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Three Years of Seeking Alpha in Energy Storage

Today is the third anniversary of my blog on investing in energy storage. While the last three years have been profoundly troubled by a market crash, a slow recovery and more ups and downs than a roller coaster, energy storage has been surging to prominence as investors realize that batteries, products we all love to hate, are a critical enabling technology for wind and solar power, efficient transportation, the smart grid and hundreds of other applications that make life more pleasant. With each passing day it’s increasingly clear that energy storage is an investment mega-trend that will endure for decades. Most of the smart money is still on the sidelines looking in, which explains the popularity of my blog. As the smart money transitions from analyzing opportunities to making investments, the sector should encounter rising tides that lift all boats.

Thomas Edison was the first to identify the biggest risk of energy storage investing a century ago when he complained:

“The storage battery is one of those peculiar things which appeals to the imagination, and no more perfect thing could be desired by stock swindlers than that very selfsame thing.”

The problem isn’t really the batteries, which haven’t improved all that much over the last century. Instead, the problem lies in the fertile imaginations of investors, ideologues and demagogues who read about scientific discoveries in research laboratories, overestimate the value of those discoveries and then make a wildly optimistic leap from the reasonable to the absurd.

The two most common forms of batteries are carry-over relics of the 19th century. Lead-acid batteries have been around for 150 years and spiral wound batteries have been popular for almost as long. While battery chemistry has changed over the years and manufacturing methods have been modernized, the energy storage capacity of today’s best batteries is only four or five times greater than the energy storage capacity of the batteries Edison complained about. Regardless of what you read in the paper or hear on the news, making a better battery is very hard work and the vast majority of exciting new discoveries never make it from the laboratory bench to the factory floor because they’re just too expensive.

It’s fun to daydream about the technical possibilities of portable power, but the market will only pay for cheap, reliable and safe portable power. The chasm between technical possibility and economic viability is both wide and deep.

Today’s most common myth in energy storage is that exponential performance gains will be accompanied by rapidly falling prices. The current issue of Science includes an article titled “Getting There” that offers a classic example of how the mythology grows and spreads. The article’s centerpiece is the following graph that compares the theoretical potential of battery materials and the best results obtained in working cells.

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