Phil Hutchings is the chief executive of RedFlow, an industrial energy company that is set to list on the Australian Securities Exchange later this month after raising $17.5 million in an initial public offering.
The company, which makes high tech, industrial strength batteries for use in the electricity sector, remains in its early growth phase, but has big prospects as electricity demand rises.
Today Hutchings explains the company’s opportunity, why the float is more about credibility than money, and how the company is transitioning from a founder-owner business to a public company.
Let’s start at the start. Can you give us an overview of what RedFlow does?
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Electricity is absolutely unique, it’s a commodity that’s got to be consumed when it’s produced. So if you turn on a kettle in your house, somewhere 500 kilometres away someone’s putting a bit more coal in the coal fired power station. I’m exaggerating but basically that’s what happens. If you could store electricity in a cost-effective way then it has all sorts of benefits. Now clearly we can store electricity in little batteries for your cell phone or your torch, but that’s not cost-effective at a large scale. So the Holy Grail has been to figure out a way to store electricity at large scale cost-effectively.
The background of our company is the two founders are Alex and Chris Winter who are both engineers in their 40s, they had both separately worked in the oil industry globally, and made a bit of money and they got married, settled down, had kids, they wanted to come back from overseas and see if they could start their own company. So for the first four years they really paid themselves no salary. They had settled on energy storage as being a technology that’s day was about to come and they did a fairly systematic search and they landed on this zinc bromine flow battery technology as the place to start. So they started that in 2001, literally in their father’s shed here in Brisbane, and then for the first four years they kind of worked on the basic engineering and design.
And RedFlow was started in 2005?
That’s right, and in 2006 or 2007 it got its first seed capital and it’s grown very quickly from there. The actual technology is a zinc bromine flow battery, which is something about the size and shape of a large esky. It’s made of plastic almost entirely, there’s no special lithium gold or lead in there. It’s basically a reversible zinc electroplating machine. The technology is not new, it was actually thought about in the late 1800s, but it’s really modern plastics and modern manufacturing techniques and the smarts of our guys have figured out how to make it manufacturable. So really our IP is all about how you actually manufacture this device in a cost-effective way. And we’ve got a bunch of patents pending on that knowhow.
It’s kind of about the size of I suppose a dishwasher, about the same complexity, and if you think about it, when we get the same volume as making dishwashers, we should get a cost down of the same scale of what a dishwasher sits at which is about $1,600 per unit.
Now the nearest comparable product in the market space is industrial lead acid batteries. That’s what you have in your car. But you can buy industrial lead acid batteries which are much bigger, much heavier and people use those for different applications as well. So if you went today to buy industrial lead acid batteries it would cost you about $12,000 or $13,000. It is worth saying that when we get our product really cranked up in volume it is like a dishwasher, similar complexity for about the same cost as what a dishwasher sells at.
And of course the words lead and acid don’t have the most environmentally friendly connotations.
Exactly. Moreover, lead acid batteries like the battery in your car, if you flatten that a few times you actually kill it. It’s not meant for really hard work so it doesn’t actually suit this application. Our batteries are meant for hard work, they are meant to be fully charged up and fully discharged, day in, day out. They fully charge them up and then drain all the energy out of them, put the power back on the network and so on, whereas a lead acid battery you’d kill it. So it is environmentally friendly, it’s cheaper and it actually works much better in this application.
I know your units are used to power mobile phone towers, but are they something that could eventually be sitting in someone’s backyard charging off the solar panels?
We see our market as not being retail, but business-to-business. Our batteries are always packaged into systems that are connected to the grid so we can charge or take some power off the grid into the solar panels or we can discharge that power back into the grid as well. So they are packaged up into energy storing systems.
Now, the big market for us is something most people don’t understand. The way that we use electricity is actually a headache for the distribution utilities in that we’ve a big peak demand at six o’clock, seven o’clock, eight o’clock at night. We all go home, we put our air-conditioning systems on, we put on our plasma TVs, we plug in our computers, etc. And so the peak demand has grown really rapidly all around the world. However, we expect the utility to always be there to supply us with electricity. It’s like saying if you were building a motorway, you’ve got to build a 20 lane motorway because you’re never, ever allowed to have a traffic jam on it.
So the batteries can help smooth out those supply and demand imbalances?
That’s right. It’s not quite so bad in the city but you can imagine in the fringe of the city or a in a rural location, it’s low hanging fruit to us and that’s where we apply them now. You can imagine if you have an electricity line 20 or 30 kilometres long, with say 80 families or farms on it, that line was put in 40 years ago when they only had fridges, kettles and light bulbs, now we have air-conditioning, etc, so they expect the power to be able to cope when they come home and turn the power on right.
For the utility to upgrade that line could be at a cost of $4 million to provide the same quality power we expect in the city, whereas it is cheaper to take our packaged energy storage systems, take 10 of those say and you put them round on 10 neighbourhoods there and connect them not to the house but to the poles and the wires, the network, and they feed that power in at 6, 7, 8 o’clock at night and then we recharge them at 1, 2 ,3 o’clock in the morning when the network’s quiet. So it is a more cost-effective way of providing, levelling that peak load out than replacing the whole system.
So your main target customers are the energy companies and utilities?
Absolutely. It is business to business, it is with hard core, regulated utilities is our core market, if you like that is the killer app for us.