VSA Capital Market Movers – Invinity Energy Systems

VSA Morning Transitional Energy Comment, 08/11/21

Invinity Energy Systems (Invinity Energy PLC (AIM:IES))

Invinity Energy Systems plc (Invinity Energy PLC (AIM:IES)), has today announced a commercial progress update. IES’s Vanadium Flow Battery (VFB) technology is patented, fully developed, in manufacture and targeting the global high-growth stationary storage market that underpins grid stability as renewable energy grows. IES is now at commercial product level. Siemens Gamesa, a global leader in renewable energy has validated the technology and potential and entered into a joint development agreement to develop next generation VFBs.

As we noted in our research note of September 30 2021, issued post Company Interims, 2021 was set to be the year that IES moved to production scale and grew sales, however, the IES is in the midst of one of the worst global supply line environments for many years. History of economic cycles shows that supply, manpower and cost headwinds will reverse over time and provide IES with the opportunity to significantly scale.

IES now has 16MWh of projects. The Company, given the existing supply headwinds, has today provided an update on key projects:

5MWh Energy Superhub Oxford (ESO) project – Cluster 1 is on site, energised and currently in trial operation ahead of final commissioning. VSA recently visited the site to review the progress being made. Cluster 2 is on site and being installed ahead of energising in the coming weeks. Cluster 3 is scheduled to arrive on site this week. This will complete the physical delivery phase of IES’s product to the ESO.

The Company now anticipate that the full system will be energised at the end of 2021, with customer handover expected to occur in early 2022. This is a high-profile project with wide media coverage, raising the profile of VFB’s technology and driving wider commercialisation.

0.8MWh Scottish Water project – The system is now on site. Installation processes are currently underway prior to batteries being energised later this year

Other UK and USA projects – the 1.8MWh European Marine Energy Centre (EMEC) on the Orkney Islands, UK along with the  Webcor and Soboba in the USA, according to the Company, remain on track for their scheduled deliveries before the end of 2021. However, IES noted that any further supply chain challenges could delay one or more of those deliveries, deferring revenue recognition from 2021 to 2022.

8 MWh Yadlamalka Energy project – following the 28 September 2021 update when it had been announced that this project had been delayed for planning reasons, IES today reports that the project developer has made progress, taking appropriate steps for the project to resume as originally planned in H1 2022.

Siemens Gamesa (SGRE) – IES has also commented today on the Company’s Joint Development and Commercialisation Agreement with Siemens Gamesa that was announced on 11 May 2021. This agreement relates to the development of a grid-scale flow battery product and continues to progress towards programme deliverables.

Global supply chain issues are affecting many industries right now and, as we commented at Interims, IES has suffered delays to schedules for when projects are installed, commissioned on site and completed. This impacts our revenue forecasts and, due to supply chain challenges, following the Interims in September, we had to push our forecasts out.

IES today, rightly states in our view, that, “Invinity, despite supply chain disruptions and COVID-induced delays, has achieved a milestone of tremendous importance; we are now shipping our products into the field almost on a weekly basis. This positions us very well to secure significant new contract wins from our very healthy pipeline.”

We see a technology that has developed way beyond the laboratory and prototype, it is ramping up commercialisation with all the visibility that brings as a publicly quoted company. IES is gaining highly credible commercial wins as it seeks to achieve scale in battery storage markets for utilities, grid service providers, off grid, commercial and industrial applications.

In 2020, global utility battery storage capacity grew by 35% to 1,650MW and additional capacity of over 10,000MW is planned by 2023. Lithium-ion is the dominant technology and is available in mass volume owing to high energy density, relatively low cost and efficient discharge for up to 4 hours intraday to meet grid demand. VFB technology has low fire risk and performance advantages. VFBs can discharge multiple times intraday over long duration without wear, removing the need for nearer-term replacement and over time making them cost-competitive vs Lithium-ion.

The world is in transition: 2022 could see the supply and demand environment for IES improve, but patience in developing advanced battery technologies is required. We in the UK have few investment opportunities in the battery sector and IES, given the financial backing to see it through the current extraordinary supply environment, has the potential to significantly grow and attract the valuations assigned to key transitional energy technologies in the U.S.