redT energy (LON:RED), a developer of vanadium redox flow machines for large-scale energy storage infrastructure applications, has announced an exclusive deal to develop 690MWh of energy storage projects to support the German electricity grid, with an initial two 40MWh projects (1,066 tank unit modules) to be built in 2019 and 2020, subject to financing.
- Based on the current Gen3 price for a 60-300kWh system, the initial two projects could result in revenues of c€50m for RED split across FY 2019 and FY 2020
- The initial projects have planning approval, grid connection and approval to supply Secondary Control Reserve (SCR) to German and Austrian markets
- The projects will replace coal-fired power plants which typically supply Secondary Control Reserve by ramping up generation when required
- Agreement signed with Energy System Management, a German energy development company, part of WWF solar
- RED is confident that the projects will obtain the required funding in the near-term
This is the first ‘mega project’ announced by the company and is clearly extremely significant in terms of the mid-term financial impact. Aside from the order value, this agreement also confirms the suitability of long-duration flow machines for grid supporting projects across Europe.
Recent regulatory changes in Germany, which have also been seen in the UK, are clearly favouring long-duration storage technology, as opposed to lithium-ion battery projects that are targeting short-term grid service revenue streams in what is an increasingly crowded sector.
Our current forecasts are for 500 tank unit sales in FY 2019 and 2,500 tank unit sales in FY 2020. Depending on the eventual split of delivered modules, this one order could potential satisfy our 2019 forecast as well as providing a solid underpinning for our sales forecast in 2020.
This is clearly a very positive announcement for the company and we would expect a strong share price reaction today. In addition, we are hopeful that further large-scale projects will be announced over the next few months. RED’s outsourced manufacturing model provides us with confidence that it will be able to deliver this German pipeline, on top of any additional orders that may be secured in the coming months.
We maintain our BUY recommendation and target price of 22p.