“The First No-Fuel Power Plant”

By Travis Johnson, Stock Gumshoe, September 17, 2007

This one is from Chris DeHaemer at Taipan’s Red Zone profits, and it looks like it circulated pretty heavily on Friday and over the weekend.

It’s for a company that uses momentum, in Dehaemer’s description, to store electrical energy, and essentially runs a big “momentum battery” that they use to buy up electricity at low rates overnight, then sell it again back to the grid at higher rates during the middle of the day. This is in the unregulated, auction-based energy markets, of course, which are available in many states.

The idea, according to the teaser, is that this company can make a killing without ever having to generate any electricity on its own — and it makes sense on a basic level, since we all understand the “buy low, sell high” business plan. Many of us, in fact, try to follow it.

So … what is this magical company that can store power and instantly re-sell it to the grid when demand spikes?

Well, when DeHaemer talks about “momentum” it’s pretty clear that he has to be talking about flywheel technology — giant heavy wheels, often running in a vacuum, that regulate and, in some cases, store energy with, hopefully, minimal loss. This is not too different from the concept that provides some of the power to the Toyota Prius, though in that case the actual wheels are “flywheels” — when you step on the brake, it sends that kinetic energy from the wheel back to the battery to use for running the engine.

And in a flywheel power plant I imagine it must work similarly (in case you can’t tell, I’m NOT an engineer) — the plant pulls energy off the grid to get the flywheels rotating, tries to develop an environment that allows them to keep spinning without losing much energy, and then, when the power is needed again, the momentum of the flywheel is attached to a generator that can spit electrical power back to the grid.

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OK, so I’m not going to win any technical writing awards for my delightful and colorful description of the flywheel power plant, but I think I get the basic idea. Hopefully you do, too.

So, what is this flywheel power plant company, trading at $1.50 at the end of August, according to the teaser (though as far as I can tell, the teaser didn’t start circulating until Friday, September 14, when the shares were appreciably higher)?

Well, the other clues should help us to sleuth this one out:

Insiders have bought heavily this summer, since July 6, 2007.

And DeHaemer tells us that “it could produce the highest profit margins in the history of the utility industry.”

So … figured it out yet? Maybe so, but I’ll tell you anyway … loyal reader Stonecutter and I both agree that this company is …

Beacon Power Corp. (BCON)

And it has had a wild couple of weeks, during which big news came out about several things: a $10 million cash infusion, testing success for their product, and news about preparing for manufacture and the launch of the actual power plant by early next year.

And, being an occasional sucker … er, investing enthusiast … myself, I actually thought about dabbling in shares of this one with my own cabbage when the press releases were flowing from the company last week. Don’t worry, I don’t actually own any shares, but I’m always tempted by interesting technologies like this.

Unfortunately, I’m a bit of a sucker for innovative electrical power companies — one of my larger mistakes, which remains in my portfolio at a huge loss so far, is MMC Energy (MMCN), which is a more conventional electricity generation company, albeit one with it’s own special niche (unfortunately, a niche that they’ve grown much more slowly than I was hoping).

So I certainly wouldn’t consider my interest in the shares to be at all significant, except perhaps as a contrarian indicator.

As with most startup companies and projects like this, it’s very hard to get any idea of when they might become profitable … if they ever will. Of course, since they’re starting up their plant probably over the winter, and winter is a generally low rate and low usage time for electricity, this is not perhaps the time to build wealth through an eletricity rate arbitrage scheme like this … or get attention from the media due to high electricity rates.

But what about this company? Well, if you want to know more about them one thing to really focus on that newsletters almost never cover well, and certainly almost never note in their teasers, is competition — and BCON, as you’re probably aware, did not invent the flywheel. There are a few other power companies of varying focus who sell or manufacture or use flywheel products for electricity storage, they did a quick overview of a few of them over at Stockerblog a few months ago that might help you go get started.

The company is, to get down to brass tacks, a long way from being profitable. These are expensive installations, and I have no idea what their plans are for a second plant, or for expansion. While the Northeast is an appealing place for electricity companies due to the utilities’ inability to build new plants very easily thanks to NIMBY concerns, it’s not the most taxed electrical grid in the country — usually southern California gets that nod, especially in the Summer, so that’s where most of the energy traders of the last, scandal-ridden school got their chops (Enron, et al). It would be nice to see the company try this in other markets, too, which may already be in the plans for all I know.

In my mind this ends up looking risky in a few ways: It’s a bet on a technology that hasn’t yet proven itself on this scale and in this kind of real world usage; it’s a bet on continued high energy rates and a continued open auction market for electricity; and it’s a bet that these guys are better than and/or ahead of their competitors. I’m most sanguine about that last one, since this is a new product/service and, if it works, there may be plenty of room for it to grow even if several companies get into the game. The other two, I’m not so sure.

If anyone else is an expert on flywheel energy storage … or has looked at Beacon or any of the other companies in any detail, please feel free to share. I do see potential, but that doesn’t necessarily mean much … potential without earnings can only last so long.

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