IES - The Oak Bloke Overlooks

So let's try to fill in the gaps in my Invinity article

Dear reader

It appears a commentator believes I overlooked some things around Invinity.

“While the "Oak Bloke" thesis provides a strong foundation for understanding Invinity's potential, particularly in the UK market, it overlooks several critical developments and strategic nuances.”

Let’s consider the critical developments I missed and weigh the strategic nuances.

1.OB Omits the BABA waiver

Nothing to do with the saluation of elephants, Baba is “Build America, Buy America”

This refers to a potential $23m purchase of Endurium in the period of time 2026-2033. This potential sale is small so in itself not necessarily all that significant but it does provide 3 important facts in the reasoning why this purchase should be allowed:

DOE would be unable to fund Dairyland’s procurement approach, making this project not viable and lessening the technology diversity of Long Duration Energy Systems in demonstration

Dairyland and its partners would not install these VFB’s at its substations. Improvements in grid reliability and resilience would not be achieved.

-This tells us there is no US alternative to the proposed Endurium battery; at least currently, otherwise it would have been selected instead of a “foreign” option.

Invinity Energy Systems would likely reduce the initial volume of products to be manufactured in its pending U.S. facility, lowering initial headcount and production ramp speed

Announcement of a pending US facility for IES is not a surprise (under Trump’s America) although there has been no official announcement of this yet.

The commentator is correct that it provides a potential validation. The criteria in the award is interesting too….. Dairyland was focused finding a containerised battery technology with a high project site level energy density, a long lifespan, a high round-trip efficiency rating, little or no degradation, no thermal runaway risk, no hazardous chemicals, and no cycling limitations. To de-risk the project and ensure a high likelihood of a successful and replicable demonstration, NRCO also sought a vendor with a technology readiness level (TRL) of 8 or higher. Lastly, NRCO considered environmental benefits of a technology with a high amount of recyclability. In short, NRCO sought to demonstrate a highly cost-effective and promising alternative to traditional lithium-ion batteries.

The commentator proposes these purchases of $23m would be the springboard for US market entry. Let’s assess the accuracy of that. In my article I identified the IRA - the Inflation Reduction Act - as the TRUE springboard for growth of sales in the USA. And so it proves to be the case here. BABA is one of the steps for compliance but it’s the IRA providing the credits and benefits. Specifically there is a $9.7bn scheme as part of the IRA to do the following:

But it’s also true that customer is highly significant.

Dairyland Cooperative might give you some weird impressive of some farmers sticking a battery on their farm. The truth of the word Dairyland is far larger. Dairyland generates 6.9 terrawatt hours of power from assets valued at $1.6bn and serve its 300,000 customers. So Dairyland is like SSE or Yu Group in the UK. Don’t let the name confuse.

The body also referred to in the application is NRCO. I started going through their members and found the wider opportunity is colossally higher. Some larger members serve larger segments of the USA and make Dairyland look very small indeed. The NRCO is the trade body for all of US electricity production and distribution:

The commentator goes on say the OB doesn't connect Invinity's stated focus on CAISO, ERCOT, and New York to the broader US opportunity.

I believe the commentator misunderstands who the customer will be and doesn’t correctly name the New York grid operator which is NYISO. In the same way that the UK National Grid would not directly get involved in generating and storing power (other than briefly at substations as part of distribution and transmission) so too CAISO and ERCOT are just grid operators. BESS assets would be used on those grids but it is incorrect to believe IES’ stated focus is CAISO, ERCOT and NYISO, or at least it is more accurate to say the stated focus are operators and participants on those grids, and I expect other grids too.

It’s true I didn’t spend much time speculating on future pipeline in the USA and was not aware of this specific BABA application so it is good to hear about this potential sale as well as plans to manufacture in the US. The news also evidences the unique advantages of IES in the marketplace.

2. OB doesn’t fully explore the “strategic depth” of the VSUN partnership

Let’s consider the depth. A single 0.22MWh VS3 battery was sold. Once. To Horizon Power in Australia. 50% paid for by match funding. As depths go that’s it for now.

Outside of Invinity, VSun have made a 2nd (larger) sale of a VRFB from one of Invinity’s competitors, Cellcube. Two BESS sales. That’s it.

Otherwise VSun’s parent Australian Vanadium has a vanadium project at PFS and plans to supply vanadium electrolyte to VRFB manufacturers.

In time some further depth may develop. After all Horizon looks after 140 energy networks covering 2.3m sq.kms and uses diesel gennies and wants to decarbonise. The feedback appears to be that the VS3 battery is coping well with the harsh ‘stralian bush so far. Lithium wouldn’t cope with the heat. Lithium would be only fit for the dunny. So if the Pommie BESS can survive a 12 month proof of concept with no dramas then it will be fair dinkum and the future will be bonza for IES. Real bonza.

But today the most we can say to the depth is that there’s potential for future depth.

3. OB doesn’t “sufficiently highlight” the Yadlamalka project’s success

Let’s try to address that now…. sufficiently.

On June 23, 2023, Yadlamalka Energy announced the completion of civil works and the start of commissioning for the Spencer Energy project. The VRFB, supplied by Invinity Energy Systems, is designed to store excess solar energy generated during peak sunlight hours and discharge it during high-demand periods, such as evenings, or potentially using off-peak grid imports. The project, valued at AUD 22 million (approximately USD 14.9 million), aims to provide around 10 GWh of dispatchable solar power annually to the South Australian grid, contributing to grid stability and renewable energy integration.

Six months ago a commissioning report published by the Australian Renewable Energy Agency (ARENA) on August 15, 2024, confirmed that the system has been successfully designed, constructed, and commissioned. This report highlights the innovative DC-coupled architecture, integrating the solar PV and VFB, which was a novel approach globally at the time. The project overcame challenges in electrical and control software engineering, as well as supply chain logistics, to become operational. It now supports commercial trading and provides frequency control ancillary services (FCAS) to the South Australian grid, addressing the region’s intermittent energy challenges exacerbated by its reliance on renewables following the closure of coal-fired plants.

The system is fully operational, with Yadlamalka Energy monitoring and reporting performance to inform future expansions. South Australia’s high intraday price volatility—due to significant solar generation midday and peak demand in mornings and evenings—makes this BESS particularly valuable for energy arbitrage and grid stabilisation.

So Yadlamalka and the Spencer Energy project is an end-user case study, which is useful.

4. OB doesn’t cover the significant Everdura partnership in Taiwan

One of Everdura’s parents is Everbrite. Everbrite latest accounts show they have ~£61.3m of assets. Property, Plant & Equipment grew by ~£10m in the year to 3Q24 suggesting investment in VRFB production. Its P&L shows £5m free cash flow generation and profits for the period. It is a Hitachi equipment installer as well as a Nachi Robotics dealer. It owns £2.5m of IES shares (least it paid that much)

Its other parent is Proenergy Technology Co Ltd but given these have no web site (except a Facebook page and a gmail business email, and appear to do installations of solar lights and other electrical stuff the primary parent is really Everbrite)

Everdura is licenced to produce and sell the Endurium battery since February 2024 and is building 500MW annual production capacity and has committed to 255MW of sales over 3 years to 26 Feb 2027. Everdura is pursuing commercial opportunities for Invinity’s products across the entire ASEAN region. In September 2023, Everdura became our first commercial customer to place a Mistral order. In February 2024, Everdura signed a manufacturing agreement for Mistral that gives Invinity a royalty based on a percentage of their Mistral revenue in exchange for direct access to our supply chain and the ability to order our proprietary cell stacks and software directly from Invinity.

Over the past first year of that agreement IES has not announced any new sales - yet. So the significance of Everdura remains an open question. Arguably this isn’t Everdura’s fault and instead is a strategic decision by IES to finesse the product in 1H25 with a commercial push from July this year as per this update from IES:

Although Mistral has already demonstrated performance in-line with or ahead of expectations, the Board has decided that additional time is needed to complete the cost reduction exercise ahead of volume rollout, while maintaining a level of manufacturing sufficient to commence the drive to volume-based efficiencies. Accordingly, whilst this exercise completes, the Company believes a more cautious increase in Mistral deliveries during H1 2025 is prudent and will set the stage for further growth in volumes in H2 2025 before commencing full volume production in 2026 when the Company intends to achieve EBITDA break-even.

5. OB misses the connection between the KIP investment. Critically, overlooks CIP's global activities, including the Summerfield battery project in Australia and the launch of Voyager Renewables, which, while not directly involving Invinity, demonstrate CIP's commitment to the energy storage market and create potential future opportunities.

If I missed the connection so it appears did the commentator ironically! The connection between KIP and what?! Let’s assume they meant to say between KIP and IES. KIP are the Korea Investment Partners and a strategic investor in IES. KIP are owned by KIH who oversee about £44.3bn of assets in South Korea. Its KIP subsidiary is a Venture Capital arm managing £3.1bn of holdings including its token £3m investment in IES.

There’s no other connection that I can see. They invest, same as me and potentially same as you reader in IES.

Weirdly the commentator then throws in a different acronym without explanation and this time the “CIP” isn’t a mistyped “KIP”. “CIP” referred to appears to be Copenhagen Infrastructure Partners. This is an oblique reference to an infrastructure fund with no connection to Invinity but where an alleged investor in IES (Norges Bank) is also again allegedly an investor in CIP. The commentator doesn’t develop this idea or why it might be relevant. If it is.

6. OB missed the strategic importance of securing vanadium supply

IES have not ever flagged obtaining electrolyte as an issue so unclear what has been missed here. Vanadium electrolyte is available from multiple sources so we are in danger in overusing the word “strategic” to make our points sound grandiose and important, and I do not see any particular aspect I missed here, strategic or otherwise.

7. The OB thesis doesn't fully articulate the interconnectedness of Invinity's partnerships, government support, and geographic diversification

It’s true in the last article I focused on the near term UK LDES opportunity having covered the above in a prior article “Calculating the Trajectory”. It’s furthermore true that there are other opportunities in the USA, Canada, the EU and Australia. There is then the Everdura partnership in Asia. There is a pipeline which I mentioned in passing. There are supportive government policies and in some cases cash in some territories. The US IRA, UK LDES and EU REPowerEU schemes being the main ones. Canada, Oz and Asia are less clear or developed although we do know there was match funding (50%) for the Horizon Power project in Australia.

Conclusion

The above shows a 6.3GWh opportunity pipeline. Some of the difficulty, and if you read and compare my “Trajectory” article dated May ‘24 and “Invinity and Beyond” Feb ‘25, the contrast is the newsflow of demand back in 2024 crashed into the reality of supply. IES needed scale, it needed to reduce its cost of manufacturing, it needed capital to develop Endurium and it needed time.

That time has stretched to 2H25. Even today you can’t point to any RNS newsflow of commercial success despite launching the Endurium. Consequently since May ‘24 the share price halved. 77% over 5 years as a reader rightly pointed out.

So the judgment call is whether supply side is now fixed sufficiently or will be by June to allow sales, and whether the 6.3GWh pipeline is still there (or larger).

My sense is that IES through its case studies is demonstrating value to its customers. My sense is that if you consider the value over TCO - total cost of ownership - then Endurium is now “there” although we don’t yet have definitive proof of that on a commercial level beyond the claims its costs have been reduced through optimising the number of controllers and wiring etc

The IRA and LDES and ENPower schemes will facilitate the high upfront cost and provide certainty through minimum pricing (CfD). It was extremely interesting to see the Oil & Gas lobby wrote to Donald Trump urging let me say that twice since it is…. strategic…. URGING Trump not to cancel the IRA.

I was greatly encouraged by the NESO study which shows a forecast net saving of cost of Renewables + Storage < Fossil Fuels at a macro level. If that’s accurate then that is massive. The UK (and the EU) doesn’t really have a choice. TINA.

The UK LDES still feels like the nearest and most tangible opportunity after all the Oxford SuperHub is a further case study and proof point and the BathGate manufacturing is a further reason to support a “Great British business”. It’s a cornerstone deliverable to reduce the cost of UK power. But I’m happy to be wrong on that. Sales from the US, the EU or beyond are all possibilities for sure.

My sense is that TINA - there is no alternative - means the demand hasn’t gone away and demand is colossal. Diesel peaker plants or even Nat Gas peaker plants are extremely expensive to operate let alone the CO2 and pollution. Hydrogen Electrolysers may deliver energy storage potentially in time but these would work alongside a BESS rather than instead of. Pumped storage is vastly expensive - more than VRFBs and huge undertakings. Could compressed air or something else win the day? Possibly. But those technologies face the same challenges as VRFBs and I don’t see anyone has achieved the same sort of scale and referenceability as IES.

VRFBs appear to have a place, alongside Lithium, and appear to be on the cusp of growth. 2 hour BESS are much more valuable than 1 hour BESS. So how much more valuable is 12 hour BESS? There are times when power is negative, times when rates are through the roof. The problem with 1 hour BESS is you can only capture 42 minutes of that upside or downside. That’s 0.58% of what a 12 hour LDES can do. If we are talking a 12 hour period when you could earn £5000 an hour then LDES earns £60k and Lithium earns £3.5k….. 17.2X more revenue….. but VRFBs are not 17.2X the cost of Lithium. 5X the cost but with 4X the lifetime.

If Endurium can deliver from 2026 then the production IES has assembled 0.5GWh UK, 0.2GWh Canada, 0.5 GWh Taiwan (via Everdura) and prospectively USA might mean up to 2 GWh per year of supply. At £0.9 per MWh that’s theoretically £1.8bn of revenue to IES and prospectively £0.6bn of gross margin according to my estimate. My forward estimate was far lower (being conservative) but the upside might, just might be spectacular.

What happens if you 10X that number too? 20GWh per annum of supply. The demand is there for that. In fact BESS build out was 363GWh in 2024. At £900,000/MWh that’s £326 Billion Per Year Revenue - and growing. Demand is not the problem it seems.

The key question is can IES profitably provide the supply? That remains the open question.

Regards

The Oak Bloke

Disclaimers:

This is not advice - you make your own investment decisions.

Micro cap and Nano cap holdings might have a higher risk and higher volatility than companies that are traditionally defined as "blue chip"