of off-shore capacity with 1GW
under construction) aims to cut the cost of output by 40% by 2020 (source: Carbon Trust, 28 January
2014). However, for Germany, the subsidies of existing renewables plants have guaranteed feed-in tariffs
for 20 years such that any additional units simply add to the cake, albeit at slower rates.
Making the right choice: capacity market or energy storage?
Increasing the share of renewables in the electricity mix implies rising intermittency of supply together
with declining load factor of the generation capacity (Chart 13). This intermittency challenge can be
managed by building a standby power system which can provide energy, as and when required. This could
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include building one or more of the following options: (i) pumped storage, (ii) generation capacity using
conventional fuels, and (iii) energy storage options.
Of these, the pumped-storage hydroelectricity method is the most widely used globally, with 99% of storage
facilities using this technology as of March 2014 (Chart 7). The remaining 1% is split up between various other
technologies, the very large majority being storage.
Chart 7: Share of various energy storage technologies globally (MW)
Lithium-ion 100
Lead-acid 70
PSH 140 000
Other 976
Sodium-sulphur
304
Nickel-cadmium 27
Flywheel 25
Redox-flow 10
CAES 440
Source: IEA
However, with pumped hydro storage possibilities constrained by location, we see countries choosing between
the remaining two options to ensure a backup power supply. The UK has committed to capacity markets
whereas Germany appears to be wavering.
UK
The most imminent development is the UK’s decision to hold capacity market auctions on 16 December 2014
for a capacity of 50.8GW for the winter of 2018/19 and a supplementary 2.5 GW auction in late 2017 under a
15 year capacity agreement. This cumulative auction capacity is more than 80% of UK current peak electricity
demand. Prices available under the auction would be capped at GBP75/kW, in order to “protect consumers
from excessive costs”, DECC has said. The cost of arranging the back-up power via the capacity mechanism is
predicted by DECC to add GBP2 per year to the average consumer’s energy bill.
For the next three winters National Grid is implementing a short-term strategic Balancing Reserve given
diminishing reserve margins, which we estimate at 5% for the 2014-15 winter.
Germany
We do not see any progress or momentum towards a German capacity market: two reports commissioned by
the previous administration and recently delivered to the present administration see no need for a capacity
market. We estimate that extension of the strategic reserve is more likely. According to Bloomberg (30 July,
2014), utilities “now get fees for pledging to add or cut electricity within seconds to keep the power system
stable” and “can be paid as much as 400 times wholesale electricity prices”. The article cites Hartmuth Fenn,
the head of intraday, market access and dispatch at Vattenfall Europe: “Today, we earn 10% of our plant
profits in the balancing market” in Germany. The main generators are investing to add flexibility to their
thermal plant output in order to address renewable variations and participate as fully as possible in the
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EUR800m market (2013 figures, stable versus 2012) in which Germany’s four transmission grid operators
pay the generators for “reserving” capacity. Participants stand ready to provide power or cut output in notice
periods of 15 minutes, 5 minutes or 30 seconds, earning fees whether their services are needed or not.
In our view, it is hardly surprising that the noise from the utilities in favour of a capacity mechanism appears to
have died down.
Rationale for energy storage
As charts 8 and 9 below for Germany show, any country which is growing its renewables base fast can
expect, to an increasing extent, mismatches between output and demand. With (largely home-produced)
solar now capable of meeting half of demand (50.8% over the middle of the day on 9 June 2014),
home-based storage battery represents an obvious solution.
Chart 8: German renewable production during week of 9-15 September 2014
Source: Agora Energiewende
Chart 9: German renewable production on 12 May 2014: huge swings
Source: Agora Energiewende
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As the UK government looks to go ahead with its capacity market auctions, we see various other national
governments targeting energy storage capacity developments (see table 5). Cost and technology capabilities
will be key decision drivers for selection among the two options, in our view. However, various energy storage
devices are also likely to support the following uses:
 Support increase in self-consumption and self-production of energy with growth in renewable
installations and decline in feed-in-tariffs (FiTs)
 Improving energy access using off-grid technologies such as solar and biomass
 Improving energy system resource use efficiency
 Emphasis on electric grid stability, reliability and resilience with increasing use of variable
renewable resources
 Increasing electrification of transport sector
Table 5: International landscape of grid energy storage
Country
Storage Targets Projects
Other Issues
Technology & Applications
Italy
75 MW - 51 MW of Storage
- Italy has substantial renewables capacity - 35 MW to be Sodium-Sulphur Batteries
Commissioned by 2015
relative to grid size, and the grid is
for long-duration discharge
- Additional 24 MW funded currently struggling with reliability issues; - Additional capacity is focused on
additional renewables capacity will only
reliability issues and frequency
exacerbate this problem
regulation
Japan
30 MW - Approved 30 MW of
Lithium-ion battery
installations
South Korea
Germany
- Potential decommissioning of nuclear - Primarily Lithium ion batteries
fleet
- Recently increased regulatory approved
- Large installation of intermittent
storage devices from 31 to 55
sources - est. 9.4 GW of solar PV
installed in 2013 alone
- Several isolated grids with insufficient
transmission infrastructure during peak
demand periods
154 MW - 54 MW lithium-ion
- Significant regulatory/performance
- Reliability & UPS
batteries
issues with nuclear fleet
- 100 MW CAES
USD260m for - USD172m already
- Decommissioning entire nuclear fleet; - Hydrogen; CAES & Geological;
grid storage apportioned to announced Large (and expanding) intermittent
Frequency Regulation
projects
renewable generation capabilities
- Over 160 energy storage pilot projects
- Awaiting information on energy storage
mandates
Canada
- - Announced 1st frequency regulation plant
-
UK
- - 6 MW multi-use battery
- Battery will perform both load shifting
and frequency regulation applications
- Other small R&D and Demonstration
projects
Source: Grid Energy Storage, US Department of Energy, December 2013
Note: Information in this table comes from Bloomberg New Energy Finance’s Energy Storage Market Outlook, June, 28, 2013, as well as the DOE database on Energy Storage Projects referenced
earlier. Conversions based on 1 euro = $1.30
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Storage technologies
 For small and medium-sized storage, lithium-ion and sodium-
sulphur batteries are more likely to be the preferred options; for
large storages P2G should assume the mantle over time
 Progress in cutting installation costs implies that combining solar
with battery storage is becoming a feasible option for retail users
 Germany’s ideological shift to localised renewables-based power
supply favours the battery option
Identifying storage technologies
There are several technologies for storing energy, which are broadly classified as mechanical, electrochemical,
electrical, or thermal. We list various technologies across these four classifications in Table 6 overleaf. Most of
these energy storage technologies with the exception of pumped-storage hydro are either in the research and
development (R&D) or demonstration & deployment (D&D) stages (Chart 10). These technologies with the
exception of compressed air energy storage (CAES) have inferior capacities (<10MW) and low discharge
times (a few minutes) at their current stage of development (Chart 11). On the other hand, CAES while good
on storage capacity has low efficiency. Some of these technologies, if not all, are expected to evolve further to
become commercially viable on a larger scale. However, this is likely to take a few years at least.
Chart 10: Various energy storage technologies across different stages of their development
Flow batteries
Lithium-based batteries
Capital requirement x technology risk
Fly wheel (high speed)
Superconducting magnetic
energy storage (SMES)
Molten salt
Supercapacitor
Adiabatic CAES
Hy drogen
Fly wheel (low speed)
Ice storage
Sodium-sulphur (NaS) batteries
Compressed air energy storage (CAES)
Sy nthetic natural gas
Residential hot w ater
heaters w ith storage
Thermochemical
Underground thermal
energy storage (UTES)
Cold w ater storage
Pit storage
Pumped Storage Hy dropower (PSH)
Research and development
Demonstration and deploy ment
Current maturity level
Electricity storage
Commercialisation
Thermal storage
Source: Decourt, B. and R. Debarre (2013), “Electricity storage”, Factbook, Schlumberger Business Consulting Energy Institute, Paris, France and Paksoy, H. (2013), “Thermal Energy
Storage Today” presented at the IEA Energy Storage Technology Roadmap Stakeholder Engagement Workshop, Paris, France, 14 February- IEA.
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18
Classification Method
Description
Efficiency
Initial
(%)
investment
Example projects
(USD/kW)
Electrochemical Rechargeable
battery
A rechargeable battery, also called a storage battery or accumulator, comprises one or more electrochemical
cells, and is a type of energy accumulator.
75-95
300-3500
NaS batteries (Presidio project, USA and Rokkasho Futamata
Project, Japan), Vanadium redox flow (Sumimtomo’s
Densetsu, Japan), Lead-acid (Notrees Wind Storage Project,
USA), Li-ion (AES Laurel Mountain, USA and Canada)
Flow battery
A flow battery is a type of rechargeable battery where recharge ability is provided by two chemical components
dissolved in liquids contained within the system and separated by a membrane. Ion exchange occurs through the
membrane while both liquids circulate in their own respective space.
Supercapacitors
Supercapacitors store the most energy per unit volume or mass among capacitors. They support volts up to
10,000 times that of electrolytic capacitors, but accept less than half as much power per unit time.
90-95
130-515
Hybrid electric vehicles (R&D phase)
Hydrogen
Hydrogen is not a primary energy source, but a portable energy storage method, because it must first be
manufactured by other energy sources in order to be used. With intermittent renewables such as solar and wind,
the output may be fed directly into an electricity grid.
22-50
500-750
Utsira Hydrogen Project (Norway), Energy Complementary
Systems H2Herten (Germany)
Power to gas
This technology converts electrical power to a gas fuel. There are 2 methods, the first is to use the electricity for
water splitting and inject the resulting hydrogen into the natural gas grid. The second is to convert carbon dioxide
and water to methane. The excess power generated by wind generators or solar arrays is then used for load
balancing in the energy grid.
22-50
Electrical
Electromagnetic
storage
Superconducting Magnetic Energy Storage (SMES) systems store energy in a magnetic field. Due to the energy
requirements of refrigeration and the high cost of superconducting wire, SMES is currently used for short duration
energy storage. Therefore, SMES is most commonly devoted to improving power quality. If SMES were to be
used for utilities it would be a diurnal storage device, charged from baseload power at night and meeting peak
loads during the day.
90-95
130-515
D-SMES (US)
Mechanical
Pumped-storage
hydro electricity
At times of low demand, excess generation capacity is used to pump water from a lower source into a higher
reservoir. During higher demand, water is released back into a lower reservoir through a turbine, generating
electricity. Worldwide, pumped-storage hydroelectricity is the largest-capacity form of grid energy storage.
50-85
500-4600
SSE Glendoe, GDF Dinorwic (Wales), Goldisthal Project
(Germany), Okinawa Yanbaru Seawater PSH Facility (Japan),
Pedreira PSH Station (Brazil)
Compressed air
energy storage
This technology stores low cost off-peak energy, in the form of compressed air in an underground reservoir. The
air is then released during peak load hours and, heated with the exhaust heat of a standard combustion turbine.
This heated air is converted to energy through expansion turbines to produce electricity.
27-70
500-1500
McIntosh (Alabama, USA), Huntorf (Germany)
Flywheel energy
This system works by accelerating a rotor (flywheel) to a very high speed and maintaining the energy in the
storage (low speed) system as rotational energy with the least friction losses possible. When energy is extracted from the system, the
flywheel's rotational speed is reduced; adding energy to the system increases the speed of the flywheel.
90-95
130-500
PJM Project (USA)
Ice storage air
conditioning
75-90
6000-15000
Other chemicals
Thermal
E.ON/RWE/ National Grid
Denki University (Tokyo, Japan), China Pavilion project
(China)
Source: IEA (2014a), Energy Technology Perspectives, forthcoming, OECD/IEA, Paris, France. IEA (2011), Technology Roadmap: Energy Efficient Buildings: Heating and Cooling Equipment, OECD/IEA, Paris, France. Black & Veatch (2012), “Cost and performance data for power generation technologies”, Cost Report, Black
& Veatch, February. EPRI (Electric Power Research Institute) (2010), “Electrical Energy Storage Technology Options”, Report, EPRI, Palo Alto, California. Eyer, J. and G. Corey, (2010), ”Energy Storage for the Electricity Grid: Benefits and Market Potential Assessment Guide”, Sandia National Laboratory, Albuquerque, NM,
United States. IEAETSAP and IRENA (2013), “Thermal Energy Storage” Technology Brief E17, Bonn, Germany. IEA-ETSAP (Energy Technology Systems Analysis Programme) and IRENA (International Renewable Energy Agency) (2012), “Electricity Storage”, Technology Policy Brief E18, Bonn, Germany. “Power Tower
Technology Roadmap and Cost Reduction Plan”, Sandia National Laboratories (2011), Albuquerque, NM and Livermore, CA, United States.
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Thermal storage is the temporary storage of heat for later use. An example is the storage of solar heat energy during
the day to be used for heating at night. It is also used for cooling through ice made during the cooler night time hours.
This ice storage is produced when a standard chiller runs at night to produce an ice pile. Water then circulates
through the pile during the day to produce chilled water that would normally be the chiller's daytime output.
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Table 6: Technologies for energy storage
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Chart 11: Device size and discharge time for various energy storage technologies
CAES
Flow Batteries ( Vanadium-Redox)
Sodium-Sulphur Battery
Minutes
High – Energy
Supercapacitors
Advanced Lead-Acid Battery
Lithium-ion Battery
Lead-Acid Battery
High – Power Flywheels
Seconds
Discharge Time at Rated Power
Hours
Pumped
Hydro
High – Power Supercapacitors
1 kW
10 kW
100 kW
1 MW
SMES
10 MW
100 MW
1 GW
Energy Storage Device Size
Source: International Renewable Energy Agency (IRENA)
Choosing potential winners
We compare various energy storage technologies on their respective stage of development, efficiency,
installation costs, device size, discharge time and suitability to different energy storage applications.
Based on our initial assessment, we focus on ‘battery storage’ and ‘power to gas,’ as we see more action
and developments across these two segments.
Small scale storage: battery is a likely winner in next 5-10 years
We believe that among the more mature technologies listed in Table 10, battery storage systems are more
suitable for renewable and distributed generation and infrastructure/demand side energy management
owing to their high efficiency rates, relatively lower cost, high energy densities, and longer range
lifecycles. They are also suitable for other energy storage applications such as off-to-on peak shifting,
intermittent energy smoothing, deferring T&D infrastructure upgrades, peak load shifting, micro grid
formation, etc. We discuss some of the factors which are likely to drive the growth of battery storage over
the next few years:
1
Improving economics: At various locations, solar PV paired with battery storage is enjoying
increasingly favourable economics. The economics are particularly strong for decentralised smaller
applications, where (i) retail consumer tariffs are high, (ii) these systems are replacing high cost
diesel generation, (iii) where the power supply is highly unreliable especially in emerging economies,
(iv) at places with direct government support for solar PV with battery storage, or (v) remote
locations with low consumer density resulting in very high system capacity charges per consumer.
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With further decline in cost of batteries over coming years, we see the economics of these systems
improving at various other locations too.
2
Progressive end to feed-in tariffs: During the past few years, countries globally and especially in
EU have made significant cuts to feed-in tariffs (FiTs) and other incentives provided to the
renewable technologies (see table below). We expect ongoing reduction in FiTs with a likely end to
FiTs towards the end of this decade or in the early 2020s. These declining FiTs should boost the
demand for self-consumption and hence the growth of battery storage technology.
3
Protecting the grid: larger-scale battery systems are needed to protect distribution and transmission
grids from the effect of surges of renewables-based power, and to address the problems of grid
bottlenecks (given delays in obtaining permission to build new lines).
Battery storage types
There are broadly four types of batteries that are at the forefront of the market in terms of investments,
technology and commerciality including Lead-Acid, Lithium-ion, Sodium-Sulphur, and Vanadium-Redox
batteries. The major battery manufacturers and vendors include Samsung, Siemens, LG Chem, Panasonic,
Toshiba, SAFT, GE, FIAMM, Nidec ASI and Younicos.
1
Lead-Acid is the most mature and applied energy storage system in the world due to lower installation
cost, abundance of raw material and well-organised recycling chains.
2
Lithium-ion is a mature but relatively new technology compared to lead-acid batteries and offers
significant improvement in terms of high energy density, high efficiency, long cycle life and lower
maintenance.
3
Sodium-Sulphur is one of the recently developed high temperature batteries which have high energy
density, longer discharge cycle, fast response, lower maintenance and good scaling potential.
4
Vanadium-Redox is one of the more mature technologies amongst the still developing flow type
batteries. These batteries have high power rating, long energy storage time, long life cycle and best
response time among the battery technologies available at present.
Chart 12: Installation cost of battery storage (USD/kW)
Lithium-ion
7,500
1,900
Vanadium Redox
6,100
Lead-Acid
Sodium-Sulphur
6,550
2,000 4,000 6,000 8,000 10,000 12,000
Source: United States Department of Energy (US DoE), Electric Power Research
Institute (EPRI)
20
1,150
640
Vanadium Redox
10,500
5,750
0
Lithium-ion
9,200
3,700
Chart 13: LCOE of battery storage (USD/MWh)
810
440
Lead-Acid
230
Sodium-Sulphur
260
0
600
295
200 400 600 800 1,000 1,200 1,400
Source: United States Department of Energy (US DoE), Electric Power Research
Institute (EPRI)
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High cost and limited duration are key challenges
Although capital cost for battery installations has come down over the years, the costs are still high in the
range of USD220-1,000/kWh for different types of batteries. The running cost of battery storage –
levelised cost of energy (LCOE) is also prohibitively high in the range of USD230-1,150/MWh (Table 7).
Although the more developed and widely used battery technology Lithium-ion is relatively less expensive on
installation costs (Chart 12), its running cost is one of the highest due to lower usable storage capacity, higher
maintenance cost and degradation in capacity over the years (Chart 13). Sodium-Sulphur batteries have
relatively lower running costs but they suffer from high operating temperature range and safety considerations.
With current technology, Lead-Acid and Sodium-Sulphur batteries provide the lowest running cost in the
range of USD230-600/MWh which is still high for commercial use of battery storage on a large scale.
Alongside high costs, other key challenge is limited duration and storage capacity. Battery storage is
unlikely to be enough for long periods without wind or sun; hence there is a need for another technology.
As stated earlier, however, the installed cost of US solar is in virtual free-fall, adding room for manoeuvre
for batteries. In Q1 2014 the average installation cost was USD3.3/W, compared with USD4.5/W average
in 2013 and down from over USD8/W as recently as Q1 2009. The US administration’s SunShot
Initiative, launched in late 2011, targets an installed cost of around USD1.50/W for rooftop solar PV
(equating to around EUR70/MWh) and USD1.00/W for utility-size units.
Table 7: Battery storage - Major technologies ( Cost and performance targets)
Type of
Battery
Lifecycle
stage
Installation
LCOE Duration Efficiency
cost
USD/kW USD/MWh (hours)
(%)
Lead-Acid Most mature; 3,700-10,500 230-600
most applied
Lithiumion
Sodiumsulphur
Mature but 1,900-7,500 640-1,150
relatively new
Recently
developed
Energy
density
Wh/l
Lifetime Advantages
Disadvantages
Pilots
(cycles)
5
70-85
60-100
800-1,500 Low installation cost; Raw Usable capacity reduces 10MW/40MWh
material abundance; High when high power is
project in USA,
recycled content
discharged; Lead is
20MW/18MWh
considered as hazardous project in Puerto
material and not allowed in Rico
many places
0.25-1
90-95
150-450
800-3,000 Highest efficiency among
technologies; Any
discharge time from
seconds to weeks can be
realized; hence a flexible
and universal technology
5,750-6,550
260-295
6
85-90
120-180
4,0005,000
Vanadium Relatively 6,100-9,200
-Redox mature among
the still
developing
flow type
batteries
440-810
5
70-75
75-80
10,000
High running cost due to
special packaging and
internal overcharge
protection circuits; Safety
considerations
Various projects for
distributed energy
storage,
transportable
systems for grid
support, solar
system smoothing
Relatively high efficiency; To maintain operating
Rokkasho wind
Fast response to changing temperatures a heat
farm (34MW) and
loads
source is required, which Hitachi factory
uses the battery’s own
(50MW) in Japan
stored energy, partially
and 50MW project
reducing the battery
in Abu Dhabi
performance
Longest lifetime cycles;
Not mature for commercial
Use of ions of the same scale development;
metal on both sides of the Complicated design
battery ensures reduced
degradation of electrolytes
50kW unit in Spain,
250kW project in
USA and 200kW
project in Tasmania
Source: International Energy Agency (IEA), European Association for Storage of Energy (EASE), United States Department of Energy (US DoE), Electric Power Research Institute (EPRI)
Installation cost are the rounded numbers calculated from EUR/kWh data
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Large scale storage: P2G and CAES likely to become
commercially viable in 10-20 years
Acknowledging the current limitations of battery storage application in terms of their energy storage
capacity, we analyse the prospects of technologies offering larger storage. Two key technologies which
provide this flexibility are – compressed air energy storage (CAES) and power to gas (P2G). These are
now the focus of some key utilities in Europe such as RWE and E.ON.
Hydrogen storage is set to take a larger share of the market toward the latter half of the next decade.
The technology could see significantly accelerated growth beyond 2020 as its main differentiating feature
versus other technologies – the ability to store very large amounts of energy – becomes increasingly
important. Large-scale compressed-air storage, in contrast to stationary batteries and hydrogen, is likely
to remain marginal through at least 2020.
Power-to-gas
E.ON and RWE are investing in hydrogen producing technologies, a cleaner and less polluting fuel than
natural gas. While water electrolysis costs are high at EUR1,125/kw, E.ON expects these to be reduced to
EUR625-750/kw by 2025.
The power-to-gas (P2G) method works as follows:
 excess electricity is used to electrolyse water into its components, which are hydrogen and oxygen
 the hydrogen reacts with CO2 (emanating from flue-gas captured by the power plant’s scrubber) to
form methane, which is by far the main component of natural gas
 Triggers, or catalysts, are needed for hydrogen and CO2 to react with each other. Testing is to take place as
to whether the CO2 captured in lignite-fired power plants is suitable for natural-gas generation
 A pilot plant could be then set up, allowing for excess electricity from renewable energy to be stored
in the form of natural gas
 A portion of the water produced in the process would be recycled back to the electrolysis stage,
bringing savings in required volumes of new pure water. In the electrolysis stage, oxygen would also
be stored for methane combustion, in which CO2 and water are produced
 The produced CO2 would be recycled back to boost the hydrogen to methane conversion process and
water would be recycled back to the electrolysis stage. The CO2 produced by methane combustion
would be turned back to methane, thus eliminating greenhouse gases. Methane production, storage
and adjacent combustion would recycle all the reaction products, creating a low-carbon cycle
E.ON believes that it can achieve a gas mix of 90% methane and 10% hydrogen in gas storage from wind
power via electrolysis in a few years’ time. E.ON’s power-to-gas (P2G) pilot unit in Falkenhagen in
eastern Germany has been operational for now over a year. The plant with a 2MW capacity can produce
360m3 gas per day capacity. During the first year of its operation, the unit has injected over 2 million
kilowatt-hours of hydrogen into the gas transmission system. This hydrogen becomes part of the natural
gas supply and can be used for space heating, industrial applications, in areas like mobility, and power
generation. E.ON delivers some of Falkenhagen’s hydrogen output its project partner, Swissgas AG, and
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makes some available to its residential customers through a product called “E.ON WindGas.” The
company is seeing near-term opportunities for commercial applications in areas like mobility. E.ON is
currently building a second P2G pilot unit in Reitbrook, a suburb of Hamburg. The purpose of this unit,
which will enter service in 2015, is to optimise the transformation process by means of more compact and
efficient electrolysis equipment. E.ON believes that the industry is 7-10 years away for large-scale
underground storage of hydrogen.
Advantages
A clear advantage of P2G is that the renewable methane can be stored in the existing natural gas network,
which has a huge storage capacity, and that, unlike battery storage, the electricity is converted into a more
flexible energy source. In addition, the fact that hydro is the raw material should make P2G eligible for EU
biofuel-category status and thus subsidies, which have the potential to transform the economics of the process.
Disadvantages
One major drawback to the P2G approach is the significant energy loss involved. The conversion of
electricity into methane occurs with an efficiency of only 60% (the pilot project that is currently in
operation reaches just 40%). If the methane is later used in a natural gas power plant to produce
electricity, the efficiency falls to 36%. Pumped hydro storage, on the other hand, stores energy at an
efficiency rate of between 70 to 80%. Existing CCGT plants have up to 56% efficiency levels.
CAES (Compressed air energy storage)
The principal of Compressed Air Energy Storage (CAES) plants is somewhat similar to pumped-hydro. But,
instead of pumping water from a lower to an upper pond during periods of excess power, in a CAES plant,
ambient air is compressed and stored under pressure in an underground cavern. When electricity is required,
the pressurized air is heated and expanded in an expansion turbine driving a generator for power production.
During the process of compression, the air heats up rapidly, so coolers are used to reduce the temperature
of air before storage. But the loss in heat energy has to be compensated during the expansion process in
the turbine and to recover the lost heat, the compressed air is heated up using natural gas fuel or the heat
of compression is stored and reused during expansion. Also CAES needs large storage space because of
low storage density and storage locations are usually artificially constructed salt caverns with
characteristics like no pressure losses, and no reaction with oxygen in the air.
Advantages
 CAES is the only commercially available technology, apart from pumped hydro storage, capable of
providing very large energy storage
 It is considered highly reliable and is able to undertake frequent start-ups and shutdowns
 The traditional gas turbines suffer a 10% efficiency reduction from a 5°C rise in ambient
temperatures due a reduction in the air density. CAES use compressed air so they do not suffer from
this effect
 If a natural geological formation is used, CAES will not involve costly installations of creating the
cavern in a salt dome
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Disadvantages
 The major disadvantage of CAES facilities is their dependence on geographical location. It is difficult
to identify underground reservoirs where a power plant can be constructed, is close to the electric
grid, is able to retain compressed air and is large enough for the specific application
 Also, there is observed energy loss due to dissipation of heat during compression and use of fossil
fuels in heating process during the expansion stage
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Batteries: the way forward
 Small scale solar systems with battery storage are already an
economically viable option at various locations globally; EU now
taking the lead in grid connected battery storage installations
 Cost and performance improvements during next 5-10 years are
likely to revolutionise the energy storage industry, in our view
 Fivefold growth in annual market size during 2012-20, according
to BCG; IRENA is forecasting cumulative battery storage
installations at 25GW by 2020
Solar alongside battery storage is ready for take-off in various
locations
Solar PV with battery storage is already a feasible option in various countries or is likely to become so in
the near term, in our view (see chart 14). Chart 15 illustrates that solar markets in countries with less
sunshine require higher tariffs.
According to the International Renewable Energy Agency (IRENA), total installed battery capacity
globally in 2012 was c2GW; but according to the IEA it was 1GW. This is <1% of installed cumulative
global wind and solar capacity. Around half of installed battery capacity is in three countries – China, US
Chart 14: Cost of solar electricity with storage in Germany is
on its way to being lower than the residential electricity price
500
PV FiT
Electricity price (household)
Solar LCOE + Storag e
Solar LCOE + EEG + Storage
Chart 15: Retail electricity tariff vis-a-vis solar irradiation:
shows that high tariffs are needed if sunshine is limited;
California has low retail tariffs but abundant sunshine
W/m 2
250
400
200
300
150
200
California
Spain
Italy
100
UK
100
Germany
50
5
0
2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: Source Eurostat, E.ON, Federal Network Agency, Germany
(bundesnetzagentur.de)
Note: From Sept 2014 onwards PV FiT is estimated to decline by 0.5% per month. For
2015 onwards retail electricity prices are estimated to increase by 2% Y-O-Y
10
15
20
25
30
EURc/ kWh
Source: Eurostat, Solar Energy Services for Professionals
Note: Insolation data for Munich in Germany, London in UK, Almeria in Spain,
Bordeaux in France, Rome in Italy and California City in California
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and Japan. It is important to add that, whilst the cost per-se may appear high, the more this combination
develops, the more the opportunities for cost savings:
 Economies of scale
 Reduction of the extent of back-up power capacity needed
 Smoothing out supply patterns
 Reduction of grid constraints and thus the need to invest on grid reinforcement
 Giving consumers what we believe they want (especially in Germany): more control over their own
electricity and energy usage
Of course, the fact that the sun does not shine all day every day limits potential savings as does the ability
of batteries to store energy only for short periods. Batteries represent small-scale storage, but they
represent an enhancement to solar power, a booming market. The major difference will be made further
ahead, with large-scale storage such as Power to Gas.
EU: high retail tariff to support self-generation
In Spain and Italy, any compensation for electricity supplied by retail consumers (from their solar
systems) to the grid is at wholesale electricity prices, which are considerably lower than retail purchase
prices, when solar is not operational. Having battery storage along with solar systems makes sense.
Germany, on the other hand, is buying the extra (above self-use) electricity produced by solar systems at
the prescribed feed-in-tariff (FiT). While this FiT is on a continuous decline, it is still far higher than the
wholesale tariff, thereby providing a better return.
German support: 4,000 residential storage systems installed
According to a report by Germany Trade and Invest (Photovoltaic Industry Overview, 2014-15), the solar
PV battery market is forecast to reach more than 100,000 systems to be sold annually by 2018 (from
6,000 in 2013). This compares with around 1.4m houses with solar panels on their rooftops.
The subsidy support from German development bank KfW for new solar systems with battery renders it
beneficial for German residents to install both solar and battery storage (see chart 14). As a result of this
support alone, more than 4,000 residential storage systems have been installed. KfW has allocated
EUR25m as capital support in 2014 for battery storage systems. For a solar system of up to 30KW
capacity with a battery, the bank is providing a support of up to EUR60 per KW of battery storage.
However, the installation can sell no more than 60% of its rated capacity to the grid at any one time,
a restriction designed to limit peak-time solar output.
Households participating in the scheme will spend between EUR20,000 and EUR28,000 on solar and
storage, depending on the size of the system (the average size is expected to be around 7 KW for the solar
array and around 4 KWh for the battery). The battery component is between EUR8,000 and EUR12,000.
The grants average around EUR3,000 (or about 30% of the battery cost). We estimate that, given this
outlook, a household could expect to break even on its investment by the half-way stage of the unit’s
life-cycle at around 10 years.
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A recent study commissioned by Agora Energiewende (owned by the Mercator Foundation and European
Climate Foundation) states that Germany’s shift to renewable energy does not require new storage
infrastructure in the next two decades, since the storage is too expensive. The study mentions that
cross-border power trade, demand management and intelligent dispatch of fossil-fired power plants can
ensure flexible electricity flows at lower cost. Notwithstanding this, we expect Germany to increase its
emphasis on energy storage given the size of its renewable investments. As stated earlier, the German
public is widely in favour of the Energiewende, and we believe that the prospect of increased control of
individual energy supply and usage is attractive to retail users.
US: California hot-spot
In California, the economics for solar systems with battery storage are effectively a balance between high
sunshine hours (almost double those of Germany), fast-declining cost of installations, and modest retail
tariffs (USD169/MWh or EUR130/MWh in June 2014, less than half the level of Germany, source
www.eia.gov). An article in the FT, 18 September 2014, implied that large wind farms and solar plants
are now, even without subsidy, cost-competitive with gas-fired power in many parts of the US. This is
perhaps not a great surprise given southern-state sunshine hours, the largest onshore wind farms in the
world, and the stabilisation of gas prices around USD4/mmbtu.
Following the California energy crisis of 2000-01, rolling black-outs in the southern part of the state in
August 2005, and the warning from the State grid operator CAISO (source: Recharge News, 15 August
2014) that oversupply of renewables is the biggest challenge, there is an undoubted attraction for storage
at least for security of supply purposes. California had 5.8GW of wind (second largest in US after Texas)
and 2.7GW of solar capacity (leader by far) at the end of 2013. In 2013, 22.7% of volumes sold by the
State's three largest utilities came from renewables; by 2020, 33% of output should be renewablessourced according to California’s renewables Portfolio Standard.
SunPower, California's second largest solar installer, is at a very early stage of offering energy systems
incorporating batteries. The costs are incorporated in the retail user's mortgage. SunPower’s CEO stated
(source: Bloomberg, 24 June 2014) that “we think of storage as where solar was 5-10 years ago” and
forecast that storage technology would become standard in less than five years. This remains to be seen.
A problem experienced by the market leader SolarCity has been the reluctance of the incumbent utilities
to connect solar installations to the grid.
Emerging markets: multiple factors driving solar growth
In various emerging economies including India and South Africa, residential off-grid PV systems with
storage are already replacing high-cost diesel-based electricity generation. In these countries, these
systems are an economically viable option for remote locations with low customer density, in comparison
to the high investments in the transmission and distribution networks.
With decline in batteries and solar system costs over coming years, we expect further improvement in
their economics. This will further boost their growth in existing and new markets.
China: largest solar market globally
China at end-2013 had cumulative solar installations of c15GW. For 2014, it is targeting 10-14GW of
installations, based on different sources. By end-2017, it is targeting 70GW of cumulative installations,
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which will make it the single largest solar base globally. In order to enable the country to achieve its target,
earlier this month, the China NEA (National Energy Administration) issued its long-awaited distributed
solar (DG) policy. The policy encourages extensive installation of DG in public institutions, public
housing, rural villages, train stations, highways, aviation terminals, large gymnasiums and car parks, etc,
especially in those areas where power tariffs and consumption are relatively higher. The policy provides
more flexibility for the solar power generated, allowing them to choose either to sell all, or sell part (and
consume part) of the solar power generated to the grid. If project owners choose to sell all power to the
grid, they will receive the same Feed-in-tariff s (FITs) as utility scale projects (i.e. RMB0.90-1.0/kWh).
If, at some point, self-consumption of the power generated falls to a low level, the project owner can
switch to selling all the power to the grid by signing a new power purchase agreement with the grid
company. The policy also focuses on simplifying the project approval and grid connection process. Other
provisions include ensuring the timeliness of monthly subsidy disbursements, encouraging banks to
provide preferential financing for DG projects, and the strengthening of quality control standards for DG
installation. For more details see our report China Solar: NEA issues long-awaited distributed solar policy,
4 September 2014.
Solar FiTs (now at RMB900-1000 /MWh) are higher than average end user tariffs for various consumer
categories as shown in table 8 below, which reflects an increasing trend for all consumer categories with
the exception of commercial consumers. This makes the additional cost of battery systems
uneconomical. As a result, we currently do not expect any significant growth in small size battery
installations at the consumer end. However, progressive retail tariffs have been introduced and, for large
residential users, average residential power bills in more affluent cities are rising rapidly. We expect the
time for storage in China will come at some point.
India: ramping up its solar expectations
India has already installed c3GW of solar capacity and has been targeting 20GW of cumulative solar
installations by 2022. According to the National Solar Mission plan prepared under the previous
government, the target has been to add up to 9 GW between 2013 and 2017, with the central government
and state government initiatives providing 3.6 GW and 5.4 GW respectively. Based on the progress made
by various state governments on allocation of new solar capacity in their respective states, it appears that
the cumulative state target is likely to be achieved. The Central government on the other hand is now
sounding more bullish, aiming to beat the 2022 target set under the previous government. Hopes are
building for India to achieve its 20 GW solar target by 2020.
As India faces a peak electricity deficit, various consumers rely on diesel generators during periods of grid
outages. A renewable and cleantech consulting firm, Energy Alternatives India (EAI), highlights that
India has around 7GW of diesel-based production in MW scale alone, supplying various telecom towers,
Table 8: Chinese tariffs (RMB/MWh) incl. VAT
Agricultural consumers
Industrial consumers
Commercial consumers
Residential consumers
Source: WIND, State Electricity Regulatory Committee
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2007
2008
2009
2010
402
514
852
471
400
536
847
469
398
555
843
467
436
618
812
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diesel-based agricultural pump sets, numerous small-scale enterprises, commercial buildings and households
(source: Business Intelligence Report on ‘Replacing diesel with solar’, January 2014). With a diesel
generation cost range of INR16- 40/KWh, far higher than the off-grid solar generation (INR7-10/KWh),
it makes economic sense to install solar. However, the key deterrent in many cases is the higher capital cost
of solar (INR80,000-100,000/KW without battery storage versus INR20,000-25,000/KW for a diesel
generator) and the space availability to install solar systems in various cases. The government, in order to
promote rooftop solar installations, is providing capital subsidy support at 30% of project cost for smaller
plants, with separate caps per KW for projects with and without battery backups. Besides, projects are also
eligible for soft loans at an interest of 5% pa. The maximum size of a project to qualify for subsidies is
capped at 500KWp. We expect this subsidy mechanism to continue to boost solar installations while also
promoting some solar systems with battery. For more details on solar growth prospects in India see our
report India renewables: Redrawing India’s energy map, 7 July 2014.
Energy storage for grid management: very early stage
In energy storage for grid management (protection against surges of renewables power and countering the
constraints from bottlenecks), we are just starting to see new projects come onstream in Europe, and
would anticipate more. On 16 September 2014, Germany's first commercial battery storage power system
(5MW) was connected to the grid in north-eastern Germany by the Schwerin-based regional utility
Wemag and the German storage specialist Younicos (company motto: Let the fossils rest in peace). The
battery is manufactured from lithium-mangonxid cells by Samsung. According to Younicos, the battery
replaces the balancing potential of a 50MW turbine. The German government contributed EUR1.3m to
the project, and Energy and Economy minister Sigmar Gabriel stated that “The first commercially
operated battery storage system of that size is an important step for a successful transformation of our
energy landscape.”
Additionally, Terna, the Italian grid operator, is investing EUR150m in 2013-14 on grid-based energy storage,
with projects in Campania, Foggia, Sardinia, and Sicily of a combined 75MW over the next four years.
What needs to be done to support the battery market?
To make battery storage systems a commercially viable option on a large scale, we believe companies and
research associations will have to make significant investment in R&D and governments will have to
provide policy support.
Research and development
We have already seen a marked improvement in the operational performance and cost reductions of
battery storage systems over the last few years. Research in direction of advanced and novel materials,
different variations, better designs, process improvement and commercial scale production is expected to
radically improve battery performance in terms of device size, energy density, charging capabilities and
safety while reducing costs in the next 5-10 years. In addition to research at battery cell level, battery
systems designs should also be improved in terms of connectors, interactions with grid, stability etc.
Policy support
To build investor confidence and to incentivise the use of storage devices, various governments such as
Canada, China, EU and the US have taken policy initiatives to support battery storage, especially for
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renewable and distributed energy. These include providing financial support in terms of funding and
revising Feed-in-Tariffs, and infrastructure support. The table below summarises various policy measures
taken up by key governments (Table 9).
Table 9: Examples of government support for energy storage deployment
Country
Government support
China
The central government is providing financial support for demonstration projects (such as 36 kwh lithium-ion battery system project
in Zhangbei, Hebei) to evaluate the value of energy storage in providing electricity grid flexibility.
Germany
In May 2013, the State Bank KfW announced support of EUR25m in 2013, and a further EUR25m in 2014.
Recently, in February 2014, E.ON, along with its partners announced the plan to build a large-scale modular battery storage
system with a power range of 5MW in Aachen. The project named “Modular Multi-Megawatt Multi-Technology Medium-Voltage
Battery Storage” or M5BAT will receive cUSD9m in funding from Germany’s Federal Ministry for Economic Affairs and Energy
Japan
In March 2014, the Japanese government announced a subsidy package of USD98m to household and businesses. The
government will pay up to 67% of the cost of a lithium-ion battery system.
South Korea
The Ministry of Trade, Industry and Energy (MOTIE) is providing public funding for a 4MW Li-Ion battery demonstration project, to
be installed by the Korea Electric Power Corporation. Public funding is also available for an 8MW li-ion battery for frequency
control to be installed by Korea Power Exchange.
US
In February 2013, the California Public Utilities Commission (CPUC) determined that 50MW of energy storage capacity should be
procured in the Los Angeles area by 2021. In June 2013, the CPUC further proposed storage procurement targets and
mechanisms totalling 1,325MW of storage by 2020. The state assembly provides funding support for these initiatives under the
Commission's Self-Generation Incentive Program (SGIP) at USD83m per annum for three years (2012-14).
In May 2014, The New York State Energy Research and Development Authority (NYSERDA) offered support of USD2,100/kW for
battery storage systems as its part of plan to promote load-reduction incentives. Under this scheme, incentives are capped at 50%
of project cost while additional bonus incentives are available for large projects (>500kW).
Washington State has awarded USD14.3m in matching grants to three utilities to develop battery systems to store power from
intermittent renewable sources. The projects received funding from the state’s Clean Energy Fund.
Source: Environment & Energy Publishing (E&E)
Focus on developing used EV battery market for electricity storage
According to research by General Motors (GM) and ABB, EV batteries are left with more than 70% of
their useful life after the end of their electric vehicle (EV) life (defined as 100-150k miles or around
10 years depending on driving distance). This creates an opportunity to reuse EV batteries for other
applications such as providing back-up for off-grid wind/solar systems or storing excess energy during
peak electricity production from grid tied renewable energy facilities. According to a March 2014 Forbes
report, EV batteries with 16-85kWh capacity can provide 0.5-2 days of back-up power for an average US
household. Several automobile manufacturers such as BMW, Nissan, and Ford are conducting research
on reuse applications for EV batteries. In February 2014, Sumitomo Corp installed its first large-scale EV
battery reuse pilot project to stabilise output fluctuations from a solar farm in Osaka, Japan, using
16 batteries with 400KWh capacity.
Performance and cost targets
With the advancement in technology and government policy support, we expect significant progress in
battery storage performance and cost reductions.
The US Department of Energy (DoE) is targeting system capital cost reductions to below USD250/KWh
in the short term (2014-2018) and USD150/KWh over longer term (2019- 2023). The LCOE target
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estimates from DoE for short and long term are below USD200/MWh and USD100/MWh respectively
(Table 10). The European Association for Storage of Energy (EASE) is suggesting the target installation
costs of battery storage at EUR100-200/KWh in 2020-30 (Table 11).
Table 10: LCOE – Current versus estimates
LCOE
USD/MWh
Current
Lead-acid
Lithium-ion
Sodium-sulphur
Vanadium redox
Estimate (US DoE)
230-600
640-1,150
260-295
440-810
Near-term target (2014-18)
Long-term target (2019-23)
Table 11: Installation cost for few battery storage technologies
(USD/KWh)
Current
<200
Lead Acid
Lithium ion
Sodium sulphur
Vanadium Redox
350-1,300
520
2020-2030
130-195
<260
130-195
<156
Source: European Association for Storage of Energy (EASE), Note: Installation are
converted from EUR/kWh to USD/KWh using an exchange rate of 1.3.
<100
Source: United States Department of Energy (US DoE), Electric Power Research Institute (EPRI)
Outlook
We believe that battery storage installation is economically unviable on larger scale at current costs and
stage of technology given the issues related to energy density, power performance, lifetime, charging
capabilities and safety.
At the current price and performance level, battery storage could be employed for off-grid dispatch,
in remote areas lacking access to conventional base load and to replace peaking gas/oil/diesel plants.
We expect that seismic changes of this nature will take time to alter the course of renewable energy
generation and storage. However, with continuous reduction in installation and running costs and
improvement in battery performance driven by technology improvements and investment being made,
battery storage is on the way to becoming a viable source of energy storage for renewable and distributed
generation. We believe that in markets such as Germany, households who are in ideological agreement
with the drive towards renewables, who wish to be more in control of their own power supply and
consumption (ie less of a “consumer” and more of a “pro-sumer”), and who are aware that the financial
commitment is long at 20 years, will be prepared to embrace the battery storage principle.
The International Renewable Energy Agency (IRENA) forecasts battery storage installation to increase
from to 25GW in 2020 and 150GW in 2030, from an insignificant capacity currently. BCG expects
annual global sales of storage technologies of EUR6bn by 2015 (compared with less than EUR3bn in
2012), EUR15bn by 2020, and EUR26bn by 2030. By region, growth stands to be particularly robust in
North America, China and Japan, and Europe, where BCG expects annual sales of EUR7.7bn, EUR7.6bn,
and EUR7.2bn, respectively, by 2030.
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Chart 16: Battery storage cumulative installations (in GW)
160
140
Chart 17: Annual global sales of storage technologies (in EURbn)
30
25
120
20
100
80
150
60
15
26
10
40
20
15
1-2
5
25
2012
32
2020
6
0
0
Source: IRENA, IEA
2-3
2030
2012
Source: BCG
2015
2020
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Potential winners and
losers
 The initial perception is that Europe’s incumbent behemoths will
be swept away by the pace of change and de-centralisation
 However, companies can benefit from their degree of integration
by becoming full service providers to their client base, who are
likely to become increasingly demanding
 However, there can be no return to the golden days of commodity-
fuelled windfall-equivalent generation margins of the late-2000s
The potential losers: the conventional power generators
Energiewende has been painful to the main utilities so far; if they adapt,
they can make progress on a rapidly-changing market
Thus far, the impact of the renewables boom has been negative for the integrated utilities, contributing to
price weakness and load-factor destruction of thermal plants. With the exception of the Iberians, the
sector has been slow to react. More recently, their renewables subsidiaries have been focussing on large
overseas or domestic off-shore projects, ie requiring levels of investment too great for typical small-scale
on-shore wind or solar.
Conventional power generation stands out as a potential loser from the continuation of renewables
expansion, with development of storage. Affordable battery storage for renewable energy would increase
distributed renewable generation and so reduce demand for power delivered through the grid.
Conventional generation demand would also suffer from a higher penetration of renewable energy in the
grid as renewable energy is typically used by the grid with priority, as it entails no fuel cost and therefore
has a low marginal cost. Grid companies may also be able to use battery storage for smart grid
enhancements, which is also to the disadvantage to conventional power generators.
In anticipating the trend towards smarter energy use, we believe the energy utilities should leverage on
the strength provided by their integrated structure which brings:
 A substantial number of retail, commercial and industrial customers
 Ownership and operation of power distribution networks (a potential base for localised smart grids)
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 Ownership of gas transport and storage
 Conventional generation with increasing exposure to wind and solar
In addition, we believe the utilities can maximise relationships with end users through offering any
number of tailored solutions for savings on the energy bill, participate fully in the trend to localisation,
forge partnerships with smart-meter, solar battery, and solar panel providers, and, essentially, present
themselves as full-service providers.
If they succeed in this, we do not subscribe to the view that they will inevitably lose from the dash to
localised, renewables-based power. With reference to the utility business in Germany, earnings in
distribution and downstream supply have scope to rise significantly over time. Earnings in generation
could recover gradually, regardless of underlying market prices and the absence of capacity markets, as
the transmission grid operators pay the generators to make capacity available over short periods to
maintain stability of the power system. We do however concede that there is no prospect of any return to
anywhere near the level of profitability seen in the latter part of the last decade in generation.
In the company section that follows, we highlight E.ON (UW, TP EUR13) and RWE (UW, TP EUR27).
The potential winners: battery companies, wind/solar energy
producers
The potential winners are: 1) battery companies through the development of a new market for product;
and 2) wind/solar energy producers, as storage will allow for higher generation from existing plants and a
higher penetration of intermittent energy in the grid.
In the company section that follows we highlight SAFT (OW, TP EUR34) and Blue Solutions (UW(V),
TP EUR20).
In Asia, GCL-Poly Energy (3800 HK, HKD2.99, N(V), TP HKD2.8) could be a potential winner
being well-positioned, in our view, as an industry cost leader in poly and wafer with a developing solar
farm business.
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E.ON
 Cautious financial strategy influenced by high cost of debt;
underlying energy market environment in Germany remains
depressed
 High degree of integration means that, if E.ON adapts quickly
enough, it need not emerge as a loser from the Energiewende
process
 We have an UW rating and EUR13 target price
Investment summary
E.ON continues to sell non-strategic or sub-scale businesses in order to raise the focus on downstream
activities which should provide some degree of growth as Germany, followed progressively by other
markets, moves towards a fragmented, localised, efficient, energy market.
In a recent report on E.ON Poisoned chalice of long-discarded ambitions, 3 September 2014,
we discussed that E.ON is looking to sell around EUR5bn of assets including its Italian and Spanish
subsidiaries, its 16.7% stake in Urenco, and its 50% stake in a regional gas grid. We questioned whether
E&P remains a strategic activity. And we stated that current management's ability to re-direct the group
towards a downstream oriented concern, taking advantage of its integrated structure to market itself as a
full-service energy provider to increasingly savvy and demanding end-users, is to some degree hamstrung
by the financial legacy of the now-discarded ambition of previous management, in the shape of over
EUR10bn of high-coupon (over 6%) bonds expiring after 2030. Thus, E.ON's average cost of debt is
5.8%, the highest amongst its peers, and is not about to decline as the company will have no logical
reason to issue new bonds as it works to bring its economic debt down to its target of 3x EBITDA
(we estimate that it will achieve this in 2017 at the earliest).
Valuation
We rate E.ON UW with a target price of EUR13. Our valuation is based on the average of DCF (EUR14.6,
WACC 7.2%, 1% terminal growth rate), sum-of the- parts (EUR12.6, with 10% discount for political risk and
conglomerate structure) and peer group valuation based on 2016e multiples (EUR12.8, after 10% premium to
peer valuation to account for the potential from favourable verdict in nuclear litigation).
35
Utilities/Mid-cap Capital Goods
Energy Storage
September 2014
Where does E.ON stand in the context of Germany's continuing energy
revolution?
We expect E.ON to communicate on its focus on downstream businesses and on renewables.
 It has three large wind farms coming on-stream in 2015 in the US (Grandview, onshore), Germany
(Amrumbank, offshore) and the UK (Humber, offshore) and we look for more projects to receive the
go-ahead as E.ON continues its strategy of build-and-partially-sell just before commercial operation
begins. Nonetheless, as things stand, there is no new capacity certain to come onstream in the two
years after 2015
 Its January 2014 capital markets day presented on its European distribution division, highlighting
accelerated investment in the 2014-18 German regulatory period as its regional distribution grids
strengthen to accommodate small-scale renewables generation units as well as localised smart grids.
E.ON owns 19% of electricity distribution grids in Germany, 352,000kms, as well as extensive
networks in Sweden of 134,400kms (24% share) of electricity distribution
The conventional generators are perceived as potential losers from the Energiewende transition towards a
renewables-led nuclear-free localised and fragmented market because:
 Further expansion of renewables implies reduced load factor of conventional plant
 Smarter electricity usage (PV battery storage, larger-scale battery storage for grids, smart meters)
should diminish the need to replace closing nuclear reactors with new conventional plant
 The conventional generators in Germany and France, unlike in particular iberdrola in Spain, failed to
participate in the initial onshore wind boom and are very late to the party
 The need for market change through efficiency gains rather than through the addition of new cost
elements limits scope for margin recovery.
To offset such a disadvantage, E.ON needs to leverage its ownership of distribution networks and its
end-user customers and market itself as a full-service provider whose range cannot be offered by any peer
(with the exception of RWE, EnBW and Vattenfall). It has a total of 35m customers, the split of which is
illustrated below. In Germany, it has successfully focused on raising customer numbers in 2014 to date.
36
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Utilities/Mid-cap Capital Goods
Energy Storage
September 2014
E.ON power and gas customers and distribution network by country
__________________ Power ___________________ ____________________ Gas ____________________
Customer
Length (in Kms)
Customer
Length (in Kms)
Germany
UK
Sweden
Denmark
Finland
Italy
Spain
France
Netherlands
Hungary
Czech Rep
Slovakia
Romania
Turkey
5.26m
5.0m
0.8m
22
0.19m
620,586
137
167,943
2.5m
1.19m
0.89m
1.4m
9.1m
352,000
134,400
32,052
83,871
65,629
37,000
80,849
200,000
0.86m
3.1m
12,300
20
7
0.6m
27,905
402
181,308
0.6m
630,000
0.01m
1.6m
-
59,000
1,855
17,706
8,840
20,300
-
Source: E.ON
It also needs to position itself at the forefront of new developments in order to gain early access to new
technologies and trends. It has thus opened an office in San Francisco and has invested in 10 US and
EU-based start-ups, looking to "identify promising business models early in the process".
It has taken steps to expand in energy services and consultancy following the 2013 acquisition of Matrix,
a leading player in integrated energy management, and we would expect further moves, following
belatedly in the footsteps of GDF Suez.
In small-scale storage, E.ON is active through Sol-ion – a distributed photovoltaic battery system for domestic
solar generation in Germany and France.
In large-scale storage, E.ON's power-to-gas pilot unit at Falkenhagen, with 2MW capacity, can produce
360M3 of hydrogen per hour. A second P2G unit is being built at Reitbrook, Hamburg.
Other activities in storage and efficiency
 SmartRegion Pellworm – Stationary battery demonstrator, Pellworm, Provide a stable, cost-efficient
and market-oriented electricity supply based on renewable energies through storage, Germany; in
partnership with SAFT and others.
 WindGas Hamburg, Membrane electrolysis for Power to Gas plants, Germany
 M5BAT – Modular multi-megawatt multi-technology medium voltage battery storage, 5MW,
EUR12.5m, Germany
 Venture capital activities - 10 start-ups in EU and US. Looking to "identify promising business
models early in the process"
 Smart energy real estate concept development, Sweden
 Planning to install 21.3m smart meters over coming decade
 Testing Demand Response technology in a commercial situation, Germany
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Utilities/Mid-cap Capital Goods
Energy Storage
September 2014
We are UW with a EUR13 target price
Summary of E.ON valuations: EUR13 target price
Valuation technique
Valuation (EUR)
DCF
Sum-of-the-parts, 10% discount
Peer multiples 2016e, 10% premium
E.ON target price (rounded)
14.6
12.6
12.8
13.0
Source: HSBC estimates
DCF: EUR14.6
Our DCF value is EUR14.6, based on a WACC of 7.2% and terminal growth rate of 1.0%.
E.ON DCF equity valuation: EUR14.6
EURm
DCF value (core operations)
Associates, ST marketable assets, others
EV (asset side)
Less: Financial net debt
Less: Provisions, minorities & others
Total non-equity claims / liabilities
Value of equity
Shares (m)
DCF value per share - EUR
53,009
7,262
60,271
(9,091)
(23,321)
(32,411)
28,559
1,908
14.6
Source: HSBC estimates
Peer multiples: EUR12.8
Our peer multiple valuation of EUR12.8 is based on a 10% premium to our 2016e peer multiples.
The reason for the premium is to account for a positive impact from a favourable verdict in nuclear
litigations. If E.ON pays no nuclear tax and is reimbursed all previous payments with no future clawbacks
from government measures, it would trade at a 10% discount to its peers.
E.ON peer multiples value: EUR12.8
EUR
PER 2016e at zero premium to sector multiple: 14x
12.8
Source: HSBC estimates
E.ON sum-of the--parts value: EUR12.6 post-10% discount
Activity
Valuation methodology
Generation
DCF / MW,
Renewables
DCF / MW,
At 5.0x Post-tax EBIT 2014e
Exploration & Production
Germany
DCF/MW, Eur / customer
Other EU countries
DCF / MW, Eur / customer
Non EU countries
Russia, Turkey and MPX at HSBC TP
Core assets
Add: Associates, LT investments,
Disposal and impairment
Total assets
Less: Debt, provisions, minorities End-2013 estimates
SOP value per share - EUR
SOP value per share - EUR
with 10% discount
Source: HSBC estimates
38
EV EURm
EUR per share
% gross SOP
13,255
10,574
4,000
13,686
9,480
3,007
54,002
5,103
6.9
5.5
2.1
7.2
5.0
1.6
28.3
2.7
22%
18%
7%
23%
16%
5%
91%
9%
59,105
(32,411)
26,693
31.0
-17.0
14.0
12.6
100%
Utilities/Mid-cap Capital Goods
Energy Storage
September 2014
abc
Sum-of-parts EUR12.6
We maintain our SOP valuation at EUR12.6. Our SOP valuation of EUR12.6 is based on 10% discount
related to its conglomerate structure and political risks.
Under our research model for stocks without a volatility indicator, the Neutral band is 5 percentage points
above and below the hurdle rate for eurozone stocks of 9.5%. Our target price of EUR13 implies a
potential return of -9.2%, which is below the Neutral band of our model, hence we have an Underweight
rating. Potential return equals the percentage difference between the current share price and the target
price, including the forecast dividend yield when indicated.
Risks
 Nuclear assets are fully transferred with no write-off
 Commodity price recovery
 Greater benefit than we expect from any German capacity market
 Utilities win their legal challenge against the nuclear tax in German constitutional court
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Utilities/Mid-cap Capital Goods
Energy Storage
September 2014
Financials & valuation: E.ON
Underweight
Financial statements
Valuation data
Year to
12/2013a
12/2014e
12/2015e
12/2016e
Profit & loss summary (EURm)
Revenue
EBITDA
Depreciation & amortisation
Operating profit/EBIT
Net interest
PBT
HSBC PBT
Taxation
Net profit
HSBC net profit
122,450
9,315
-3,534
5,781
-543
3,206
3,206
-703
2,135
2,243
115,505
8,234
-3,629
4,605
-99
3,045
3,045
-981
1,768
1,768
117,814
8,273
-3,719
4,554
-162
2,900
2,900
-892
1,771
1,771
120,317
8,245
-3,739
4,506
-155
2,829
2,829
-809
1,783
1,783
Balance sheet summary
Intangible fixed assets
Tangible fixed assets
Current assets
Cash & others
Total assets
Operating liabilities
Gross debt
Net debt
Shareholders funds
Invested capital
7,432
-8,086
-1,075
-2,343
-3,150
-654
6,953
-5,200
-3,284
-841
-2,411
1,753
7,200
-4,500
-4,584
-758
-1,331
2,700
7,261
-4,500
-4,584
-765
-1,372
2,761
19,385
49,841
35,587
8,080
130,976
29,239
21,615
9,091
35,079
67,494
19,385
50,623
35,637
7,766
131,892
29,585
19,970
7,760
36,717
68,293
19,385
51,384
35,904
7,639
133,004
29,960
18,470
6,387
38,365
69,074
(EURm)
12/2013a
12/2014e
12/2015e
12/2016e
0.4
5.5
0.8
12.2
0.8
-1.6
4.2
0.4
6.0
0.7
15.6
0.8
4.4
3.5
0.4
5.7
0.7
15.7
0.8
6.8
3.5
0.4
5.6
0.7
15.7
0.7
7.0
3.5
Target price
(EUR)13.00
EV/sales
EV/EBITDA
EV/IC
PE*
P/Book value
FCF yield (%)
Dividend yield (%)
Note: * = Based on HSBC EPS (fully diluted)
Issuer information
Share price
Cash flow summary (EURm)
Cash flow from operations
Capex
Cash flow from investment
Dividends
Change in net debt
FCF equity
Year to
(EUR)14.32
Reuters (Equity)
Market cap (USDm)
Free float (%)
Country
Analyst
EONGn.DE
36,870
100
Germany
Adam Dickens
21
21
19
19
17
17
15
15
13
13
11
11
9
9
7
2012
2013
2014
E.ON
12/2013a
Source: HSBC
12/2014e
12/2015e
12/2016e
Note: price at close of 23 Sep 2014
Y-o-y % change
Revenue
EBITDA
Operating profit
PBT
HSBC EPS
-7.3
-13.5
-20.0
-2.1
-46.2
-5.7
-11.6
-20.3
-5.0
-21.8
2.0
0.5
-1.1
-4.8
-0.8
2.1
-0.3
-1.1
-2.4
-0.2
1.7
6.4
6.6
2.5
7.6
4.7
17.2
31.6
1.2
64.6
1.7
4.6
5.2
2.1
7.1
4.0
83.6
24.0
1.1
76.5
1.7
4.6
4.9
2.0
7.0
3.9
50.9
19.7
0.9
92.8
1.8
4.7
4.8
1.9
6.9
3.7
53.2
15.6
0.8
113.7
1.12
1.18
0.60
17.54
0.92
0.92
0.50
18.16
0.91
0.91
0.50
18.85
0.91
0.91
0.50
19.53
Ratios (%)
Revenue/IC (x)
ROIC
ROE
ROA
EBITDA margin
Operating profit margin
EBITDA/net interest (x)
Net debt/equity
Net debt/EBITDA (x)
CF from operations/net debt
Per share data (EUR)
EPS Rep (fully diluted)
HSBC EPS (fully diluted)
DPS
Book value
40
Bloomberg (Equity)
EOAN GR
Market cap (EURm)
28,664
Enterprise value (EURm)
49042
Sector
Multi-Utilities
Contact
+44 20 7991 6798
Price relative
19,385
50,270
34,991
7,314
130,725
29,611
23,260
11,502
33,470
67,721
Ratio, growth and per share analysis
Year to
9
.
2
Rel to DAX-100
7
2015
Utilities/Mid-cap Capital Goods
Energy Storage
September 2014
abc
RWE
 Share price discounts an unrealistic blue-sky German power
market scenario, in our view
 As with E.ON, RWE’s high degree of integration means that, if it
adapts quickly enough, it need not emerge as a loser from the
Energiewende process
 We have an UW rating and EUR27 target price
Investment summary
Disposal programme almost complete
Having sold its upstream business in 2014 for an EV of EUR5.1bn, RWE's phase of divestment seems
largely to be over. The company will now focus on power generation in Germany, the UK, the Netherlands
and east Europe, energy distribution, supply, and renewables.
We are cautious on the extent of post 2016 generation earnings recovery
We are sceptical that RWE's power generation earnings will recover significantly after 2016.
Our view on German power prices (more bearish than that of RWE) is that slight rises in CO2 (in the
run-up to the Paris climate change conference in late 2015) will be offset in the near term by more
efficient coal-fired plant at the margin (as new coal-fired plants open, together with a more limited
amount of renewables), whilst coal prices will be little-changed. Later, recovering margins will be offset
by shrinking volumes due to the nuclear phase-out.
We see no momentum for a major capacity market in Germany, more a wider strategic reserve. There will
be some benefit however from grid companies' paying for near-term capacity to be made available by the
generators to counter volatility of power production from renewables at times of weather fluctuations.
There could be a positive catalyst from any 2015 decision that the 2011 nuclear phase-out was indeed
anti-constitutional; following this, negotiations on the amount will start and are likely to prove
long-lasting and contentious. An ending of the nuclear fuel tax from 2017 in our view is likely to be
partially replaced by some type of obligation to contribute to a fund promoting energy efficiency and
environmentally-friendly strategy. We see no near-term progress towards any transfer of nuclear reactors,
together with their related back-end costs, to a state-run entity given (in our view) an inadequate level of
provisions and an overly-high discount rate (4.6% for RWE, lower than 4.8% for E.ON).
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Energy Storage
September 2014
UK: extent of capacity market boost has been overstated, in our view
In the UK, we see some benefit from the implementation of a capacity market but see no reason why
RWE should receive new-build-equivalent GBP75/KW for its gas plants; we also see softness in
wholesale prices and believe that the market is too optimistic, either forgetting or ignoring the aim of
governments to avoid significant new cost inputs into the system which would trigger higher prices.
Insufficient yield support
Given its constrained balance sheet, we do not see RWE investing actively for growth, whilst its dividend
yield, at 3.1%, is no better than the DAX. We are Underweight with a target price of EUR27.
Where does RWE stand in the context of Germany's continuing energy revolution?
We expect RWE to communicate on its focus on downstream businesses and on cost-cutting.
As Germany's largest conventional power generator, RWE will be perceived as a potential loser in the
headlong German rush to a non-nuclear, renewables-based, localised energy future. With its base-loaddominated structure and its heavy dependence on lignite, we see RWE in a weaker position than E.ON,
which has a more flexible and cleaner production mix with more exposure to tightly-supplied Bavaria and
more presence amongst the most solar-dominated region where household "pro-sumers" are likely to
consider battery storage.
Nonetheless, RWE owns distribution networks and serves 16m electricity and 7.4m gas end-users, split
as follows.
RWE power and gas customers and distribution network by country
__________________ Power ___________________ ____________________ Gas ____________________
Customer
Length (in Kms)
Customer
Length (in Kms)
Germany
Netherlands
Belgium
UK
Hungary
Poland
Czech Rep
Croatia
Slovakia
6.7m
2.2m
0.33m
3.6m
2.1m
0.9m
0.24m
28,000
-
344,000
1.3m
2.0m
0.2m
2.3m
1.5m
97,000
37,000
64,000
Source: RWE
RWE is also active in energy efficiency including battery storage solutions. Its corporate website details a
number of projects and technologies.
Its subsidiary RWE Homepower solar offers storage devices to its end-user household customers who
also generate solar electricity.
RWE, GE, Zublin and DLR have set up the ADELE project involving CEAS (compressed-air energy
storage) solutions for energy storage. The initial pilot plant is located in Stassfurt (Saxony-Anhalt, a
region of high wind capacity) and will have storage capacity of 360MWh. According to RWE, the unit
will be able to provide substitute capacity at short notice and replace up to 50 wind turbines of the type
used in the region for up to four hours. By 2013, EUR12m had been invested in ADELE; the budget for
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Utilities/Mid-cap Capital Goods
Energy Storage
September 2014
the three-and-a-half year project is EUR40m, after which conclusions will be drawn and a final
investment decision will be made.
RWE also stresses co-operation with other grid operators. It has developed a method for locating faults in
low-voltage distribution grids that "significantly reduces periods of power failure as well as costs, or
innovative distribution system transformers that quickly react to fluctuating feed-in of distributed generators"
(ie solar and wind power).
In smart grids, RWE is involved in a government-funded project "Grids for the Power Supply of the
Future" with partners ABB, consentec and Dortmund University.
Other activities in storage and efficiency
 Wind-heating systems, Meckenheim
 In 2012, the Energy Company Obligation (ECO) and the Green Deal were launched to encourage
more homes to become energy efficient
 Smart meters: over 100,000 installed in Germany (Mulheim), saved 2.8% compared with customers
without smart meter
 Micro-CHP units
 “e-energy”: employment and linking of innovative power engineering, information engineering and
communications engineering solutions enable all-new products and services for power providers and
power buyers.
We are UW with a EUR27 target price
Our target price is based on the average of DCF (EUR22.7, WACC 6.9% incorporating 100bps additional
risk premium, and terminal growth rate at zero), sum-of the- parts (EUR28.4, with 10% discount for political
risk and conglomerate structure) and peer group valuation based on 2016e multiples (EUR28.7, after a 10%
premium to peer valuation to account for the potential from a favourable verdict in nuclear litigations).
Under our research model for stocks without a volatility indicator, the Neutral band is 5 percentage points
above and below the hurdle rate for eurozone stocks of 9.5%. Our target price of EUR27 implies a potential
return of -13.9%, which is below the Neutral band of our model; hence we have an Underweight rating.
Potential return equals the percentage difference between the current share price and the target price, including
the forecast dividend yield when indicated.
Summary of RWE valuations: EUR27 target price
Methodology
DCF
Sum-of-the-parts (10% discount)
Peer group multiple 2016e (10% premium)
RWE target price (rounded)
Revised value (EUR)
22.7
28.4
28.7
27.0
Source: HSBC estimates
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Utilities/Mid-cap Capital Goods
Energy Storage
September 2014
DCF: EUR22.7
Our DCF-based value is EUR22.7, based on WACC of 6.9% is and zero terminal growth rate.
RWE DCF equity valuation: EUR22.7
EURm
DCF value (core operations)
Associates, ST marketable assets, others
EV (asset side)
Less: Financial net debt
Less: Provisions, minorities & others
Total non-equity claims / liabilities
Value of equity
Shares (m)
DCF value per share - EUR
42,792
(3,322)
39,470
(5,467)
(20,043)
(25,510)
13,960
614.7
22.7
Source: HSBC estimates
Peer group valuation EUR28.7
Our peer valuation of EUR28.7 is based on 2016e multiples, we apply a 10% premium to peer valuation
to account for the potential for a positive impact from a favourable verdict in nuclear litigation.
RWE peer multiples value: EUR28.7
EUR
PER 2016e at 10% premium to sector at 14.8x
28.7
Source: HSBC estimates
Sum-of-the-parts: EUR28.4
Our sum-of-the-parts valuation of EUR28.4 is based on a 10% discount for political risk and
conglomerate structure.
RWE sum-of-the-parts value: EUR28.4 post-10% discount
Activity
Valuation methodology
EURm
EUR per share
Electricity
Trading
Gas
Generation: DCF/MW, T&D: EURm/km lines length, Supply: per account
Electricity and Gas
Reserves: EUR/mmboe, Storage: EUR/cu m, T&D: EURm/km lines length,
Supply: per account
30,148
945
6,419
49.0
1.5
10.4
1,750
39,261
5,678
2.8
63.9
9.2
44,939
(5,467)
(20,043)
19,429
73.1
(8.9)
(32.6)
31.6
28.4
Lignite mines
Core assets
Add: Non-core assets and
divestitures
Total assets
Less: Financial debt
Less: Quasi debt
SOP value per share
SOP value per share
Associates, ST marketable assets, others
Net debt
pension, nuclear, minorities, other liabilities
with 10% discount
Source: HSBC estimates
Risks
 Coal prices bounce
 Greater benefit than we expect from German capacity market
 Nuclear assets are fully transferred with no write-off
 Utilities win their legal challenge against nuclear tax in the German constitutional court, sooner and
more decisively than anticipated by the market
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Utilities/Mid-cap Capital Goods
Energy Storage
September 2014
Financials & valuation: RWE
Underweight
Financial statements
Valuation data
Year to
12/2013a
12/2014e
12/2015e
12/2016e
Profit & loss summary (EURm)
Revenue
EBITDA
Depreciation & amortisation
Operating profit/EBIT
Net interest
PBT
HSBC PBT
Taxation
Net profit
HSBC net profit
51,393
8,762
-2,881
5,881
-1,138
-1,487
-1,487
-956
-2,757
2,314
52,527
6,588
-2,550
4,038
-679
2,539
2,539
-762
1,325
1,325
54,099
6,433
-2,803
3,631
-644
2,358
2,358
-708
1,208
1,208
55,712
6,239
-2,823
3,417
-466
2,326
2,326
-698
1,194
1,194
Balance sheet summary
Intangible fixed assets
Tangible fixed assets
Current assets
Cash & others
Total assets
Operating liabilities
Gross debt
Net debt
Shareholders funds
Invested capital
5,755
-4,261
-2,646
-1,611
-1,915
1,094
5,426
-4,500
542
-1,015
-4,953
1,481
4,753
-2,500
-2,558
-1,015
-1,181
2,620
4,756
-2,000
-2,058
-1,015
-1,683
3,114
13,198
30,155
31,283
10,947
84,934
19,063
17,986
5,467
10,851
44,626
13,198
29,853
32,149
11,426
85,556
19,489
17,284
4,286
11,145
44,285
13,198
29,030
33,529
12,407
86,171
19,926
16,582
2,603
11,426
43,424
(EURm)
12/2013a
12/2014e
12/2015e
12/2016e
0.9
5.0
0.9
8.3
1.8
3.3
3.2
0.7
6.0
0.9
14.5
1.8
4.4
3.2
0.7
6.0
0.9
16.0
1.7
7.7
3.2
0.7
6.0
0.9
16.1
1.7
9.0
3.2
Target price
(EUR)27.00
EV/sales
EV/EBITDA
EV/IC
PE*
P/Book value
FCF yield (%)
Dividend yield (%)
Note: * = Based on HSBC EPS (fully diluted)
Issuer information
Share price
Cash flow summary (EURm)
Cash flow from operations
Capex
Cash flow from investment
Dividends
Change in net debt
FCF equity
Year to
(EUR)31.36
Reuters (Equity)
Market cap (USDm)
Free float (%)
Country
Analyst
RWEG.DE
24,428
89
Germany
Adam Dickens
38
38
33
33
28
28
23
23
18
18
13
2012
2013
2014
RWE
12/2013a
13
2015
Rel to DAX-100
Source: HSBC
12/2014e
12/2015e
12/2016e
Note: price at close of 23 Sep 2014
Y-o-y % change
Revenue
EBITDA
Operating profit
PBT
HSBC EPS
Bloomberg (Equity)
RWE GR
Market cap (EURm)
18,991
Enterprise value (EURm)
39363
Sector
MULTI-UTILITIES
Contact
+44 20 7991 6798
Price relative
13,198
33,305
24,376
6,696
81,119
15,574
18,688
10,420
10,439
48,609
Ratio, growth and per share analysis
Year to
1
3
.
9
1.2
-5.9
-8.3
-166.7
-5.8
2.2
-24.8
-31.3
-42.8
3.0
-2.4
-10.1
-7.1
-8.8
3.0
-3.0
-5.9
-1.4
-1.2
1.0
18.8
18.3
-0.8
17.0
11.4
7.7
85.9
1.2
55.2
1.1
6.1
12.4
2.9
12.5
7.7
9.7
42.4
0.8
99.3
1.2
5.7
11.0
2.5
11.9
6.7
10.0
31.7
0.7
110.9
1.3
5.5
10.6
2.4
11.2
6.1
13.4
18.4
0.4
182.7
-4.49
3.76
1.00
16.98
2.16
2.16
1.00
17.65
1.96
1.96
1.00
18.13
1.94
1.94
1.00
18.59
Ratios (%)
Revenue/IC (x)
ROIC
ROE
ROA
EBITDA margin
Operating profit margin
EBITDA/net interest (x)
Net debt/equity
Net debt/EBITDA (x)
CF from operations/net debt
Per share data (EUR)
EPS Rep (fully diluted)
HSBC EPS (fully diluted)
DPS
Book value
45
Utilities/Mid-cap Capital Goods
Energy Storage
September 2014
Saft Groupe SA
 We expect lithium-ion batteries to represent more than 20% of
Saft sales in 2014; lithium ion sales rose 60% in H1 2014 y-o-y
 Saft is winning several energy storage solution contracts in different
geographies, demonstrating the efficiency of its technology
 We have an OW rating with a EUR34 target price
Investment summary
The ramp-up of the Jacksonville plant should have a significant impact on Saft’s P&L. With EUR16m of losses
at the EBITDA level in 2013, it is still a major drag on Saft’s profitability at a consolidated level. Saft continues
to guide that Jacksonville will reach breakeven at EUR70m of sales (USD100m). According to our estimates,
this level will be reached in 2015, or possibly H2 2014.
We are confident about Saft’s outlook and the emergence of new markets for lithium-ion. Lithium-ion batteries
sales increased 32% in 2013, 60% in H1 2014 and should rise by 25% in 2014, representing more than 20% of
its total sales this year. Although Saft has disappointed several times in the past by missing guidance, we
believe we are now close to the ramp-up of the Jacksonville and Nersac plants. We expect this to drive group
sales growth (7% pa) and an EPS recovery (15-20% pa) over 2014-16.
Valuation: We value Saft using two methodologies. Applying PE and EV/EBITDA multiples for 2014e
to 2016e of other listed battery producers yields a valuation of EUR36. Our sum of the parts of EUR31
for Saft includes 1/ the Jacksonville and Nersac plants at cEUR4 per share and 2/ Saft’s traditional
activities on a peer comparison with French industrial mid-caps (EUR27). By averaging these two
methodologies, we obtain a target price of EUR34.
Under our research model, for stocks without a volatility indicator, the Neutral band is 5ppts above and
below the 9.5% hurdle rate for eurozone stocks. Our target price implies a 28.3% potential return,
which is above the neutral band therefore we have an OW rating. Potential return equals the percentage
difference between current price and the target price, including the forecast dividend yield when
indicated.
Risks and catalysts: We see Saft as a long-term equity story, fuelled by the emergence of growing and
profitable niche markets for its lithium-ion batteries such as storage solution for renewable energies but also
for a number of other segments such as, telecoms, fork lift trucks, short series of buses. The growing demand
for batteries for gas and water meters in China and Europe is also a significant growth driver. However, the
lack of those types of catalysts/contract gains could trigger a drop in the share price. Downside risks include:
46
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Utilities/Mid-cap Capital Goods
Energy Storage
September 2014
delayed break-even at Jacksonville and Nersac, emergence of rival technologies which could outperform
Saft’s lithium ion batteries, further guidance miss at the top line or EBITDA level.
SAFT (excl. Jacksonville & Nersac) comparisons – French MidCap industrials
Code
Curr
Faiveley
FAIP.PA
EUR
Lisi
GFII.PA
EUR
EUR
Mersen
CBLP.PA
EUR
Zodiac
ZODC.PA
AVERAGE
Saft (1)
SAFT.PA
Implicit value for SAFT (EUR) (2)
Price Market cap
(EUR)
(EURm)
51.0
117.2
21.7
23.4
27.1
745
1266
447
6749
PE 13(x)
PE 14 e
(x)
PE 15 e
(x)
PE 16 e
(x)
EV/Ebitda
2013
EV/Ebitda
2014e (x)
EV/Ebitda
2015e (x)
EV/Ebitda
2016e (x)
14.4
16.0
55.6
17.5
16.0
18.9
33.1
12.8
14.3
13.6
16.6
14.3
14.9
28.2
12.3
12.7
11.4
14.5
12.7
12.4
25.6
10.7
11.7
9.5
13.2
11.3
10.9
23.4
9.1
6.9
7.4
12.5
9.0
6.7
33.7
7.7
6.7
6.5
10.9
7.9
7.3
31.2
7.0
6.0
5.7
9.8
7.1
6.3
28.3
6.2
5.5
4.9
8.7
6.3
5.7
25.9
(1) published figures (2) (2) based on Saft net profit excluding losses from Jacksonville and Nersac plants (3) Saft multiples on published figures
Source: Factset, HSBC
Saft positioning on the energy storage market
Saft has no intention of competing against large Asian players on R&D and production costs. It is an
integrated player: it manufactures batteries and provides integration into solutions and systems to answer
the needs of its clients.
Saft’s focus is to pursue a niche strategy, ie avoiding the mass market for batteries and developing strong
technological know-how and superior products to meet niche needs. In those niches, new products could
advantageously replace lead-based batteries. Saft already succeeded with nickel based batteries
(Nickel Metal Hydrure). In a number of niche markets Saft aims to gain market share with lithium-ion
batteries by convincing clients to switch out of lead batteries into lithium-ion batteries, which are more
expensive upfront, but often have a lower total cost of ownership (including longer life, better ability to
support heat, more resilience to charge and discharge cycles).
Saft has efficient production facilities (Jacksonville and Nersac). The group is now looking at the various
potential markets that could emerge for lithium-ion batteries in order to enter those with an optimal
risk/return ratio. This would imply looking for relatively small niches that will not attract large
competitors, with the focus on tailor-made battery systems and solutions rather than large volumes.
Technology is not an issue: the same type of technology/product could apply to virtually any end-user
markets, from automobile to telecom to energy storage solutions. On this last end-user market, Saft had
been relatively successful recently.
With Bosch in Germany since July 2013: Saft Li‐ion batteries have started to be rolled out to Germany’s
residential PV market within Bosch’s hybrid intelligent energy management and storage solution. With
subsidies for eligible, certified, decentralised battery storage systems supporting an on‐grid PV system, the
market potential is estimated by Saft at 8-10,000 systems. A key commercial advantage of the Bosch
BPT‐S 5 Hybrid system is that it is fully certified and safety tested, including the li‐ion batteries, and
Bosch already has over 350 installers fully trained and ready to deploy the units across Germany.
Various contract wins in 2014: Saft has won a number of contracts for Energy Storage solution in H1 2014,
with a wide range of clients. Islands are a primary target. In addition to contracts in the Canary islands in 2012
and Faroe islands in 2014, Saft has achieved the following:
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Utilities/Mid-cap Capital Goods
Energy Storage
September 2014
Saft’s set-up for the production of lithium-ion batteries
(EURm)
Jacksonville
Nersac
Others(1)
US
France
France
Capacity(2)
Break even (%)
Break even
2013 sales
220
45
70
33%
66%
na
70
30
na
50(3)
(3)
na
Note: (1) Other plants include Poitiers, Bordeaux, Valdosta. These produce various types of batteries, including Lithium-ion batteries. There is no estimates available for the breakeven point for
Lithium-ion batteries but Saft’s production is currently profitable in our view.
(2) We assume a selling price of EUR750 per KwH; (3) Split between Nersac and Jacksonville.
Source: Company, HSBC
 Since January Saft is leading a consortium to build a 9 MWp photovoltaic (PV) power plant incorporating
a megawatt-scale Li-ion energy storage system to ensure effective grid integration for solar PV power on
Réunion island
 In June the Alstom-Saft consortium signed a contract with EDF to supply an initial energy storage
system using a container of lithium-ion batteries, demonstrating the system’s ability to regulate the
frequency of the grid. The system will be installed on EDF R&D's experimental "Concept Grid" in
the south of Paris. This is the first installation of its kind in France, to be delivered in late 2014
 In June again Saft delivered a 20 MW lithium‐ion Energy Storage System for E.ON on Pellworm
Island, off the North Sea coast of Germany. The project aims to develop a blueprint for future
decentralised energy system integrating storage
 In July Saft was awarded a multi-million dollar contract by Kauai Island Utility Co-operative (KIUC) to
provide a Li-ion Battery Energy Storage System (BESS) consisting of 8 containers (20MW) to stabilise
the Kauai island electrical grid. Saft’s BESS will be deployed for use as part of a new 12 MW solar energy
park under construction in Anahola
Outlook
Saft has been manufacturing lithium-ion batteries for many years in three plants: Poitiers, Bordeaux and
Valdosta, through small dedicated production lines. These lines are used to producing very small series for a
number of niche segments, satellites, in particular. Saft opened a brand new line for lithium-ion batteries in
Nersac (France) in 2009 and a much larger plant in Jacksonville (US) at end-2011 for an initial investment of
USD200m (of which USD95m was financed through subsidies received from the US Department of Energy).
The Nersac plant will break even when it runs at two-thirds of its capacity. It could also be doubled relatively
easily for a small investment (EUR10m-15m).
Implied lithium-ion-batteries key figures
(EURm)
Sales lithium-ion batteries
Variation (%)
Lithium-ion sales as a % of total sales
Jacksonville & Nersac
Poitiers, Bordeaux, Valdosta
EBITDA lithium-ion batteries
Jacksonville & Nersac
Poitiers, Bordeaux, Valdosta
Lithium-ion EBITDA as a % of total EBITDA
EBITDA margin Lithium-ion batteries (%)
2010
2011
2012
2013
2014e
2015e
2016e
2017e
52
10%
65
25%
11%
52
65
85
31%
14%
17
68.3
112
32%
18%
48
64
140
25%
21%
75
65
175
25%
24%
110
65
205
17%
26%
140
65
240
17%
28%
175
65
5
6
5
5%
10%
6
6%
9%
-11
-18
7
na
-12%
-8
-16
8
na
-7%
0
-8
8
na
0%
13
4
9
10%
7%
22
13
9
16%
11%
34
25
9
22%
14%
Source: HSBC for forecasts and for profitability estimates; Saft only discloses the total sales figure for Lithium-ion batteries and the losses at Jacksonville & Nersac
48
Utilities/Mid-cap Capital Goods
Energy Storage
September 2014
abc
The Jacksonville plant currently operates two lines; a third one opened end H1 2014, bringing capacity to
EUR220m, ie USD300m based on a price of USD1000 per kWh. Even if demand is not enough to use
more than a full line, Saft is committed to commission the third line in order to obtain the subvention
from the US Department of Energy. In the medium term, Saft could double the number of lines (3 to 6)
and capacity (from USD300m/EUR220m/300MWh to USD600m/EUR440m/ 600MWh) if demand
justifies it. The group has designed the plant to be able to accommodate such a scenario.
This has to be put into the context of Saft sales in 2013, ie EUR624m (USD860m). The ramp-up of
Jacksonville, if successful, should have a significant impact on the group’s top line.
In the table below, we model the growing weight of lithium-ion batteries in Saft’s P&L. As a reference, Saft
has indicated that the long-term EBITDA margin of lithium-ion batteries production could be around 15%.
Our estimates for 2017 are marginally more conservative at 14%.
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September 2014
Financials & valuation: Saft Groupe SA
Financial statements
Valuation data
Year to
12/2013a
12/2014e
12/2015e
12/2016e
Profit & loss summary (EURm)
Revenue
EBITDA
Depreciation & amortisation
Operating profit/EBIT
Net interest
PBT
HSBC PBT
Taxation
Net profit
HSBC net profit
624
93
-38
55
-10
52
52
-10
42
53
675
107
-40
67
-7
62
62
-15
46
52
732
123
-41
82
-8
76
76
-20
56
56
785
136
-42
94
-6
89
89
-25
64
64
Cash flow from operations
Capex
Cash flow from investment
Dividends
Change in net debt
FCF equity
Intangible fixed assets
Tangible fixed assets
Current assets
Cash & others
Total assets
Operating liabilities
Gross debt
Net debt
Shareholders funds
Invested capital
Year to
60
-42
-57
-9
9
24
69
-37
-48
-10
-16
42
79
-32
-44
-25
1
57
88
-32
-44
-27
-5
66
314
245
395
101
975
234
213
112
413
619
325
247
419
101
1,015
251
197
96
450
638
337
257
446
101
1,066
269
198
97
480
670
349
267
471
101
1,114
284
193
92
517
702
(EURm)
12/2013a
12/2014e
12/2015e
12/2016e
1.3
8.6
1.3
12.8
1.6
3.4
2.9
1.2
7.3
1.2
13.1
1.5
6.1
3.2
1.1
6.3
1.2
12.1
1.5
8.4
3.4
1.0
5.7
1.1
10.6
1.4
9.7
3.6
Target price
(EUR)34.00
EV/sales
EV/EBITDA
EV/IC
PE*
P/Book value
FCF yield (%)
Dividend yield (%)
Note: * = Based on HSBC EPS (fully diluted)
Issuer information
Share price
Cash flow summary (EURm)
Balance sheet summary
Overweight
(EUR)26.50
Reuters (Equity)
Market cap (USDm)
Free float (%)
Country
Analyst
S1A.PA
897
96
France
Pierre Bosset
31
31
26
26
21
21
16
16
11
2012
2013
Saft Groupe SA
12/2013a
12/2015e
Note: price at close of 23 Sep 2014
4.4
-9.8
-21.9
-9.5
-3.5
8.2
15.7
22.9
18.2
-2.3
8.4
15.3
23.0
23.9
7.5
7.2
9.9
13.7
16.6
14.3
1.0
7.3
13.1
4.3
14.8
8.7
8.9
26.9
1.2
53.4
1.1
8.0
12.0
4.6
15.8
9.9
15.3
21.1
0.9
71.7
1.1
9.3
12.0
5.4
16.8
11.2
16.0
19.9
0.8
82.2
1.1
9.8
12.8
5.9
17.3
11.9
21.5
17.6
0.7
96.1
1.64
2.08
0.78
16.21
1.81
2.03
0.85
17.15
2.18
2.18
0.90
18.16
2.49
2.49
0.95
19.56
Per share data (EUR)
EPS Rep (fully diluted)
HSBC EPS (fully diluted)
DPS
Book value
50
11
2015
Rel to SBF-120
12/2016e
Ratios (%)
Revenue/IC (x)
ROIC
ROE
ROA
EBITDA margin
Operating profit margin
EBITDA/net interest (x)
Net debt/equity
Net debt/EBITDA (x)
CF from operations/net debt
2014
Source: HSBC
12/2014e
Y-o-y % change
Revenue
EBITDA
Operating profit
PBT
HSBC EPS
Bloomberg (Equity)
SAFT FP
Market cap (EURm)
698
Enterprise value (EURm)
779
Sector
CONGLOMERATES
Contact
33 1 5652 4310
Price relative
Ratio, growth and per share analysis
Year to
2
8
.
3
Stated accounts as of 31 Dec 2004 are IFRS compliant
Utilities/Mid-cap Capital Goods
Energy Storage
September 2014
abc
Blue Solutions
 Blue Solutions is only selling batteries to Blue Applications, another
Bolloré company, which in turn rents those batteries
 Blue Solutions should benefit from car-sharing inroads, peak
shaving applications; it has not won contracts with third parties
 UW(V) rating with a EUR20 target price
Investment summary
Revised 2014 guidance. Blue Solutions revised its IPO guidance on 29 August when it published its
interim results and now expects: 1/ sales of EUR90m to EUR100m vs EUR105m before; 2/ 2,400 to 2,600
batteries sold vs 3,000 before; and 3/ breakeven at EBITDA level over the full year vs only in H2
previously. This change comes from: a longer-than-expected life for batteries in Autolib (car sharing in
Paris), which limit the demand for replacement batteries; and better-than-expected success for stationary
products (notably in Africa) and buses.
Proven technology. Autolib is the best showcase for Blue Solutions and demonstrates the technology’s
reliability (lithium polymer batteries). With 45m km travelled at end March 2014, the technology has
demonstrated its efficiency and exceeded the company’s expectations in terms of robustness. There have
been no fires or accidents, with the exception of few criminal acts in the Paris suburb.
Valuation. We estimate its value based on peer multiples. We look at battery producers’ EV/EBITDA 2014e
multiples and applied this multiple to 2017e EBITDA for Blue Solutions. We also look at the EV/sales 2014e
ratio of a number of new “start-up” ventures in new markets related to energy efficiency and apply that to Blue
Solutions 2017e sales.
We discount this value back to now using a WACC of 9.5% only as the risks are limited by the Blue
Applications’ commitment in terms of pricing and volume up to 2022. This gives a range from EUR15 to
EUR26. We do not value the seven call options on the Blue Applications businesses as they will eventually be
exercised at fair value and, hence, will not have any impact on Blue Solutions’ valuation. Our target price is the
average of these two methodologies and is rounded at EUR20.
After the unexpected ramp-up in Blue Solutions’ share price in March 2014 from EUR18 to cEUR34, our
target price now implies a negative potential return of 39.8%, which is below the Neutral band for volatile
eurozone stocks (-0.5% to 19.5%, hurdle rate of 9.5%); therefore, we maintain our UW(V). Potential return
equals the percentage difference between the current share price and the target price including the forecast
dividend yield when indicated (no dividend is expected at Blue Solutions).
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Utilities/Mid-cap Capital Goods
Energy Storage
September 2014
Upside risks: the stock has a limited free float and, hence, is volatile; newsflow, particularly commercial
success (car-sharing contracts, orders for buses and tramways, etc), could lift the share price even if already
implicitly included in the company's guidance.
Blue Solution positioning on energy storage
Lithium Metal Polymer: a unique technology
Lithium Metal Polymer (LMP) battery technology has been researched by several players including Saft but
has only been developed and used on an industrial scale by Bolloré/Blue Solutions. Currently, they are alone
on this technology. It has been pioneered both by Bolloré Group and by a Canadian company called Avestor,
whose assets were subsequently acquired by Bolloré. LMP battery technology is the result of more than
ten years of intensive research and development. It has benefited from the technological and industrial
know-how acquired by the Bolloré Group, notably through its Plastic Films Division. This division had
become the global leader in dielectric polypropylene films for capacitors, which are vital energy storage
components for the manufacturing of many consumer and industrial products. Bolloré can manufacture
on an industrial scale very thin foil (3 micron), on 6m width with little margin of variation in thickness.
Blue Solutions has developed and is now manufacturing 30KWh batteries made of 6 cells of 5KWh each.
LMP technology brings a number of competitive advantages.
A structural difference in the concept: LMP batteries use solid electrolyte as opposed to other types of
lithium-ion batteries, which use liquid electrolyte including solvent. Batteries heat up when used.
However, if a solid electrolyte is heated it can eventually go into a liquid phase. Then it will require
considerable heat to go one step further and transform the original solid into gas. If starting in the liquid
form similar to lithium-ion batteries, it requires less heat to transform the electrolyte to gas.
More stable under adverse conditions: There are a number of examples of lithium-ion batteries that have
caught fire in a number of applications. One of the most publicised examples was the lithium-ion battery
used in the Boeing 787 Dreamliner (manufactured by GS Yuasa), which caught fire and generated heavy
smoke. This led to a full grounding of the entire Boeing 787 fleet. According to Blue Solutions, the LMP
battery offers better resistance to adverse conditions and does not catch fire as often. The best
demonstration is Autolib’, the car-sharing concession in Paris managed by Bolloré Group through Blue
Applications. There has been no incident with the batteries since the launch of Autolib’ in December
2011, which is a positive.
… but battery runs down if not used: One of the main drawbacks of the battery is that it can only
function at a temperature between 60 and 80 degrees. Hence if not used, the battery runs down slowly in
four or five days. As a consequence the level of electricity consumption associated with the battery’s
recharge and functioning is higher than for other batteries. Hence there is a need for Blue Solutions
batteries to be included in applications that can deal with this constraint (Autolib’) or within global
solutions, such as energy storage for renewable energies. Blue Solutions is trying to reduce the
temperature at which its batteries function but it is still a work in progress. The batteries used currently
were designed and produced two years ago. There are now prototypes currently being tested at Blue
Solutions that could function at a lower temperature (50 to 60 degrees) and will run down slower thanks
to better insulation.
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Blue Solutions business model
Bolloré through Blue Solutions and Blue Applications has no intention of competing on R&D and
production costs with large South-East Asian players such as LG Chem, Samsung and Kokam. The
business model is not to sell batteries to third party but to keep ownership of the battery in order to extract as
much value as possible from it at every stage of its life. Blue Solutions / Blue Applications will sell energy
storage solutions to a wide range of applications, which will include Blue Solutions batteries. Those batteries
will continue to be owned by Blue Solutions / Blue Applications. The rental e price will depend on the age, the
performance expected from the battery and the type of usage.
 Electrical vehicles powering when batteries are new and performing well
 Back-up power, stationary usages, when the battery performs less well
 Recycling, as we believe at least 10% of a new LMP battery’s value will come from used batteries
We believe the competitive landscape for Blue Solutions/Blue Applications will be direct and indirect
through the applications and could include:
 Other batteries producers using Lithium ion technologies or other battery technologies. Other storage
solutions providers (free wheel, compressed air storage)
 Groups or consortiums willing to gain car-sharing concessions: utilities and car rental companies
 Groups or consortiums willing to offer storage solutions for electrical grids, residential or industrial
applications, renewable energies
Outlook
Short term, there is a relatively good visibility on the financial metrics of Blue Solutions. Blue Solutions will
sell its 30kWh batteries to Blue Applications at EUR38,000 per battery until 1 January 2018. After and up to
2022, the price will be EUR25,000 per battery above the 7,500 units produced per year. Blue Applications also
has a commitment to buy 56,000 batteries from Blue Solutions for mobility applications between 2013 and
2022. Finally, Blue Solutions has provided a number of targets, 2014 and 2017 in terms of number of batteries
sold, sales and EBITDA.
Medium term, ie as of 2016, the intention is for Blue Solutions to choose and integrate the best part of Blue
Applications thanks to the various call options it owns on each of Blue Applications businesses (car sharing,
electrical bus tramway and boat, storage solutions. The strike price is not fixed yet but will be determined by an
independent adviser. As these options will be exercised by definition at fair value, the impact on the valuation
of Blue Solutions today is nil. That said, the exercise of these options will require funding and hence will imply
a rights issue, which would offer minority shareholders the possibility to participate.
Longer term we think that Blue Solutions/Blue Applications will actually not sell any batteries. The
business model is to keep the ownership of the batteries and rent them. By renting them the group will be
able to extract as much value as possible from the battery at every stage of its life: Therefore Blue
Solutions and Blue Applications will become a very capital-intensive business as the company will have
to finance the ownership of all its batteries used in its applications. Financing will become an issue later
on. This explains the company’s long-term guidance of an EBITDA margin of 30-35%. This EBITDA
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September 2014
margin target is not the typical margin level for a battery producer (Saft only generates 17% EBITDA
margin on its traditional business despite very strong competitive positions). These margin levels can,
only be generated by a high capital intensive business, with strong barriers to entry, such as a battery
rental business.
Blue Solutions through Blue Applications is currently at numerous crossroads, which may or may not lead to
huge new market opportunities.
A crossroads in the car-sharing and automobile market: This new consumer trend (ie usage rather than
ownership) is emerging and could be multiplied by 20x in the next seven years in Europe (source: Frost &
Sullivan); the failure of big car makers to focus on green vehicles has opened the door to innovative
products/concepts.
A crossroads for renewable energy: With the growing share of renewable energy in electricity
production associated with the volatile profile of their production patterns, there is an increasing need for
storage solutions ranging from short storage periods for frequency stabilisation to longer storage to adapt
electricity production cycles to consumption cycles.
Blue Solutions equity value
(EURm)
____ 2017 estimated value _____
EV (EURm)
Equity (EURm)
Batteries producers EV/Ebitda 2014e multiples applied to 2017e Blue Solutions
"Start up companies" - 2014e EV/sales applied to 2017e Blue Solutions
681
1070
____________ 2015 estimated value ____________
Equity (EURm) EUR per share
529
918
441
766
15 WACC of
26 WACC of
9.5%
9.5%
Source: HSBC estimates
Blue Solutions’ peer comparisons as of 23/09/2014
Batteries producers
Price
local currency
Market cap (m)
local currency
Ticker
Johnson Controls Inc.
Saft Groupe S.A.
GS Yuasa Corporation
LG Chem Ltd.
NGK Insulators
BYD
Average
44.7
26.0
649.0
272500
2640
52
30187
662
261793
18058875
857553
145575
JCI US
SAFT FP
6674-JP
051910-KR
5333-JP
1211-HK
"Start up" companies
Price
local currency
Market cap
local currency
Currency
3.95
10.83
8.50
246.95
321
695
792
31,424
USD
USD
USD
USD
Amyris, Inc.
Westport Innovations Inc.
Clean Energy Fuels Corp.
Tesla Motors, Inc.
Average
Source: companies, HSBC estimates
54
___________ EV/Ebitda (x) ____________ ____________ EV/Ebita (x) _____________
2013
2014e
2015e
2013
2014e
2015e
11.8
6.7
9.6
7.5
10.1
18.2
10.6
9.8
7.0
8.1
7.2
10.6
20.1
10.5
8.7
6.1
6.9
6.1
9.1
16.5
8.9
16.5
11.3
16.4
12.0
14.6
55.8
21.1
13.4
11.2
12.4
12.3
14.9
54.0
19.7
11.7
9.1
10.1
9.6
12.9
34.9
14.7
Ticker __________________ EV/Sales (x) ___________________
2013
2014e
2015e
AMRS-US
WPRT-US
CLNE-US
TSLA-US
13.3
6.7
3.7
7.3
7.8
6.5
3.5
2.6
7.9
5.1
2.7
2.9
2.3
4.9
3.2
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Utilities/Mid-cap Capital Goods
Energy Storage
September 2014
Financials & valuation: Blue Solutions
Underweight (V)
Financial statements
Valuation data
Year to
12/2013a
12/2014e
12/2015e
12/2016e
Profit & loss summary (EURm)
Revenue
EBITDA
Depreciation & amortisation
Operating profit/EBIT
Net interest
PBT
HSBC PBT
Taxation
Net profit
HSBC net profit
47
-13
-15
-28
-8
-36
-36
0
-36
-36
90
7
-17
-10
-2
-12
-12
0
-12
-12
126
15
-19
-4
-4
-8
-8
0
-8
-8
163
35
-21
14
-6
8
8
0
8
8
Cash flow from operations
Capex
Cash flow from investment
Dividends
Change in net debt
FCF equity
Intangible fixed assets
Tangible fixed assets
Current assets
Cash & others
Total assets
Operating liabilities
Gross debt
Net debt
Shareholders funds
Invested capital
-34
-15
-17
0
-155
-56
-7
-50
-53
0
65
-59
5
-50
-53
0
50
-49
27
-50
-53
0
25
-29
7
110
59
11
199
24
33
22
139
140
10
138
97
11
267
48
98
87
128
185
13
167
126
11
329
67
148
137
120
228
16
196
155
11
390
88
173
162
128
268
(EURm)
12/2013a
12/2014e
12/2015e
12/2016e
20.8
7.1
11.8
150.4
5.7
8.8
73.5
4.8
7.1
-5.8
0.0
7.8
-6.1
0.0
8.3
-5.1
0.0
6.9
32.2
4.2
119.2
7.7
-3.0
0.0
EV/sales
EV/EBITDA
EV/IC
PE*
P/Book value
FCF yield (%)
Dividend yield (%)
Note: * = Based on HSBC EPS (fully diluted)
Issuer information
Share price (EUR)
Cash flow summary (EURm)
Balance sheet summary
Year to
Reuters (Equity)
Market cap (USDm)
Free float (%)
Country
Analyst
34.30
BLUE.PA
1,261
11
France
Pierre Bosset
Ratio, growth and per share analysis
12/2013a
Bloomberg (Equity)
BLUE FP
Market cap (EURm)
989
Enterprise value (EURm)
1053
Sector
Electric Utilities
Contact
33 1 5652 4310
44
44
39
39
34
34
29
29
24
24
19
19
14
Mar-14
Blue Solutions
Rel to SBF-120
14
Sep-14
Source: HSBC
12/2014e
12/2015e
12/2016e
Note: price at close of 25 Sep 2014
Y-o-y % change
Revenue
EBITDA
Operating profit
PBT
HSBC EPS
4
1.
7
20.00
Price relative
Sep-13
Year to
Target price (EUR)
-23.2
88.8
40.8
114.3
29.1
133.3
0.4
-21.1
-66.8
-18.1
-27.9
-59.1
15.8
-1.7
0.6
-6.0
-8.8
-4.2
7.8
-10.9
3.5
68.2
12.4
0.6
-1.8
-6.2
-1.2
11.9
-3.0
3.8
114.3
9.1
3.5
0.7
5.7
6.7
4.0
21.5
8.7
5.8
126.4
4.6
16.6
-1.24
-1.24
0.00
4.83
-0.41
-0.41
0.00
4.42
-0.27
-0.27
0.00
4.16
0.29
0.29
0.00
4.44
Ratios (%)
Revenue/IC (x)
ROIC
ROE
ROA
EBITDA margin
Operating profit margin
EBITDA/net interest (x)
Net debt/equity
Net debt/EBITDA (x)
CF from operations/net debt
Per share data (EUR)
EPS Rep (fully diluted)
HSBC EPS (fully diluted)
DPS
Book value
55
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Utilities/Mid-cap Capital Goods
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Annexes
Sub-optimal EU renewables
Energy storage players
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Sub-optimal EU renewables
 The EU renewables market lacks coherence and needs significant
progress to make it more efficient
 Germany: global leader in solar but not very sunny; Spain: at the
vanguard of the wind boom but not very windy
 EU renewables industry has too many installations in sub-optimal
locations; now needs to focus on combining better-considered
growth with driving down unit costs
We summarise the German, Spanish and Italian renewables markets in particular and the growth outlook
for the industry as a whole. We find that other countries will follow Germany in raising their exposure to
environmentally-friendly but intermittent power production sources. We expect that solar and off-shore
will lead the way in Europe, with countries that have suffered the most from the costs of the renewables
boom (Spain, Italy) taking more of a back seat (see table below). By the ‘sub-optimality’ of its
renewables industry as it stands today (which we discuss in detail), pressure is especially acute to take
measures to cut costs and raise efficiency. With the ending of feed-in tariffs and cuts in support, some
progress is being made but not, as yet, on efficiency.
Cumulative wind & solar installation forecasts (GW)
___________________ Wind ____________________ ___________________ Solar ___________________
2013
2020 HSBCe
2013
2020 HSBCe
France
Germany
Italy
Spain
UK
8
34
9
23
11
17
48
12
27
25
5
36
18
5
3
12
52
24
9
12
Source: GWEC, EPIA, HSBCe
Germany: ideology prevailing over economics…but increasingly narrowly
The German energy transition (Energiewende) envisages an exit from nuclear by the end of 2022 and an
objective of 80% of power from renewable sources by 2050 (28.3% of domestic supply in 2013).
Germany has embraced a rapid expansion in wind and in solar with 69GW of combined installed capacity
at the end of 2013 (equivalent to 38% of Germany’s installed capacity, and 45% if we add hydro and
other renewable sources) with over 55GW of wind and solar capacity opened over the last 10 years.
But the extent of this boom now means that, with limited infrastructural advances having been achieved,
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Germany now has a problem of curtailment of renewables power, meaning that at times the grid cannot
absorb 100% of (especially wind) output on surges following weather changes.
The German grid operators (TSOs) on 12 May 2014 released their assessment for 2025 domestic capacity
based on scenarios whereby 40%, 45% and 47% of supply is renewable and gross consumption is
600TWh (from 617TWh in 2013) as well as a 2035 outlook. Whilst acknowledging the substantial room
for error in long-term forecasts, it is still worth noting that by 2025, the TSOs envisage a 70-90% rise in
wind and solar capacity and by 2035, a 135% rise (see table below).
German grid operators draft network development plan, May 2014
% supply from renewables
Capacity mix GW
Nuclear
Lignite
Coal
Gas
Other conventional
Total conventional
Wind, solar
Other renewables
Total renewables
Total
2013
2025 A
2025 B
2025 C
2035
28.3%
40%
45%
47%
55-60%
12.1
21.2
26.2
26.5
15.2
101.2
68.8
11.4
81.2
181.4
0
20.3
26.1
23.0
13.6
83.0
117.2
11.4
128.6
211.6
0
19.6
24.6
26.3
13.7
84.2
126.4
12.8
139.2
223.3
0
17.4
22.2
21.5
10.5
71.6
130.0
12.7
142.7
214.3
0
13.9
14.9
37.5
17.0
83.3
161.4
14.3
175.7
259.0
Source: German TSOs
In terms of watt per capita, Germany is already the second most developed non-hydro renewables market
in Europe, just behind Denmark, and ahead of Spain (where sector revenues have failed to match costs,
hence the vexed situation of the tariff deficit) and Italy. There is a certain irony in the beaches of sunny
Spain representing the holiday destination of choice for Germans (from a country with quadruple Spain’s
per-capita solar output) (see table below).
Per-capita wind/solar output by EU member, 2012 (Watts)
Country
Denmark
Germany
Spain
Portugal
Italy
Sweden
Belgium
EU average
Czech Rep
France
Netherlands
UK
Wind
Solar
Wind + solar
746
383
448
429
134
395
125
210
21
115
139
132
70
400
98
22
269
3
240
136
193
62
19
26
816
783
546
451
403
398
365
346
214
177
158
158
Source: EWEA, EurObserv’ER
Reasonably favourable for wind in the extreme north
As the map overleaf shows, Germany’s Baltic coastal region provides reasonably favourable conditions
for wind power production (better than Spain, the EU’s first boom market, but not as favourable as the
UK and northern EU countries with long coast-lines). As a general rule of thumb, a 10% increase in wind
speed adds a third to power output. Whilst Germany has expanded its capacity rapidly, from negligible
levels in 1996 to 34.7GW at the end of 2013 (third largest in the world behind China and the US and
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Utilities/Mid-cap Capital Goods
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September 2014
leader in Europe 50% ahead of Spain and at least triple any other country), it is noticeable that such
expansion has been steady with, over the last 15 years, no single year seeing net additions below 1.4GW
or above 3.3GW.
ECMWF wind field data after correction for orography and local roughness
Source: EEA 2008 Note: ECMWF = European Centre for Medium-Range Weather Forecasts; orography = impact of hills/mountains on air mass
The sun always shines in LA and southern Europe…but less so in Germany
Germany’s rise in solar has been explosive with 20GW added in 2010-12 alone and 30GW in 2009-14. The
amendment of the Renewable Energy Sources Act (EEG 2014) entered into force at the start of August.
 The government has retained its solar subsidies ceiling at 52GW, and has imposed an annual cap of
2.5GW of new solar capacity with a similar cap for onshore wind.
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 All new power plants with a capacity over 10KW will be charged a pro rata EEG fee for electricity
produced and consumed by these generators (or “pro-sumers”) themselves. Typically, the capacity of
solar PV panels is 5-20KW.
 All CHP and renewable energy electricity generation systems will have to pay a charge equal to 40%
of the respective EEG surcharge. The full charge will be carried out in three stages: 30% by end of
2015, 35% by end of 2016 and 40% of the EEG surcharge as of the year 2017. This currently
corresponds to EUR2.5 cents per KWh or EUR25/MWh.
 Newly installed systems with a capacity of up to 10KW and an annual output of 10MWh will remain
exempt from the EEG surcharge. This means that a large part of the residential market segment on
rooftops (which was c17% of the market in GW in 2013) will remain exempt.
Before EEG 2014, a new installation received between EUR94/MWh and EUR135/MWh for 20 years;
two years ago, the rate of remuneration was EUR135-195/MWh. The average feed-in tariff (FIT) in 2013
was EUR290/MWh, still inflated by the high costs of earlier facilities built from 2000. EEG 2014
envisages an average feed-in tariff of EUR90-130/MWh. This covers the cost of generation and a fixed
return on investment. Given the improving economics of battery storage (Chart 14), we do not expect this
self-consumption levy to act as a major deterrent to growth of the battery storage industry in Germany.
After 2020, we will see the impact of expiring FITs for older units.
Over the first seven months of 2014, there have been additions of 1.36GW of solar capacity. Solar
capacity was initially concentrated in the (sunnier) southern regions of Bavaria and Baden-Wurttemberg
but the proportion here fell below half in 2011 and is now at 42%, with all Lander other than the Saarland
and the Cities of Bremen, Hamburg and Berlin at over 1GW of solar (see table below).
German solar capacity by region: less dependent on the sunnier south of the country
_________________ 16-Jul-14 __________________ _________________ End 2010 __________________
MW
%
MW
%
Bavaria
Baden-Wurttemberg
Southern Germany
North Rhine-Westphalia
Lower Saxony
Brandenburg
Rhineland-Palatinate
Saxony-Anhalt
Hesse
Saxony-Anhalt
Schleswig-Holstein
Mecklenburg-Verpommern
Rthuringia
Saarland
Berlin
Bremen
Hamburg
10615
5036
15651
4126
3484
2980
1813
1747
1710
1533
1454
1338
1076
388
77
37
35
37449
28.3
13.4
41.8
11.0
9.3
8.0
4.8
4.7
4.6
4.1
3.9
3.6
2.9
1.0
0.2
0.1
0.1
100.0
6323
2741
9064
1961
1511
564
867
408
897
527
674
249
298
163
31
14
14
17242
36.7
15.9
52.6
11.4
8.8
3.3
5.0
2.4
5.2
3.1
3.9
1.4
1.7
0.9
0.2
0.1
0.1
100.0
Source: Bundesnetzagentur
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The myth that all solar is in the south of Germany
The reality, however, is that Germany is not a particularly sunny country, as shown by the map and the
bar chart overleaf , and no technological advance of which we are aware can change the reality that solar
PV panels will produce more power in southern Europe than northern Europe. Thus, the impact of the
solar boom on prices has been particularly high not just due to the extent of the solar expansion but also
due to the level of subsidy to incentivise new-build with the prospect of limited sunshine hours: the cost
of solar to end users paying the full EEG subsidy (ie households, commerce) is EUR15/MWh in 2014 and
EUR18/MWh after VAT, or 6% of final retail tariffs but double the proportion for non-retail users who
pay the full EEG. After VAT, the full EEG accounts for a quarter of the retail invoice.
Annual hours of sunshine in Europe
Source: XL3 (http://en.wikipedia.org/wiki/File:Europe_sunshine_hours_map.png)
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Annual hours of sunshine in various cities
3500
3000
2500
2000
1500
1000
Prague, Czech Republic
Stuttgart,
Germany
Stuttgart, Germany
MUNICH,
MUNICH, Germany
Germany
Guangzhou, China
Kyoto, Japan
Tokyo, Japan
Milan, Italy
Shanghai, China
Turin, Italy
Naples, Italy
Barcelona, Spain
Houston, Texas
Tianjin, China
San Antonio, Texas
Austin, Texas
Nice, France
Beijing, China
Madrid, Spain
Athens, Greece
Lisbon, Portugal
Dallas, Texas
Jacksonville, Florida
Tampa, Florida
San Diego, California
Miami, Florida
Los Angeles, California
0
Glasgow, UK
London, UK
Hannover,
Germany
Hannover, Germany
Leipzig,
Germany
Leipzig, Germany
Cologne,
Cologne, Germany
Germany
Brussels, Belgium
Hamburg,
Germany
Hamburg, Germany
Frankfurt,
Germany
Frankfurt, Germany
Berlin,
Berlin, Germany
Germany
500
Source: currentresults.com
German public is still behind the Energiewende … but not at any price
In our report on 22 April 2014 EEG and market reform … damp squib rather than earnings Eldorado, we
concluded that German power prices will remain on an upward curve: that the re-distribution of the EEG
surcharge will create only limited room for manoeuvre, given
 upward cost pressures (or an end to cost declines) in non-EEG components of the end-user power
price (especially grid costs)
 that more expensive off-shore wind will be in the vanguard of renewables expansion in the coming
years, following the dominance first of on-shore wind and more recently solar, contributing to
substantial rises in the annual EEG cost from its 2014e level of EUR23.6bn
In consequence, there is no pressing need for the government to introduce a new cost element in the form
of a capacity mechanism. It becomes ever more critical to find ways of raising efficiencies and reducing
costs, as although there appears to be no public will to stop the Energiewende process towards a
renewables-dominated power production mix in the medium-term (85-90% of the public are behind the
Energiewende according to the DGAP think-tank (German Council on Foreign Relations)), “Germans are
increasingly anxious about costs…are willing to pay higher prices to support renewables…but only so
much more”.
Contrasting German outlook with those of Italy and Spain
It is worth contrasting Germany, where we believe that subsidy cuts are sufficiently limited to keep
onshore wind and solar at 4-5GW of annual new capacity, with Spain and Italy, where the rush of
expansion in renewables has de-stabilised the market and effectively ground to a halt, despite their
attractions as locations for solar power generation, relative to northern Europe including Germany. Charts
19 and 20 overleaf illustrate the impact of uncontrolled renewables expansion on power prices, amongst
the most expensive in the EU.
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Italy: supporting only residential solar now with tax rebates
Solar
The Italian government has nearly met its 2020 renewable electricity production goal (17% of total
output) by the end of 2012. The solar industry experienced a huge but short-lived boom with 9.3GW of
new capacity in 2010 and 4.2GW in 2011, and Italy is now the third country in the world in terms of
installed capacity (almost 18GW), well behind Germany and just behind China. The solar assets are
supported by a specific FIT called “Conto Energia” that was introduced in 2005. The amount of the
premium has been modified several times in order to adapt to economies of scale and the last big cut
happened at the beginning of 2013 (with no retroactive impact). Currently the feed-in tariffs are set at an
average of EUR150/KW (including an average of EUR60/KW premium on self-consumption). By 2012,
renewable surcharges accounted for approximately 20% of the total retail bill and retail prices are the
third highest in Europe (see chart below). As of June 2013, financial support limits for solar in Italy were
reached (absolute amount of EUR6.7bn) and feed-in tariffs are no longer available for new projects.
However, residential solar PV continues to be incentivised (through tax rebates mainly, deducting 36% to
50% of the system capex from an individual’s income tax over a 10-year period), implying some degree
of ongoing development in the Italian solar industry but likely at a slower pace. We forecast 24GW of
solar capacity by the end of 2020 (see table on page 58).
Wind
Italy’s installed wind capacity was 8.5GW at the end of 2013. Its NREAP (National Renewable Energy
Action Plan), submitted to the EC in 2010, targets 12.6GW by 2020 (HSBC forecast 12GW). The wind
market in Italy is now capped at 450MW per year.
Spain: any government support for renewables is unlikely
Spain has counted the cost of its overly-generous renewables policies that were initially based on wind power
(23GW installed capacity), exacerbated by the subsequent expansion in solar (5GW of which two-thirds in
2007-08) which benefited from generous feed-in-tariffs of more than EUR300/KW, which enabled the
developers where able to attain internal rates of return close to 15% (with tariffs). From 2008, the Spanish
government responded through several regulatory claw-backs that have created uncertainty as some of the
cuts could be considered as retroactive (cutting the returns for assets already built). Most recently, in 2012 a
moratorium on new renewable developments was implemented (affecting all renewable sources), a 7%
special tax on all sources of electricity generation (including solar) was approved and a new return formula
Comparison of retail power prices
Comparison of SME commercial and Industrial power prices
Source: Eurostat
Source: Eurostat
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was implemented (targeting an IRR of 7.5% for all the renewable assets during the useful life, implying a new
cut in premiums). Nonetheless, annual solar subsidies in Spain still account for more than EUR5bn. Taking
into account the tariff deficit problems experienced by the Spanish electricity market during the last years, we
doubt that the Spanish government will re-implement priority status for renewable projects. New solar assets
will not receive any feed-in support and therefore the developers may only build assets if they calculate that
they can generate a return with the current spot power prices. We forecast 9GW of solar capacity by the end
of 2020 (see table on page 58).
In terms of wind, Spain’s official NREAP (National Renewable Energy Action Plan) target for 2020 is
38GW, which seems unrealistic given declining demand and cuts on renewables rates of return. We see
virtually no wind additions before 2017, with an estimate of 27GW for 2020.
Other EU: catching up
Whilst Italy and Spain see a period of virtually negligible growth in renewables capacity, other EU
countries, particularly the UK and France, retain ambitious targets for wind (driven by off-shore) and solar.
UK
By mid-2014, there were some 510,000 houses with rooftop solar PV panels, and solar’s share of demand
reached a high of 7.8% on 21 June 2014 (according to the STA Solar Trade association). In April 2014,
DECC published the second part of its ‘UK Solar PV Strategy’ in which it stated the potential for the UK
to raise its solar capacity from 2.7GW to 20GW early in the next decade. Our forecast is 12GW, still a
virtual quadrupling from the end of 2013. In May 2014, DECC proposed removing the ROC (renewables
obligation certificate) from solar units of more than 5GW (ie large-scale, ground-based) from April 2015,
whilst maintaining support for mid-scale and roof-top units. The UK’s 2020 targets of a 15% share of
renewables in power output imply up to 29GW of wind capacity (up from 10.5GW at end-2013, led by
offshore); HSBC forecasts 25GW (see table on page 58).
France
France targets 25GW of wind by 2020, implying a tripling of the 8.3GW at end-2013, which we expect to
miss due to delays in offshore project tender processes, and 5.4GW of solar, a target unchanged since
2011 and likely to be beaten given 4.7GW of end-2013 capacity. The French Environment and Energy
Management Agency ADEME has proposed a 15GW target for 2020; to what extent the old target is
beaten or the ADEME target missed will inevitably depend how much further feed-in tariffs are cut; they
were reduced by around 20% in Q1 2014. Our end-2020 forecasts are 17GW of wind and 12GW of solar
(see table on page 58).
Other markets: US cutting the costs
China, southern areas of the US, and emerging markets which decide (rather than build a fleet of fossilfuel plants) to build clean generation from the start, are likely to underpin growth of solar. President
Obama on 5 December 2013 issued a memorandum directing the US government to pursue a 2020 target
of 20% of energy from renewable sources (from 13% in 2013); the US had 13.4GW of solar capacity at
end-Q1 2014; the Solar Energy Industries Association (SEIA) and GTM Research forecast 6.6GW of new
capacity in 2014 to 18.7GW by year-end. According to RTCC (the US-based Responding to Climate
Change, 30 April 2014), the installed cost of US solar fell by 27% in Q1 2014 alone to an average of
USD3.3/W compared with USD4.5/W average in 2013 and in line with the target of the government’s
SunShot Initiative, launched in late 2011, of an installed cost of around USD1.50/W for rooftop solar PV
(equating to around EUR70/MWh) and USD1.00/W for utility-size units (down from over USD8/W as
recently as Q1 2009).
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Utilities/Mid-cap Capital Goods
Energy Storage
September 2014
Energy storage players
Most utilities/clients have no experience in building and operating storage solutions. There is also a lack
of standards and no single technology clearly dominates the market. Clients will choose suppliers with a
proven track record, demonstrated technology and a sound financial structure.
We list below some of the key players in the energy storage market in the chart below including LG
Chem and Samsung in Korea, GS Yuasa and Panasonic in Japan, Saft in Europe, Dresser-Rand
(US based, one of the largest suppliers of custom-engineered rotating equipment solutions for the energy
infrastructure sector) and GE. We see these companies taking different approaches to penetrate the battery
market. Players such as Saft and A123Systems have adopted a vertical integrated approach, whereas
others prefer a multi-battery supplier approach, which offers more flexibility and competitive prices
(see chart below).
Supply and partnership strategies in energy storage supply chain
Storage technology
Saft
Vertically integrated
storage v endor
A123
Sy stem
Sy stem integration
A123
Sy stem
AES
Energy Storage
Long term dev eloper
relationship
NGK
Adhoc agreements 1:
choosy large integrator
Ow nership/operation
Saft
BYD
FIAMM
S&C
East Penn International
Kokam
ZBB
Adhoc agreements 2:
cooperativ e specialists
Long-term multi-supplier
non-ex clusiv e
agreements
Long-term agreements
w ith ex clusiv ity
Source: Bloomberg New Energy Finance
66
International
Battery
DOW Kokam
EnerVault
Ax ion Power
LG Chem
ecamion
Ray theon
v iridity energy
ABB
FAAM
TOSHIBA
SAMSUNG
GE
Xtreme
Pow er
Younicos
HYOSUNG
nichicon
Arista pow er
Vertically integrated
Ad hoc supply
Long term agreement
Agreement w ith exclusiv ity
Utilities/Mid-cap Capital Goods
Energy Storage
September 2014
abc
Disclosure appendix
Analyst Certification
The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the
opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their
personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific
recommendation(s) or views contained in this research report: Adam Dickens, Charanjit Singh, Verity Mitchell, Sean
McLoughlin, Pablo Cuadrado, Pierre Bosset and Jenny Cosgrove
Important disclosures
Equities: Stock ratings and basis for financial analysis
HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which
depend largely on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations.
Given these differences, HSBC has two principal aims in its equity research: 1) to identify long-term investment opportunities
based on particular themes or ideas that may affect the future earnings or cash flows of companies on a 12 month time horizon;
and 2) from time to time to identify short-term investment opportunities that are derived from fundamental, quantitative,
technical or event-driven techniques on a 0-3 month time horizon and which may differ from our long-term investment rating.
HSBC has assigned ratings for its long-term investment opportunities as described below.
This report addresses only the long-term investment opportunities of the companies referred to in the report. As and when
HSBC publishes a short-term trading idea the stocks to which these relate are identified on the website at
www.hsbcnet.com/research. Details of these short-term investment opportunities can be found under the Reports section of this
website.
HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's
existing holdings and other considerations. Different securities firms use a variety of ratings terms as well as different rating
systems to describe their recommendations. Investors should carefully read the definitions of the ratings used in each research
report. In addition, because research reports contain more complete information concerning the analysts' views, investors
should carefully read the entire research report and should not infer its contents from the rating. In any case, ratings should not
be used or relied on in isolation as investment advice.
Rating definitions for long-term investment opportunities
Stock ratings
HSBC assigns ratings to its stocks in this sector on the following basis:
For each stock we set a required rate of return calculated from the cost of equity for that stock’s domestic or, as appropriate,
regional market established by our strategy team. The price target for a stock represents the value the analyst expects the stock
to reach over our performance horizon. The performance horizon is 12 months. For a stock to be classified as Overweight, the
potential return, which equals the percentage difference between the current share price and the target price, including the
forecast dividend yield when indicated, must exceed the required return by at least 5 percentage points over the next 12 months
(or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock must be
expected to underperform its required return by at least 5 percentage points over the next 12 months (or 10 percentage points
for a stock classified as Volatile*). Stocks between these bands are classified as Neutral.
Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation of coverage, change of volatility
status or change in price target). Notwithstanding this, and although ratings are subject to ongoing management review,
expected returns will be permitted to move outside the bands as a result of normal share price fluctuations without necessarily
triggering a rating change.
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Utilities/Mid-cap Capital Goods
Energy Storage
September 2014
*A stock will be classified as volatile if its historical volatility has exceeded 40%, if the stock has been listed for less than 12
months (unless it is in an industry or sector where volatility is low) or if the analyst expects significant volatility. However,
stocks which we do not consider volatile may in fact also behave in such a way. Historical volatility is defined as the past
month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating,
however, volatility has to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.
Rating distribution for long-term investment opportunities
As of 26 September 2014, the distribution of all ratings published is as follows:
Overweight (Buy)
44%
(30% of these provided with Investment Banking Services)
Neutral (Hold)
38%
(30% of these provided with Investment Banking Services)
Underweight (Sell)
18%
(21% of these provided with Investment Banking Services)
Share price and rating changes for long-term investment opportunities
Blue Solutions (BLUE.PA) Share Price performance EUR Vs HSBC rating
Recommendation & price target history
history
From
N/A
Neutral (V)
Target Price
37
Price 1
Source: HSBC
32
27
22
Source: HSBC
68
Sep-14
Sep-13
Sep-12
Sep-11
Sep-10
Sep-09
17
To
Date
Neutral (V)
Underweight (V)
Value
12 December 2013
14 May 2014
Date
20.00
12 December 2013
abc
Utilities/Mid-cap Capital Goods
Energy Storage
September 2014
Recommendation & price target history
E.ON (EONGn.DE) Share Price performance EUR Vs HSBC rating history
From
Underweight
Overweight
Underweight
Neutral
Overweight
Neutral
Underweight
Neutral
Underweight
Neutral
Target Price
50
45
40
35
30
25
20
15
Sep-14
Sep-13
Sep-12
Sep-11
Sep-10
Sep-09
10
Source: HSBC
To
Date
Overweight
Underweight
Neutral
Overweight
Neutral
Underweight
Neutral
Underweight
Neutral
Underweight
Value
22 November 2011
06 February 2012
25 May 2012
27 June 2012
27 September 2012
13 November 2012
02 April 2013
10 May 2013
15 January 2014
13 March 2014
Date
16.00
20.00
16.00
17.00
19.00
20.00
21.00
15.00
13.00
12.00
11.00
12.00
14.00
12.00
11.00
10.00
11.00
13.00
14.00
13.00
17 October 2011
22 November 2011
06 February 2012
15 March 2012
27 June 2012
11 July 2012
27 September 2012
13 November 2012
14 November 2012
07 January 2013
31 January 2013
21 March 2013
02 April 2013
10 May 2013
04 July 2013
09 September 2013
02 October 2013
14 November 2013
15 January 2014
13 March 2014
Price 1
Price 2
Price 3
Price 4
Price 5
Price 6
Price 7
Price 8
Price 9
Price 10
Price 11
Price 12
Price 13
Price 14
Price 15
Price 16
Price 17
Price 18
Price 19
Price 20
Source: HSBC
Saft Groupe SA (S1A.PA) Share Price performance EUR Vs HSBC rating
Recommendation & price target history
history
From
Overweight
Neutral
Neutral (V)
Target Price
35
30
25
20
Sep-14
Sep-13
Sep-12
Sep-11
Sep-10
Sep-09
15
Price 1
Price 2
Price 3
Price 4
Price 5
Price 6
Price 7
Price 8
Price 9
Price 10
To
Date
Neutral
Neutral (V)
Overweight
Value
05 July 2013
26 July 2013
21 March 2014
Date
29.00
26.00
23.00
24.00
28.00
22.00
21.00
29.00
32.00
34.00
14 November 2011
20 June 2012
29 October 2012
07 January 2013
19 February 2013
05 July 2013
26 July 2013
12 February 2014
21 March 2014
24 July 2014
Source: HSBC
Source: HSBC
69
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Utilities/Mid-cap Capital Goods
Energy Storage
September 2014
Recommendation & price target history
RWE (RWEG.DE) Share Price performance EUR Vs HSBC rating history
From
Underweight
Neutral
Underweight (V)
Overweight
Neutral
Target Price
98
88
78
68
58
48
38
28
Source: HSBC
Sep-14
Sep-13
Sep-12
Sep-11
Sep-10
Sep-09
18
Price 1
Price 2
Price 3
Price 4
Price 5
Price 6
Price 7
Price 8
Price 9
Price 10
Price 11
Price 12
Price 13
Price 14
Price 15
To
Date
Neutral
Underweight (V)
Overweight
Neutral
Underweight
Value
06 February 2012
07 March 2012
27 September 2012
07 January 2013
08 February 2013
Date
28.00
32.00
28.00
29.00
41.00
38.00
34.00
26.00
23.00
19.00
18.00
23.00
24.00
26.00
27.00
22 November 2011
06 February 2012
06 June 2012
11 July 2012
27 September 2012
13 November 2012
07 January 2013
08 February 2013
21 March 2013
04 July 2013
09 September 2013
14 November 2013
15 January 2014
29 May 2014
07 July 2014
Source: HSBC
HSBC & Analyst disclosures
Disclosure checklist
Company
BLUE SOLUTIONS
E.ON
RWE
SAFT GROUPE SA
Ticker
Disclosure
BLUE.PA
EONGn.DE
RWEG.DE
S1A.PA
1, 5
2, 4, 5, 6
2, 4, 6, 7, 11
5, 7
Source: HSBC
1
2
3
4
5
6
7
8
9
10
11
HSBC has managed or co-managed a public offering of securities for this company within the past 12 months.
HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next
3 months.
At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this
company.
As of 31 August 2014 HSBC beneficially owned 1% or more of a class of common equity securities of this company.
As of 31 July 2014, this company was a client of HSBC or had during the preceding 12 month period been a client of
and/or paid compensation to HSBC in respect of investment banking services.
As of 31 July 2014, this company was a client of HSBC or had during the preceding 12 month period been a client of
and/or paid compensation to HSBC in respect of non-investment banking securities-related services.
As of 31 July 2014, this company was a client of HSBC or had during the preceding 12 month period been a client of
and/or paid compensation to HSBC in respect of non-securities services.
A covering analyst/s has received compensation from this company in the past 12 months.
A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as
detailed below.
A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this
company, as detailed below.
At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or in
securities in respect of this company
HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments (including derivatives)
of companies covered in HSBC Research on a principal or agency basis.
70
Utilities/Mid-cap Capital Goods
Energy Storage
September 2014
abc
Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment
banking revenues.
Whether, or in what time frame, an update of this analysis will be published is not determined in advance.
For disclosures in respect of any company mentioned in this report, please see the most recently published report on that
company available at www.hsbcnet.com/research.
Additional disclosures
1
2
3
4
This report is dated as at 29 September 2014.
All market data included in this report are dated as at close 23 September 2014, unless otherwise indicated in the report.
HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its
Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research
operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier
procedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or
price sensitive information is handled in an appropriate manner.
As of 19 Sep 2014, HSBC owned a significant interest in the debt securities of the following company(ies): E.ON
71
Utilities/Mid-cap Capital Goods
Energy Storage
September 2014
abc
Disclaimer
* Legal entities as at 30 May 2014
Issuer of report
‘UAE’ HSBC Bank Middle East Limited, Dubai; ‘HK’ The Hongkong and Shanghai Banking Corporation Limited,
HSBC Bank plc
Hong Kong; ‘TW’ HSBC Securities (Taiwan) Corporation Limited; 'CA' HSBC Bank Canada, Toronto; HSBC Bank,
8 Canada Square
Paris Branch; HSBC France; ‘DE’ HSBC Trinkaus & Burkhardt AG, Düsseldorf; 000 HSBC Bank (RR), Moscow;
London, E14 5HQ, United Kingdom
‘IN’ HSBC Securities and Capital Markets (India) Private Limited, Mumbai; ‘JP’ HSBC Securities (Japan) Limited,
Tokyo; ‘EG’ HSBC Securities Egypt SAE, Cairo; ‘CN’ HSBC Investment Bank Asia Limited, Beijing Representative
Telephone: +44 20 7991 8888
Office; The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch; The Hongkong and
Fax: +44 20 7992 4880
Shanghai Banking Corporation Limited, Seoul Securities Branch; The Hongkong and Shanghai Banking
Website: www.research.hsbc.com
Corporation Limited, Seoul Branch; HSBC Securities (South Africa) (Pty) Ltd, Johannesburg; HSBC Bank plc,
London, Madrid, Milan, Stockholm, Tel Aviv; ‘US’ HSBC Securities (USA) Inc, New York; HSBC Yatirim Menkul
Degerler AS, Istanbul; HSBC México, SA, Institución de Banca Múltiple, Grupo Financiero HSBC; HSBC Bank
Brasil SA – Banco Múltiplo; HSBC Bank Australia Limited; HSBC Bank Argentina SA; HSBC Saudi Arabia
Limited; The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong
Kong SAR; The Hongkong and Shanghai Banking Corporation Limited, Bangkok Branch
In the UK this document has been issued and approved by HSBC Bank plc (“HSBC”) for the information of its Clients (as defined in the Rules of FCA) and
those of its affiliates only. It is not intended for Retail Clients in the UK. If this research is received by a customer of an affiliate of HSBC, its provision to the
recipient is subject to the terms of business in place between the recipient and such affiliate.
HSBC Securities (USA) Inc. accepts responsibility for the content of this research report prepared by its non-US foreign affiliate. All U.S. persons receiving
and/or accessing this report and wishing to effect transactions in any security discussed herein should do so with HSBC Securities (USA) Inc. in the United
States and not with its non-US foreign affiliate, the issuer of this report.
In Singapore, this publication is distributed by The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch for the general information of
institutional investors or other persons specified in Sections 274 and 304 of the Securities and Futures Act (Chapter 289) (“SFA”) and accredited investors and
other persons in accordance with the conditions specified in Sections 275 and 305 of the SFA. This publication is not a prospectus as defined in the SFA. It
may not be further distributed in whole or in part for any purpose. The Hongkong and Shanghai Banking Corporation Limited Singapore Branch is regulated
by the Monetary Authority of Singapore. Recipients in Singapore should contact a "Hongkong and Shanghai Banking Corporation Limited, Singapore Branch"
representative in respect of any matters arising from, or in connection with this report.
In Australia, this publication has been distributed by The Hongkong and Shanghai Banking Corporation Limited (ABN 65 117 925 970, AFSL 301737) for the
general information of its “wholesale” customers (as defined in the Corporations Act 2001). Where distributed to retail customers, this research is distributed
by HSBC Bank Australia Limited (AFSL No. 232595). These respective entities make no representations that the products or services mentioned in this
document are available to persons in Australia or are necessarily suitable for any particular person or appropriate in accordance with local law. No
consideration has been given to the particular investment objectives, financial situation or particular needs of any recipient.
This publication has been distributed in Japan by HSBC Securities (Japan) Limited. It may not be further distributed, in whole or in part, for any purpose. In
Hong Kong, this document has been distributed by The Hongkong and Shanghai Banking Corporation Limited in the conduct of its Hong Kong regulated
business for the information of its institutional and professional customers; it is not intended for and should not be distributed to retail customers in Hong Kong.
The Hongkong and Shanghai Banking Corporation Limited makes no representations that the products or services mentioned in this document are available to
persons in Hong Kong or are necessarily suitable for any particular person or appropriate in accordance with local law. All inquiries by such recipients must be
directed to The Hongkong and Shanghai Banking Corporation Limited. In Korea, this publication is distributed by The Hongkong and Shanghai Banking
Corporation Limited, Seoul Securities Branch ("HBAP SLS") for the general information of professional investors specified in Article 9 of the Financial
Investment Services and Capital Markets Act (“FSCMA”). This publication is not a prospectus as defined in the FSCMA. It may not be further distributed in
whole or in part for any purpose. HBAP SLS is regulated by the Financial Services Commission and the Financial Supervisory Service of Korea. This
publication is distributed in New Zealand by The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR.
This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. HSBC has based
this document on information obtained from sources it believes to be reliable but which it has not independently verified; HSBC makes no guarantee,
representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. The opinions contained within the report are based upon
publicly available information at the time of publication and are subject to change without notice.
Nothing herein excludes or restricts any duty or liability to a customer which HSBC has under the Financial Services and Markets Act 2000 or under the Rules of
FCA and PRA. A recipient who chooses to deal with any person who is not a representative of HSBC in the UK will not enjoy the protections afforded by the UK
regulatory regime. Past performance is not necessarily a guide to future performance. The value of any investment or income may go down as well as up and you
may not get back the full amount invested. Where an investment is denominated in a currency other than the local currency of the recipient of the research report,
changes in the exchange rates may have an adverse effect on the value, price or income of that investment. In case of investments for which there is no recognised
market it may be difficult for investors to sell their investments or to obtain reliable information about its value or the extent of the risk to which it is exposed.
In Canada, this document has been distributed by HSBC Bank Canada and/or its affiliates. Where this document contains market updates/overviews, or similar
materials (collectively deemed “Commentary” in Canada although other affiliate jurisdictions may term “Commentary” as either “macro-research” or
“research”), the Commentary is not an offer to sell, or a solicitation of an offer to sell or subscribe for, any financial product or instrument (including, without
limitation, any currencies, securities, commodities or other financial instruments).
HSBC Bank plc is registered in England No 14259, is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and
the Prudential Regulation Authority and is a member of the London Stock Exchange. (070905)
© Copyright 2014, HSBC Bank plc, ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted,
on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC Bank plc. MICA
(P) 157/06/2014, MICA (P) 171/04/2014 and MICA (P) 077/01/2014
[431122]
72
Adam Dickens*
Head of EMEA Utilities Research
HSBC Bank plc
+44 20 7991 6798
[email protected]
Utilities/Mid-cap Capital Goods
September 2014
Adam is a utilities analyst covering the European power and downstream gas sectors. He has 16 years experience covering the utilities
industry, working in Paris and London. He re-joined HSBC in June 2008.
Charanjit Singh joined HSBC in 2006 and is a member of the Alternative Energy team and Climate Change Centre of Excellence. He has
been a financial and policy analyst since 2000. Prior to joining HSBC, he worked with an energy major and a leading rating company.
Charanjit is a Chevening fellow from the University of Edinburgh. He holds a bachelor’s degree in engineering and a master’s degree
in management.
Energy Storage
Charanjit Singh*
Analyst
HSBC Bank plc
+91 80 3001 3776
[email protected]
Energy Storage
Power to the People
Pierre Bosset*
Head of French Mid-cap research
HSBC Bank plc, Paris branch
+33 1 5652 4310
[email protected]
Pierre Bosset joined HSBC Securities (formerly James Capel) in 1989 as pan-European construction analyst. He graduated from
a civil engineering school (ESTP in France) in 1983 and completed an MBA (from Institut Superieur des Affaires) in 1985. He was
consistently ranked among the top three European analysts in the construction sector until 1995, when he was appointed managing
director of HSBC Securities (France) SA. After the acquisition of CCF by HSBC, Pierre was appointed head of French research for HSBC CCF
Securities, and later, head of pan-European mid cap research for HSBC Securities.
Verity Mitchell is the HSBC utilities analyst covering UK water and electricity utilities and French and US water utilities, a position she
has held since 1998. Prior to that she worked in project finance for HSBC advising on infrastructure projects including mandates in the
water, transport and defence sectors. Before joining HSBC she worked briefly for what was then DTI, now the Department for Business,
Innovation and Skills.
Jenny Cosgrove*
Regional Head of Utilities and Alternative Energy Research
HSBC Markets (Asia) Ltd
+852 2996 6619
[email protected]
Utilities/Mid-cap Capital Goods
Verity Mitchell*
Associate Director – European Utilities Research
HSBC Bank plc
+44 20 7991 6840
[email protected]
Storage will be a big theme of the energy industry
starting in the home with solar power
The driver is the need for energy efficiency, as
European companies and consumers are paying
more for their electricity than other regions
Potential winners are battery manufacturers and
renewable generators but all is not lost for the
big utilities
Jenny Cosgrove joined HSBC as Asia-Pacific Head of Utilities and Alternative Energy Research in 2012. Before joining HSBC, she
worked in Hong Kong at a European brokerage and in Australia at a financial services firm from 2005, covering the same space.
From 1999 to 2004, she worked at a leading Swiss investment bank as Asia regional head of utilities and, prior to this, for the
Commonwealth Department of Finance in Australia. Jenny holds a bachelor of economics (honors) from The University of Tasmania
and is a CFA charterholder.
By Adam Dickens, Charanjit Singh, Pierre Bosset,
Verity Mitchell, Pablo Cuadrado, Jenny Cosgrove
and Sean McLoughlin
Sean McLoughlin*
European Research – Value and Growth
HSBC Bank plc
+44 20 7991 3464
[email protected]
Sean McLoughlin is an equity research analyst in the Capital Goods team covering UK industrials and alternative energy and
renewables. Before joining HSBC in August 2011 he helped build out coverage of the clean technology sector at an international
middle-market investment bank as part of an Extel rated team. Sean has a PhD in Materials Science and Engineering, and before
becoming an equity analyst in 2007 he worked in the clean tech industry.
Pablo Cuadrado*
Southern Europe Utilities analyst
HSBC Bank, Sucursal en Espana
+34 91 456 6240
[email protected]
Pablo Cuadrado is the HSBC utility analyst covering Southern Europe, focussed on integrated and regulated utilities in Spain, Portugal
and Italy. He joined the Utilities team at the beginning of 2014. He has 12 years of experience covering energy markets (focusing on the
utility industry since 2004). Before joining HSBC he worked at several local and international equity brokers in Madrid and in London.
*Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations.
Play Video with
Adam Dickens
Issuer of report: HSBC Bank plc
September 2014
Disclosures and Disclaimer This report must be read with the disclosures and analyst
certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it
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