Friday, June 1, 2012

The Growing Market for Energy Storage

Balqon Companies Make a Move into Energy Storage

Electric vehicle (EV) manufacturers, like Balqon Corporation (OTCBB: BLQN), are starting to make a move into the energy storage business dominated by companies like A123 Systems Inc. (NASDAQ: AONE) and Valence Technology Inc. (NASDAQ: VLNC).

The move could mean new opportunities for EV manufactures, particularly as many energy storage pure-plays are struggling. In this article, we’ll take a look at Balqon’s entry into the energy storage industry, as an example, and how it compares to pure-plays in the sector.

The Growing Market for Energy Storage

Solar, wind, geothermal and other renewable energy sources are growing in popularity, driven by rising energy demand around the world. Higher electricity prices have made these alternative energies more economically competitive relative to fossil fuel.

But unlike fossil fuels, these energy sources generate an unpredictable amount of power at different times during the day. Companies are therefore turning to high energy density batteries that allow uses to store the power generated during off-peak hours.

Currently, the majority of the demand in the energy storage industry is focused on the telecom and data backup industries, in addition to off-grid applications in large industrial plants and commercial buildings where the systems can be used to save money.

Diversifying into Complementary Industries

Many electric vehicle manufacturers have exclusive agreements with battery manufacturers in order to provide them with an additional competitive advantage. With these agreements in place, EV companies are leveraging these agreements to expand into complementary industries.

For instance, Balqon Corporation’s exclusive distributor agreement with SOL, a large format lithium battery manufacturer, has enabled it to enter into the mid level energy storage market, with a focus on replacing large installations of lead acid batteries, according to its 10-K filing.

Ultimately, these agreements have helped EV companies like Balqon increase their revenues and diversify away from a sole focus on electric vehicles. For investors, this increasing diversified revenue is a positive sign that could justify higher price-earnings multiples.

A Brief Revenue Growth Comparison

Many energy storage pure-plays have been suffering from lower-than-expected demand for numerous end markets. For instance, some companies in the industry have seen double-digit revenue declines over the past quarter alone.

In contrast, many EV manufactures focused in niche markets, such as Balqon Corporation, have seen their revenues jump significantly. Balqon reported a 159% increase in its revenues year-over-year, which could be partly attributed to entry into the energy storage business.

Despite this outperformance, Balqon trades at a significant discount to energy storage companies. Many companies trade with market capitalizations in the high tens to hundreds of millions, with no revenues, while Balqon trades at just a $12.47 million valuation.

Looking Ahead

Electric vehicle companies with exclusive agreements with battery manufacturers are in a unique position to expand their revenues. With the added diversification, investors may soon turn to these companies as the preferred investments in the alternative energy space.

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