NRGV - Energy Vault: Gravity-Based Energy Storage For The Renewables Surge

2023-03-08 12:05:59 ET

Summary

• Energy Vault is fast ramping up sales of its gravity-based batteries for long-duration energy storage.
• The company recorded a beat on revenue for its fiscal 2022 fourth quarter with revenue of $100 million realized.
• Cash and equivalents of $286.2 million as of the end of the quarter and zero debt provide a substantial cash runway.

There are several competing long-duration energy storage (LDES) technologies from pumped storage hydropower to liquid air and zinc-based aqueous static batteries. The need for these against a global economy moving to decarbonize is critical and Energy Vault ( NRGV ) perhaps forms one of the more unique takes on LDES. The Lugano, Switzerland-based energy storage firm has developed a gravity-based LDES solution that uses excess renewable energy to lift huge composite blocks. These blocks are then dropped when energy is in demand and the kinetic energy from the dropping blocks spins generators that supply electricity to the grid. It's an intense solution for utility-scale applications that require four or more hours of storage capacity.

Energy Vault faces a wall of secular growth demand as utility-scale solar and wind energy move to the forefront of the post-pandemic global energy architecture. The momentum of these cannot be understated with the Inflation Reduction Act and Russia's war on Ukraine acting as catalysts to supercharge the transition to these zero-carbon sources of energy.

Energy storage is the often-overlooked foundation of the net zero future being pursued by policymakers as it's required to smooth the inherent intermittency of renewables. Crucially, Energy Vault's large gravity batteries help render renewables more viable by addressing the timing imbalance between peak electricity demand and peak power production. This is best illustrated by the solar duck curve.

Hence, LDES is absolutely critical in reducing the potential for grid instability posed by renewables as solar grows as a percentage of total US energy production. Energy Vault went public via a blank check company last year in February, but has since lost around 75% of its value on the back of hikes to the Fed funds rate which has unfortunately formed a general risk-off environment.

Fiscal 2022 Fourth Quarter Earnings

Energy Vault's just reported fiscal 2022 fourth quarter earnings saw revenue come in at $100.3 million , a beat by $10.78 million on consensus estimates and growth from zero in the year-ago quarter. The company is well underway with the commercialization of its technology and its fourth quarter was boosted by a 275 MWh storage project in California. Contracted and signed booked orders totalled 1,635 MWh, or $540 million with total signed contracts and project awards at 5.2 GWh, roughly $2 billion of potential revenue coming online over the next few years. For some context, Energy Vault's current market cap stands at $429 million. Further, whilst the company recorded a net loss of $23.3 million, negative cash flow from operations for the full fiscal year was broadly equivalent at $23.4 million.

This meant Energy Vault exited the quarter with cash and equivalents of $286.2 million and no debt on its balance sheet. Whilst operations didn't ramp up until the fourth quarter, extrapolating this cash burn as a quarterly rate would still imply a multi-year cash runway. Energy Vault is guiding for fiscal 2023 revenue to be in the range of $325 million to $425 million, reflecting growth of 3x on fiscal 2022 revenue with negative adjusted EBITDA expected to be not more than $70 million. Whilst this revised guidance is set to be lower than the initial guidance for fiscal 2023 revenue to be around $535 million, the company is still in such an early stage that contracting new projects will be prone to changes. The company broke ground in China last March on its first 100 MWh system, the first global gravity storage deployment, with more set to come in the years ahead.

Subsidies, War, Net Zero, And The Energy Crisis

It's important to build the macro backdrop for Energy Vault. Firstly, the Inflation Reduction Act, which will see billions invested by the US government over the next decade to supercharge decarbonization, forms a crucial growth pillar for the company. Think of its batteries as a pick-and-shovel play on the growth of utility-scale solar and wind energy. Growth in both these technologies on the back of IRA subsidies will boost LDES demand and see the company continue to build on fast-ramping operational momentum. The IRA's potential is huge with the Boston Consulting Group forecasting that its subsidies could see the deployment of zero-carbon energy grow up to 80% of US electricity production as soon as 2030, up from 20% of production currently. Utility-scale solar deployments are set to increase by at least 40%, or 62 GW, over pre-IRA projections through 2027.

Further, Russia's war on Ukraine and the subsequent energy crisis have led to an almost visceral need to turbocharge the transition away from fossil fuels. In Europe, this is taking the shape of an IRA-type subsidy scheme with national governments also bringing forward net-zero plans through legislation, supply side and planning reform changes to boost the overall buildout of renewables. Hence, from a macro perspective, Energy Vault truly stands to ride several secular growth factors with the ongoing revenue ramp reflective of what are the early innings of the shift to renewables. Whilst I'm neutral on the stock until it reaches profitability, the long-term opportunity is potent.

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