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Uncertainties surrounding embryonic energy storage solutions’ fortunes give investors jitters

Jan. 29, 2003 — Posting earnings of $11.73 billion across Europe in 2002, lead-acid batteries are the most common type of energy storage and are universally acknowledged as the most reliable and economical of traditional storage solutions.

However, a new study by Frost & Sullivan reveals lacklustre performance amid advancing maturity of lead-acid technology and its associated application areas. Exacerbating the situation is the growing need for more specific and cost-effective energy storage, created by the emergence of new markets such as power quality, hybrid-electric or electric vehicles and distributed generation.

The development and deepening market penetration of alternative technologies will further contribute to a cooling of demand in the lead-acid battery industry. Already generating European sales worth $104 million in 2002, flywheels, supercapacitors and Superconducting Magnetic Energy Storage (SMES) systems have started to mount a challenge to traditional batteries.

Should considerable price reductions materialise, emerging energy storage solutions will become economically viable and help unleash the market’s true potential. Frost & Sullivan expects this industry to expand at a compound annual growth rate (CAGR) of 11 per cent, reaching $215 million in 2009.

Still, market take-off is being hampered by the “not no, but not now” attitude amongst suppliers who are still waiting for significant milestones to be achieved in key enabling technologies. The prevailing confusion over which technology will eventually fill the ever-more prevalent capacity gap has sparked a degree of investor hesitancy.

“Energy storage technologies that could be used together with fuel cells are ready to operate, but experience delay through their wait for the prime technology’s full development. We expect that the first fuel-cell cars, for instance, will not appear on the European market until 2010 and will not be sold at sufficiently high volumes until five to eight years later,” reports Anne-Corinne Barbier, Research Analyst at Frost & Sullivan.

Despite the new technologies’ capabilities of outperforming existing alternatives, the current economic climate contributes to investor caution over premium-priced nascent storage solutions, providing another major stumbling block to growth.

Because of the lack of large volumes, broad economies of scale will be hard to achieve. The battle for an effective price reduction strategy to make the technology accessible to a greater range of markets is hotting up amongst players vying to grab a larger share of the emerging energy storage pie.

The revolution of the modern-day, increasingly power-hungry, car will provide momentum for growth. Against a backdrop of limited energy storage capabilities of current battery technologies, the conversion from conventional 14-volt power generation and distribution system to a new 42-volt architecture, will help drive widespread use of embryonic energy storage solutions.

Also, the quest for the ultimate eco-car which minimises the impact on the environment through reduction of emissions, will be stimulating sales. Governmental encouragement for greater investment in renewables and subsidies for power generated from clean sources, will heighten the appeal of these innovative and energy-friendly storage technologies.

It is difficult to pinpoint the developers/manufacturers who will survive the passage from early development to commercialisation unscathed. “It is one of the characteristics of developing markets not to have frames or standard specifications that define the products, the way they should be tested or how they should be presented. This lack of framework gives market players some leeway and scope to evolve, while also ensuring that the market remains challenging”, notes Ms Barbier.

However, while waiting for the industry to get organised, potential users or integrators of these emerging technologies must study this market to make informed decisions on which horse to bet on, or which parties to enter strategic alliances with.

The challenge for suppliers is to identify niche applications where the technology does not perform satisfactorily and promote their solution aggressively within these boundaries. Dislodging the existing storage technology from its dominant position depends on an abundance of factors, including customers’ willingness to pay a premium price and confronting the pitfalls early adopters can potentially run into.

At this early stage of inception, the technologies in this market are trapped in a chicken and egg situation as demand would be thriving if only the technology could be offered at lower price, and prices could be decreased if there were higher production volumes.

“Developers and manufacturers expect cost reductions to derive rising production volumes, however, this capacity has to be sold in the first place and end-users are waiting for prices to drop. Products may have to be subsidised to achieve the required volume, or high, cost-covering prices will suffocate demand,” Ms Barbier concludes.

Price: EUR 6,000
Code: B125
Publication Date: February 2002

Background

Frost & Sullivan is an international marketing consulting company that monitors a comprehensive spectrum of high-tech markets for trends, market measurements and strategies. This ongoing research is utilised to complement a series of research publications to support industry participants with customised consulting needs. Interviews and free executive summaries are available to the press.

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