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Tuesday, 07/05/2016 8:36:50 AM

Tuesday, July 05, 2016 8:36:50 AM

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Eguana's Story: For anyone new I feel this is a great summary of EGT, where they have been, and how they fit into the energy storage sector.

http://seekingalpha.com/instablog/14040502-tom-collins/4424576-lg-chem-sunedison-just-leapfrogged-tesla-solarcity-distributed-storage-solutions-hardware

LG Chem+SunEdison Just Leapfrogged Tesla+SolarCity In Distributed Storage Solutions, But Hardware Provider Eguana Technologies Are The Real Story

SunEdison just announced they are sourcing Eguana's AC Battery for a project by California's Public Utilities Commission, the Electric Power Research Institute, and utility SoCal Edison, to create California's first entirely net-zero neighbourhood in validation of residential/commercial net-zero proposals.
While not as shiny as Tesla's Powerwall, the platform arguably has more potential to scale - through B2B over B2C - due to a technically responsive design/feature set, alignment with grid incumbents, and future-proofing partnerships.

Chemistry partners include LG Chem, Aquion, and Primus Power. Each leads a use-case in terms of quality, specs, and pricing/volume capability. The hardware is manufactured globally in partnership with Asteelflash.
In contrast with other storage ecosystems, Eguana's open-stack strategy helps align the interests of incumbent utilities with distributed storage. The system is set to grow rapidly in terms of both users and partners, and is already influencing strategy across the global energy industry.

The potential impact of distributed storage on accelerating renewable energy is increasingly appreciated, but installation figures in the U.S. remain marginal. In numbers from GTM Research, "Less than 0.1 percent of 2014 PV installations were paired with storage…[these deployments] totaled 4MW…grow to 22MW in 2015 and reach 769MW by 2020. California is expected to be the biggest solar-plus-storage market [in the U.S.], with 422MW installed in 2020 alone." Things are certainly accelerating: around the world, 2016 is shaping up to be a breakthrough year for storage.

Combined PV + battery storage has been shown to be strongly synergistic, but there are also numerous value-creating opportunities for intelligent, internet-controlled distributed batteries which don't involve joint renewables deployment. These include demand charge reduction (mitigating spikes in user consumption), demand response (mitigating spikes in grid consumption), frequency regulation and feeder line voltage support, as well as aggregated charging and discharging to prevent excessive or insufficient grid supply from causing overload or brownouts, respectively. Distributed battery storage can easily be scaled-up as needed at the actual point of use, meaning grid services can be provided in a distributed, self-healing manner. This has implications for the grid from a regulatory perspective, reducing unnecessary infrastructure investment due to overambitious demand growth forecasts (known as gold-plating), and reducing the need for investments into inter-regional transfer lines.



Source: RMI

Aside from emergency backup, all of above functionalities are technical in nature, having no interest for electricity consumers beyond a reduced electricity bill. They are nonetheless directly relevant to distributed storage adoption: the combination of a bidirectional, high-efficiency inverter and web-steerable controller allows a single system to deliver multiple value streams to different stakeholders simultaneously. This "stacking" of functions is predicted to become a key driver in storage business models: as the above RMI infographic demonstrates, it has been established that systems capable of generating the largest functional stacks (and thus revenue streams) are those installed closest to the point-of-use. For this reason, distributed storage system up-front prices could rapidly decline - or even be eliminated - for the actual on-site electricity consumer.

By its very nature, backup is only a critical feature in rare circumstances, dimming consumer motivation to buy, and this is already being satisfied with advanced, silent generator systems. In free-standing housing with an existing grid connection and already existing backup generator capability, the only consumer buy-case is a fuzzy benefit from self-sufficiency, or belonging to local community energy cooperatives. In medium- to high-density residential owned by 3rd parties, local batteries ensure a reliable, fast-switching backup power for critical loads such as communications, elevators, and fire.

Most of the distributed storage systems on offer today target end-consumers by seeking to fetishize what will ultimately become a fundamental home appliance of consumer interest equivalent to a boiler or wifi router. Tesla, Sonnenbatterie, and other storage integrators are nonetheless adopting the full-stack logic of consumer technology providers, attempting to gain Apple-esque control of their entire storage and software stacks and building consumer-focused brand equity.

The media have lapped it up, which seems to be why a number of significant B2B announcements in the sector of late few have received such little attention compared to the overhyped Tesla Energy announcement. Some companies - and even entire emerging industry alliances - have been entirely overlooked by investors. The above-referenced SunEdison, CPUC, and EPRI announcement at California's Solar Power International conference in September, 2015, to adopt Eguana's AC Battery platform received virtually no media coverage and was entirely ignored by SunEdison watchers, yet the move is potentially significant not just for SUNE, the renewables and storage sector, and for electrical utilities as a whole.

Tesla, Sonnenbatterie, and others aren't stupid, and also have the bigger goal in mind: happy to stoke initial demand through marketing, ultimate command over the battery inverter is also their long-term focus. Whoever dictates mass control of inverters can negotiate the participation of entire consumer and producer groups on the electricity grid, deciding when and from whom to purchase electricity. Distributed storage will in many ways ultimately dramatically simplify electricity markets, decoupling the time and location of use from the time and location of production. In this context, SunEdison's move to supply a 3rd party, pre-integrated storage system to EPRI (a utility-sponsored research group) and SoCal Edison - a leading utility - is just one example maturing utility engagement with distributed storage.

Eguana are strategically well positioned to meet and engage utilities. One possible analogy to this strategy can be seen in computing, where even on proprietary motherboard systems, certain components for power (processor) and storage (RAM & hard drive) are able to be replaced and upgraded from qualified suppliers, as well as the inclusion of a basic software operating system (in this case from Geli, Inc.) which facilitates the further layering of additional programs and applications, per user preference. This design improves the ability for systems to stay current with rapid component advances, while permitting competition amongst suppliers on reliability, performance, and cost.

For utilities already focused on meeting the needs of energy consumers, the simplicity, customizability, and pricing power of Eguana's ecosystem is an intriguing counterpoint to more consumer-focused, proprietary storage platforms. Beyond a brandable, pre-integrated platform, Eguana offer downstream adopters access to a technology ecosystem which leaders on current drivers, including geographical flexibility, cost, reliability (assurance against brand damage), but also future-proofing through engagement of chemistry leaders. The multi-chemistry ecosystem allows the Power (KW,) storage (kWh), and cost (chemistry) parameters to be adjusted incrementally with the addition of respective modules, and the AC-coupled approach permits universal aftermarket retrofitting as well as compatibility with popular microinverter-type PV systems. The units can be mounted either indoors or outdoors; if outdoors, a nondescript (but solid) housing is a prudent choice. Finally, the pre-integrated, sealed, 'plug and play' low-voltage (48V) electronics are both inherently safe to install, and tend to be longer-lasting (Tesla's Powerwall runs at 480V, while many battery OEMs are focused on 48V).

Beyond SunEdison's partnership, validation of Eguana's strategy can be seen in its adoption by utility industry heavyweights including Gexpro/Rexel (formerly GE Electric Supply), Japan's Itochu, and a leading Hawaiian PV installer (who are moving into a DERP business model). The technology and integration partnerships with award-winning battery chemistry innovators Aquion (saltwater) and Primus Power (bromine) may yet take a few years to become significant, but the favorite lithium battery supplier - LG Chem - is also leading that segment in terms of manufacturing capacity, pricing, and quality (with even Tesla now purchasing their batteries, after what must have been an interesting Gigafactory check-in call with Panasonic).

Installation Streamlining

Already by 2013, Solar Industry Magazine articles were predicting that installation streamlining - "turnkey systems," and "designs for installation speed increases and [labor] efficiency improvements" - were going to become key drivers in North American renewables development. In an effort to show the value to be captured in this space, the Rocky Mountain Institute created the following chart comparing 'soft' PV system costs in the United States and Germany (the world's most mature PV market, with over 1.5 million sub-30kWp distributed generation sites).



Note the difference in installation labor: in the U.S. this alone is double the entire BoS of Germany, and customer acquisition costs are also very high. Customer acquisition costs can be reduced through business model iteration and experimentation (or simply by utilities engaging their own customers), but installation labor is a more inflexible metric because of contingency on hardware design.

If any advantages in system installation streamlining can be achieved over competitors, this has become a clear strategic priority. SolarCity CEO Lyndon Rive recently stated in no uncertain terms that "anything that will reduce our total installed cost we will be interested in acquiring." Renewable systems installation streamlining in the U.S. has driven acquisitions by top solar players including SolarCity (NASDAQ:SCTY), Sunrun (NASDAQ:RUN), Gibraltar (NASDAQ:ROCK), and SunEdison (SUNE).

Not coincidentally, Vivint - the 2nd largest residential PV system installer in the U.S., and SolarCity's closest competitor - emphasized their own strategic focus on streamlining in their 2014 annual report. Prior to SunEdison extending a $2.2B acquisition offer to Vivint earlier in 2015, their executive likely considered this headlining paragraph carefully:

Design and engineering: We have developed a streamlined process that enables us to design and install a custom solar energy system that delivers significant customer savings. This process, which incorporates proprietary software, standard templates, and data derived from on-site surveys, allows us to design each system to comply with complex and varied state and local regulations and optimize system performance on a per-panel basis.

As battery storage is increasingly put forward in the U.S. as an integral, value-adding component of a renewable energy system (and is fast becoming as obligatory offering from renewable energy installers), we can reasonably expect the same streamlining pressures to occur in storage. On the basis of the above data, German storage systems are the outliers which should probably be studied for best-practices.



Source: Sonnenbatterie pitch deck, 2013

The proliferation of competing designs for fully-integrated residential battery storage systems in Germany in the period from 2010 - 2013 (this June, 2013 market overview by PV Magazine lists dozens of systems, starting on p. 16) demonstrates that the design was probably more the result of clear market need, rather than the innovation of any particular company. German residences are also simply half the size of American ones, so a compact and integrated storage product simply makes sense. Thus, while Sonnenbatterie - the German market leader in integrated systems didn't pioneer the integrated design, they did advance it considerably with their strategy of sourcing top-quality componentry, collaborating with suppliers to optimially integrate hardware and controls, and ensure premium experience through in-house assembly and sale to directly customers via 'Sonnenbatterie Centers.'

Germany's grid conditions are quite different from the US however, in several important ways relating to storage: in light of the extreme €0.30/kWh grid electricity price, German end-consumers are targeted directly to buy storage systems in order maximize self-consumption. It's only because of such a high-cost environment that grid defection has become economically viable; German end-users are beginning to do so en-masse, making utilities see an existential threat. In North America, utilities are increasingly viewed as necessary partners for deploying storage, as well as customers of aggregated services (the value streams from which can then be used to finance the up-front cost of storage systems).

Eguana Technologies

While SunEdison's press release implied the new "advanced battery system" was their own, the company's only functional contribution was to layer their own software on top of the included Geli Energy OS, while the entire hardware platform was Eguana's contribution. Eguana were also until recently a close partner of German home storage provider Sonnenbatterie, so the hardware has already been fully validated in thousands of working Sonnenbatterie systems, installed and operating since 2013 in the German market.

Eguana Tech are a little-known company based in the former oil hotspot of Calgary, Alberta, Canada. Despite being in the industry for nearly two decades (the company were originally named Sustainable Energy Technologies, Inc., but rebranded in 2013) and have received recognition for their work in the past - highlighted in Deloitte's Technology Green 15™ in both 2007 and 2008 - Eguana are still consistently overlooked in most inverter databases, and their activities rarely receive media interest. Both the CleanTechnica and Solar Love coverage of the SunEdison announcement failed to even mention Eguana's involvement in the CPUC/EPRI project, and PV magazine relegated it to a near-footnote. The subsequent disclosure of a larger SunEdison - Eguana partnership was equally ignored.

Eguana's beginning can be traced through co-founder and CTO Brent Harris, a Calgary-born electrical engineer who first became interested in power controls for reliable, renewable microgrids because of their applicability in the remote communities of northern Canada. To this day, these communities truck-in annual fuel needs during winter, using huge diesel rigs on (increasingly-thin) ice roads. The company was founded in 1999, IPOed during the peak of the tech boom in 2000, and received the first patents in 2001.

From the outset, the power electronics platform was intended to be configurable "to meet the needs of all forms of generation and storage technologies from PV panels to flywheels," and R&D was focused on maximum bidirectional efficiency and reliability, at peak power, for 24/7 operation, and with a good lifespan even in extreme conditions.

Unfortunately, the company have endured a series of mishaps in getting products to market for the last 15 years, but these can be explained. The fact is, Sustainable Energy Technologies, Inc. were among the pioneers of advanced, software-configurable power electronics for distributed energy systems, and have consistently demonstrated quality in both their technology and team. With some additional perspective, the reasons behind the missteps can be understood as largely not the fault of the company; if any simple explanation is even possible, it may indeed have been a lack of first-hand intelligence at critical points in development of various products and partnerships, and an unfortunate political environment.

The decision to stay based in Alberta can be legitimately questioned in hindsight: the inclumbent, climate-denying provincial and federal Conservatives were actively opposed to the encouragement of renewable energy, and would certainly have seen no reason to reduce oil shipments to Canada's north. Domestic cleantech markets dried up, and the then-high, oil-linked Canadian dollar harmed exports.

In addition to being listed as inventor of numerous company patents, Harris has long made an effort to publicly accelerate adoption of renewables, holding positions in a number of organizations (board member at the World Alliance for Decentralized Energy, chair at Alberta chapter of Canadian Solar Industries Association). Already by 2002, he was being sought out for his expertise in topics like PV inverter fire safety, >20 year inverter electronics longevity, multiple-input microgrid resonance, and the integration challenges/opportunities of grid-tied distributed energy.

Harris has written numerous articles outlining renewables growth drivers, interviewed at events like Grid Edge Live, and hostedindustry workshops on distributed systems aggregation. In 2011 he was recognized by the Alberta Science and Technology Leadership Foundation for his efforts to advance renewables in his home province; though seemingly unremarkable, this recognition is more interesting if one appreciates the context of Alberta: a region boasting the dubious moniker 'Texas of the North' because of its huge oil sands industry, as the (then) influential power base of Canada's long-incumbent Conservative political party, of influential climate change skepticism at both the provincial and federal levels.

On the other hand, by forcing the company to cultivate a global perspective from its early days, this location may ultimately become a key driver of success at this more advanced stage of enterprise. Regardless of the past, the business outlook is now extremely strong: the company have a several distinct product lines and geographically distributed markets prepared to ramp-up, and supplier, manufacturing, and customer partnerships to match.

Commercial tribulations

At the time of IPO the fuel cell industry was experiencing incredible hype: in 2003, tech research and forecasting firm Allied Business Intelligence (now ABI Research) was predicting that by 2011 annual sales of fuel-cell "microcells" would be between 200-500 million units/year, valued well over $5 billion. Its understandable that even despite the questionable economics of the technology at the time, the inverter technology was initially developed and put into production for this application. It was actually because of the extremely high relative cost (and persistent inefficiency) of fuel cells that the ideal go-to-market inverter was selected.

The inverter was endorsed out-of-the-gate by Sandia Labs, and was being commercially integrated into a small-scale stationary bidirectional fuel cells in 2003, in cooperation with RWE and Nuvera. As the stock charts of publicly traded fuel cell manufacturers such as Plug Power and Ballard Power Systems demonstrates, the real-world viability of distributed fuel cell generation proved highly overestimated. After the bubble's pop, anticipated demand - especially in smaller output sizes - evaporated, and designs about to enter production became stillborn (for their part, Nuvera are still kicking as well).

To survive, Sustainable Energy pivoted to the custom design and sale of integrated, turnkey microgrids for customers like the U.S. Army, while continuing R&D and patenting further advances. Then in 2005, a PV-optimized inverter was developed in an effort to increase sales volumes.



The company's "massively-parallel," low voltage technology was recognized as industry-leading in testing by the California Energy Commission, with a rated operating range of -40C to 50C, and an optional 20-year warranty. Protectionist solar subsidies were then instilled in Canada, causing the company logically to renationalize production in an effort to be included in 'Made in Canada' PV ecosystems with various domestic partners. The domestic content requirement was soon overturned by the WTO however, and ten years of oil-friendly Conservative rule at the national level meant the Canadian market remained insignificant on a global scale.

Lesson learned, the next generation PV inverter was once again launched in Germany (in 2010), alongside two pre-integrated PV development partnerships with Bosch for a building-integrated thin-film system, and with U.S.-based startup tenKsolar for a dual-tilt, high-density system optimized for commercial and high-density urban applications. Both partner technologies again foundered: Germany's PV manufacturing industry collapsed due to Chinese imports, Bosch qumore years of co-development, promises of 100s of units/month and the inking of a nearly $4M licensing deal, in 2013 TenKsolar skirted bit thin-film and sold their PV business to China, and after several ankruptcy and flunked out of their contract. Other overseas diversification efforts in Spain and Greece were forced to be almost entirely written off as a result of the European debt crisis, with significant additional loss on currency conversion.

Still making marginal revenues, in 2013 Sustainable Energy Technologies, Inc. rebranded as Eguana, and focused itself on dominating the emerging use-case of distributed, grid-tied bidirectional battery inverters - an application extremely well-suited by their durable, high-efficiency/low-voltage technology. The target market was again Germany, and soon after the Bi-Direx inverter was made available in the country, it was recognized by the Fraunhofer Institute's Smart Grid Research group as the best-performing for intelligent, grid-tie storage. A small German storage startup (then) named Prosol Invest, actively scoping the market for the very best technology, secured a Europe-wide exclusivity agreement to use the electronics in their 'Sonnenbatterie' product line. Sonnenbatterie promptly flaunted their use of the top-tier technology in public disclosures and investment pitches, referencing the CEC and Fraunhofer research above.

Residential Storage in Germany: The early days

Sonnenbatterie were a puny startup in 2013, so its unclear how they managed to close a Europe-wide exclusivity contract with Eguana at such a critical time in the growth of storage. Eguana clearly entered in good faith, but this deal once again proved somewhat tragic for the Canadians. For Sonnenbatterie the timing was perfect: their upmarket, full-stack strategy ensured the interest of the top technology providers, who were themselves only just starting to produce stationary storage-focused components. As a result of exclusivity agreements these partners became dependent on the success of Sonnenbatterie, who then promptly took advantage of this leverage.

Sonnenbatterie's technology strategy, in-house production and design, and a healthy premium market focus meant their systems remained eye-wateringly expensive and uneconomical, at over 1000€/kWh installed, with a healthy subculture of Germans still self-integrating off-the-shelf battery components. After utterly failing to deliver promised sales figures over 2013, Sonnenbatterie's exclusivity contract with Eguana breached its low-volume termination clause and in an April, 2014 announcement, the Germans evidently made an effort to appease their supplier with an expanded contract renewal for development and provisioning of a "fully integrated electronics enclosure," as well as Eguana being promised downstream distribution rights. This press release is significant, as Eguana's other, ongoing lines of business are clearly referenced, while Sonnenbatterie's founder Christoph Ostermann provided the following statement:

In our opinion Eguana has the most advanced storage inverter in the market, and an exceptionally strong power electronics and operations team. We are going to continue to work with Eguana to explore ways to expand our unique partnership.

The benefits of the new deal once again proved decidedly one-sided, once again to the benefit of Sonnenbatterie: outsourced engineering and technical design, as well as North American customer development - simplifying and reducing cost structure, while Eguana's customer-specific (and opportunity) costs were increased. Sales for Sonnenbatterie remained anemic for the rest of 2014, while the company's CEO spent time collecting awards (even stating at ECO14 London in October '14 that a further 30% decline in power electronics costs could be expected over the next 24 months) and closing several oversubscribed funding rounds with VCs including eCAPITAL, Munich Venture Partners and Inven Capital. With once again negligible revenue by FYE 2014 and significant engineering costs, Eguana once again declared a net loss and had to raise further dilutive financing.

It wasn't until Elon Musk's much-hyped April, 2015 Tesla Energy keynote event - and the release of a significantly improved, fourth-generation, 10,000 cycle Sonnenbatterie Eco unit in the spring of 2015 - that U.S. media would start showing the German company even cursory interest. U.S. consumers, paying less than 1/3 of German electricity prices and entirely unfamiliar with the German-language Sonnenbatterie brand still didn't seem motivated to shell out for such a system.



Search history of Tesla v. Sonnenbatterie, spring 2015

Eguana needed to reduce their reliance on Sonnenbatterie, so developed the utility-targeted AC Battery platform for North American B2B markets. Interest from U.S. industry insiders was immediate. In December 2014 a 3MW prospective contract was closed with E-Gear, LLC, in Hawaii - a subsidiary of Hawaiian Energy Connection, a company founded by the president of Hawaii's Solar Energy Association, who resigned in frustration at the lack of innovation (but who also happens to have founded one of the state's largest solar installers - providers of the popular PV Kumukit). E-Gear have stated that their focus is to technically resolve the grid instability and overload problems resulting from Hawaii's extremely high penetration of distributed PV, developing a utility-driveable ACXIS® AC combiner for improved charging and communication with microinverters (as well as streamlining microinverter installation), and a storage controller pre-integrated with a battery (using Eguana's hardware).

More AC Battery sales deals followed, with Gexpro andSunwave. Then on April 29th, 2015 - the very same day that Elon's Tesla Energy keynote jolted popular interest in the topic - Sonnenbatterie and Sungevity announced a U.S. and EU partnership, for distribution and supply of Sonnenbatterie to Sungevity customers. No mention of Eguana, but it's worth noting that this announcment was almost exactly one year after Sonnenbatterie named Eguana as their North American sales representatives. By June, 10th, 2015, Sonnenbatterie had set up their own R&D centre in Atlanta, GA, listed a job opening for an 'Inverter Integration Engineer,' and thereafter announced their dropping of Eguana and switch to OutBack Power inverters.

Eguana then disclosed that Sonnenbatterie had dropped them as a partner, citing "competitive reasons." While the charge is valid to some extent (albeit indirect), its validity is undermined by the fact that OutBack Power were already even more direct competitors to Sonnenbatterie - and their partners: by October 2014, Outback had disclosed their own partnership with U.S. solar system installer SunRun - Sungevity's primary rival of in the battle for 3rd place in U.S. solar installer rankings (both of whom remain behind the SCTY vs. Vivint/SUNE dynamic) - and have long had their own modular, pre-integrated FlexPower and EnergyCell storage products for off-grid applications (available for order on Amazon - here is the power control system, and here a battery bank).



GTM Research U.S. PV Leaderboard

When announcing the OutBack deal, Sonnenbatterie USA CEO Boris Von Bormann enthusiastically stated that OutBack were a "natural choice." This term also becomes interesting in light of Sonnenbatterie's frequently-stated commitment to top-tier componentry: the above research by the California Energy Commission - which Sonnenbatterie themselves repeatedly used in their VC pitches to emphasize their technology leadership through Eguana - ranked OutBack as the worst-performing of all units tested.

Previously, the tight partnership between Sonnenbatterie and Eguana included open commitments to "optimize operational synergies," highlighting the fact that Sonnenbatterie leadership must have been well-aware of both Eguana's business situation and other, ongoing business verticals. Thus, neither the "competitive," nor "natural choice" justifications provided seem to explain the Eguana drop and switch to OutBack Power/Ideal Power. The accuracy of both these justifications is even more questionable given that only 6 months later, Sonnenbatterie announced an inverter co-development project with Germany's Steca. Clearly, Sonnenbatterie management were keen to gain sovereignty over their supply chain and develop their own, proprietary technology ecosystem.

A more logical explanation for the move is therefore that despite the assistance gained from Eguana by Sonnenbatterie in developing their business, after the Tesla Powerwall hype of April 2015 (and perhaps under the advice of VC partners), Sonnenbatterie leadership realized the strategic value of the power electronics and downstream distribution portions which they had promised Eguana in their revised 2014 agreement, and simply sought a convenient (but legally excusable) exit.

Only a short time later - on August 6th, 2015, Ideal Power, a manufacturer of commercial inverters (and thus a semi-direct competitor to Eguana's modular systems for C&I applications) alsodisclosed that they had been "selected" - not "partnered with" - by Sonnenbatterie, to supply inverters for a new commercial demand-charge reduction product line. Similar to OutBack and Eguana, Ideal Power have previously disclosed numerous partnerships with other system integrators including KACO New Energy and Eos. It's clear that the commercial demand charge reduction use-case wasn't in Sonnenbatterie's business plan, as such implementations don't involve the use of renewables (yet 'Sonnenbatterie' literally translates to 'sun battery').

What makes Sonnenbatterie's behaviour especially disturbing is that still by the release of Eguana's results on January 31st, 2016, the company were not only refusing to settle their accounts payable with Eguana, but had also hired-off their former partner's North American lead sales lead. Such behaviour - just prior to an inflection point in the growth of storage - appears unethical at the very least, and Eguana have indeed recently disclosed the initiation of a lawsuit against Sonnen, to recover $4 million in accounts payable and inventory writeoffs as a result of the abrupt termination.

Market Whiplash and Subsequent Developments

Disclosure of the Sonnenbatterie breakup in July precipitated a crash in Eguana's stock price of over 60%, with investors interpreting the lost business as a continuing "failure of management to hold a partner." The lost revenues and cash flow caused both valuation and liquidity shocks, and market valuation fell below $15M CDN - a level not seen since early 2013, before the company even entered the storage space.

The Sonnenbatterie split - just prior to beginning sales of the AC Battery to E-Gear, Gexpro, and SunEdison (and presumably also Bi-Direx units for Aquion and others) - caused a sudden need for working capital financing. As this had been accompanied by a loss of market confidence (as well as a broader crash in renewable energy stocks due to a sinking oil price), Eguana entered into a $3.5M private placement at a brutally low CDN $0.0525 / share, for 50M shares. This caused 1/3 dilution for existing shareholders, and was interpreted as a further warning sign; interestingly though, it has since been disclosed that company insiders bought at least half of this dilution, increasing their stake in the company to beyond a majority. Not only does this potentially explain both the low unit price and decision for an equity raise, it also explains the lack of any (public) acquisition overtures.

Despite a steady stream of positive news releases and announcements since this development, including disclosure of SunEdison, Aquion, Primus, and Raytheon partnerships, and receipt of sales orders from E-Gear, Itochu, and Gexpro/Rexel, bearish sentiment has persisted. Eguana's AC Battery (branded in the below image as the E-Gear™ BESS) was the first to be approvedby Hawaiian Electric Company for the new self-consumption option for residential renewable energy. Now that new regulations have been settled, distributed storage is expected to undergo rapid growth in the state, and is being closely watched by others.



E-Gear/Eguana BESS (6-18kWh)

Eguana commercial unit

The AC Battery currently hosts LG Chem battery cells; this can be switched-out if desired, but EV industry watchers will know that LG Chem are leading the lithium sector across multiple chemistries, and for almost all use-cases. The company supply batteries to over half of the world's top automakers, and are recognized leaders on price ($145/kWh), product quality, R&D capability and manufacturing capacity in the US, China, Europe, and S. Korea. The company have even disclosed that they are likely to beat Tesla to gigafactory-levels of output even in the US market, in 2016 - just not entirely under a single, marketable roof.



Aquion M-100 (25+kWh)

quion were founded by former NASA satellite and Curiosity rover battery scientist Jay Whitacre, and the saltwater chemistry is rapidly improving, showing tremendous potential. Bill Gates-funded Aquion promise cheap, long-life (but relatively heavy and low-density) cradle-to-cradle certified sodium/carbon systems. Aquion's technology partnership with Eguana should see something like their stackable, 25kWh M-100 systems pre-integrated with the Bi-Direx. Interest from Australia in Aquion is apparently booming, in part due to the high temperature tolerance and regulator-friendly, self-extinguishing capabi.

Raytheon's military-focused RK10/30 has previously been disclosed as using Eguana's Bi-Direx, incorporating zinc-bromide flow-type batteries from both Redflow (Australia), and Silicon Valley VC favorite Primus Power (California). Primus have announced their 20kW/72kWh EnergyCell (left) will incorporate Bi-Direx. In the announcement, Primus' Director of System Engineering was quoted as saying that "'when it comes to low voltage, high power inverters there are not many manufacturers that have products as capable as Eguana's inverters'...the unique modular topology with galvanic isolation provides Primus Power a great deal of flexibility in system design and grid interconnection of various power ratings and applications."

Investors calling for the resignation of company executives after the Sonnenbatterie split were seemingly acknowledged with the stepping-down of CEO Michael Carten (to the role of Director), and promotion of COO Justin Holland in his place. This is a mostly symbolic move, but given the strength of the company's business position (in consideration of leverage ratio, partner and customer diversity, and undervaluation of IP) and the leadership provided by Carten into the German storage market, nothing more radical is indeed merited.

Though this wasn't the original logic behind the Iguana branding, the company appear to have indeed become genuinely adept at slipping past potentially terminal upsets, to continue the mission to supply power electronics hardware for an intelligent, distributed, renewable, and efficient electricity system. Revenue growth is now de-risked, margins improving, and there seems to be genuine potential for the company to grow into a distributed energy heavyweight.

While product margins remained in the negative in the October 30th, 2015 statement, this was apparently because of expedited repairs resulting from defective componentry in one of the Sonnenbatterie models, blamed on a German sub-contractor (who is no longer involved as a result of the Sonnenbatterie breakup, and the aggregated inverter return rate apparently remains around 0.25%). Management is predicting a strong recovery in margins, due to the greater vertical integration of the AC Battery platform, and experienced new hires made with the goal to improve production and supply chain cost efficiencies; finally, customers have agreed to a Bi-Direx price increase (suggesting genuine respect for the company's technology). The above experience with faulty sub- manufacturers in Germany should minimize risk of errors with Asteelflash production.

In terms of financials, the company have managed to increase YTD revenue over 240% without any increase in operating costs; if unit contributions are indeed significantly improved - in addition to a major increase in volumes - management's oft-referenced "low cost operating model" should finally generate the returns originally promised to investors. The new Eguana CEO Justin Holland has declared his target for realization the first profit as being in the first half of 2016.

Recent months have indeed been tumultuous, but Eguana have now attained comfortable and solid positioning in the storage supply chain. Numerous other partnerships with battery manufacturers and otherwise have been hinted at in recent statements, but not yet formally announced. As similar hints were provided prior to disclosure of the Aquion, Primus, LG Chem, Raytheon, and SunEdison partnerships, there is reason to take these hints seriously.

Storage technology ecosystems

If investors were more literate about storage technology platforms, and the implications of the above developments, Eguana's market valuation could be orders of magnitude higher. Within the select group currently even aware of the company's existence, many investors seem to have (mis)interpreted a decision on the part of Sonnenbatterie to gain authority over their own storage ecosystem, and heavily oversold as a result. This negative sentiment is persisting despite major shifts in the fundamentals of the business, more favorable governments in both Alberta and Canada, a depreciated Canadian dollar, margin improvements, and major deals with multiple industry leaders around the world.

In comparison with the Panasonic/Tesla/SolarCity/Fronius/SolarEdge storage ecosystem, the Sony/Sonnenbatterie/Seca ecosystem, and others, Eguana have reason to be confident: their own platform is in non-exclusive partnerships with LG Chem and SunEdison, yet remains open to 3rd party battery and controls providers. This is more technically and strategically flexible, meaning the company have established a sure-footed, defensible position in a rapidly growing field of battery suppliers, software developers, renewables installers, utilities, and 3rd-party Distributed Energy Resource Providers (DERPs).

The Future of Energy Storage

Deutsche Bank, Goldman Sachs, and numerous others have projected immense growth rates in battery storage. Given the above business developments, the merits of Eguana's technology and strategy - and company integrity - appear not to be going unnoticed. Eguana's founders have long anticipated and advocated for the advancement of renewable energy, provided considerable leadership toward their realization, and repeatedly demonstrated an ability to provide technically sophisticated, high-quality products.

For SunEdison, adoption of this platform reveals a significant strategic change from their internalization/acquisition strategy in PV: joining an open technology ecosystem which is already positioned to scale at a rate beyond Tesla's market focus. In such a rapid-change market, project developers must increasingly take steps to remain lean and competitive. The battle for storage market share will be won through a capacity to deliver streamlined and value-focused services, at scale.