EDITORIAL Mike Halls • editor@batteriesinternational.com
A time for clarity for an industry needing to know where psychology ends and economics begins Sokyu Honma may not be famous now but all modern financial markets owe him an enormous debt. In his classic work — The Fountain of Gold: The Three Monkey Record of Money — written in 1755 he formulated the first principles for predicting how buyers and sellers interact. Key moments in the life of the rice market that he followed were its close and opening. Was the market up or down on the day? What was the expectation for the following day? What was the trading range— broad or tight? On the basis of these expectations he was able to work out a feel for the market. Was it a good time to invest? Or a time to walk away? It’s a skill that’s as much needed now as it was three centuries ago because the energy storage market — and the players within this business sector — is equally vulnerable to sudden switches of mood and perception. In the past 10 years we’ve seen huge swings of sentiment about energy storage in general and the world of batteries in particular. We’ve seen the equivalent of the dot.com bubble with the surprise valuations of firms such as A123 in the hundreds of millions of dollars while never making a cent of profit. And then we’ve followed their descent into bankruptcy. We’ve seen irrational (and mostly foolish) talk of a new generation of electric cars about to replace petrol driven vehicles by the early 2010s. The photovoltaic industry has gone from boom to bust and looks now set to move into a full scale boom again. (And all in the space of just five years.) Within the past decade, we’ve also seen talk of a reemergence of fuel cells as the energy source of the future. The future of flow batteries is looking more promising too. Players are now crowing about their affordability. And in the hype that accompanies the arrival of new technologies, the start-ups continue to bombard the media with often inane talk that “potatoes will power the cars of the future” (almost quoted verbatim by the way). Irrespective of the energy density of starch, since the world began start-ups have always talked up their products. Think, Elan Musk, Giga-factories and his Great Choice; which US state will get my blessing/give 4 • Batteries International • Summer 2015
me some subsidies? (And all the while the debate was raging he was preparing his eventual site for the new plant.) Aren’t they little more than the 21st century equivalent of previous times “do you want your mega-pyramids in Memphis or Valley of the Kings?” And irrespective of the site of the world’s next Gigafactory there is also a reality behind these massive swings of sentiment. Frequently they have been driven by external factors — think the market reverberations from the wall of money that the US government gave to the lithium battery industry. Or the spectacular unexpected consequence from the tsunami in 2011 which destroyed Japan’s Fukushima Daiichi nuclear plant? Which in turn prompted Germany to accelerate its decision to remove nuclear and go for renewables. (And also create the most expensive electricity in Europe.) But market events are a factor of life and are just part of Sokyu Honma’s reflections as a trader on the Osaka rice exchange. At its simplest this is understanding the link between perceptions of value and value as a function of time. Which way will the lemmings jump and when? The dilemma And, of course, perceptions of value are complicated when other fundamentals are competing for attention — markets are dysfunctional; unable to see value even when its staring investors in their face. The immediate effect of this is a kind of paralysis. That’s something most energy analysts would agree about. Utilities dither over projects to fund or upgrades that are needed — if you don’t know which chemistry or technology to adopt, you stick to coal, say, it’s true and trusted. For most utilities this has meant remaining true to a business model that is fast going to be outdated. For the firms trying to push out new technology, the dilemma is with the funding. To add to this, venture capital and private equity investors are notoriously fickle friends in any kind of short term play. Typically they want to get their payback — their exit — within three to five years. But long term investors say the search for value is a question of just looking hard enough. Possibly the most successful investor in the past century www.batteriesinternational.com