The transition for Zenn from manufacturer to a would-be supplier for automakers and specialty vehicle companies has been months in the making. Last fall, CEO Ian Clifford told reporters the company no longer planned to sell its first highway-speed electric car, the cityZenn, and that it would “shift focus away” from its existing product, the Zenn LSV low-speed electric model.

Instead, the company said it planned to pursue Clifford’s vision of an “Intel Inside model” with EEstor, providing an electric drive system (based on the Texas startup’s ultracaps) to other companies the way Intel’s chips are used in PCs from many companies.

The changes that Zenn announced this week, along with the closure of its production facility in Saint Jerome will have an important effect for the company as it awaits the delayed delivery of EEStor’s first commercial product: cutting costs. Zenn says it will now have a “significantly” reduced “rate of spend.”

As Clifford told Toronto Star reporter Tyler Hamilton back in October, “The transformative moment is with the commercial proof.” If and when that proof arrives, then according to Clifford, “the whole tenor of the discussion changes to the excitement about the reality.”

Zenn plans to provide more details on its current status and future plans at its annual shareholder meeting on Wednesday afternoon.

David Lucero, director of alternative energy storage for EaglePicher Technologies, and Gary Yang, chief scientist of energy storage at the Pacific Northwest National Laboratory, told me in a phone interview on Tuesday that their planar-shaped sodium beta-battery design will be less expensive and will have a 30 percent higher energy density than standard NAS batteries. Eventually the battery could cost $200 per kWh, said Lucero, compared to the current costs of NAS batteries that he said can range closer to $500-$600 per kWh.

What’s the innovation? Lucero and Yang say it’s largely in the planar-shaped design of the battery — most sodium batteries are tubular in shape — which makes the team’s battery able to be stacked for use in projects at large and small scale, cheaper and more reliably than other battery technologies. Lithium-ion batteries can’t be stacked and deliver the same level of reliability, explained Yang. The team is also investigating new types of materials that could help cut the price and raise the energy density.

The development stage of the sodium battery project will cost around $9 million — $7 million from the ARPA-E program and $1.8 million from Eagle Picher. The three-year project has three stages of development, and Lucero said that the group has to meet “go or no-go” milestones all along the way. Bringing a battery like this into production will take more funds, and scaling it into mass production will take many more hundreds of millions of dollars — as recently bankrupted battery startups Firefly Energy and Imara know all too well. (See How EV Battery Startups Can Cross the Valley of Death on GigaOM Pro, subscription required).

The team’s battery is also very much in the proof-of-concept stage at this point, says Yang. The whole point of the ARPA-E program is to fund high-risk, but potentially game-changing, technology, and it’s far from a sure bet that the team’s battery will be able to reach that low-cost goal. One indicator that it will be difficult: Lucero tells us that Eagle Picher started working on the technology 15 years ago for space satellite systems, which can be higher in price than other battery markets. But not foreseeing the rise of the grid storage market, Eagle Picher shut the project down as the market stalled. Now that the project has been revitalized, the team has high hopes that three years and a research partnership between a national lab and an experienced battery manufacturer will give the technology the kick-start it needs.

LG Chem plans to finance the project with a $151.4 million grant awarded by the Department of Energy last summer. That battery grant program requires winners to share at least half the project costs, and LG Chem will invest $151.5 million in the new facility. Groundbreaking is scheduled to kick off this summer, according to today’s release, with full-scale operation targeted for 2012. By 2013, LG Chem expects the plant to create more than 400 jobs.

The siting of this project marks a win for the city of Holland in a time when local and state governments across the country are competing aggressively to woo government-backed battery makers. The Holland Sentinel writes this morning that the DOE grant was awarded for “lithium-ion battery cell production for one of three Michigan cities, including two closer to Detroit.”

Holland, where Johnson Controls-Saft is also setting up manufacturing, beat out St. Claire and Pontiac for the project, and according to local officials quoted in the Sentinel, that’s partly because of a reliable power supply for a plant estimated to require 15-20 MW at peak demand. LG Chem’s senior vice president said in a statement this morning that the decision came down to “the city’s excellent infrastructure and proven, quality workforce.”

It’s no coincidence that battery makers are setting up shop in Michigan. In addition to the benefit of proximity to car makers, the state has offered hundreds of millions of dollars in tax credits for battery makers including Compact Power, Johnson Controls-Saft and A123Systems.

Revenue rose to just over $91.05 million for the 2009 calendar year, up from $68.52 million in 2008. In the last three months of 2009, A123 saw higher-than-expected revenues of $24.53 million, up from $23.65 million in the same period a year earlier.

However, A123Systems increased its losses over the year — losing $86.59 million for the calendar year 2009 — up from $80.43 million the previous year. Losses narrowed in the fourth quarter of 2009 to $22.47 million, or 22 cents per share (2 cents worse than expected), compared to $28.56 million ($3.08 per share) in that period in 2008. The way Vieau sees it, “momentum is strong entering 2010.”

The record revenues amid increased losses indicate rising demand for the company’s lithium-ion batteries, but also how much investment, and time, it takes to grow into a large battery maker and to generate substantial profits. Revenue and profits at A123Systems are expected to ramp up after 2012, which has been a problem for impatient investors — the stock has been up and down and up over the past several months. By afternoon on Wednesday A123’s stock had dropped to $16.48, off of former highs above $20.

But in the long run many investors see A123 as worth the wait. After a visit to A123Systems factories in China and Korea, Deutsche Bank analysts felt that the company was ready to scale up to meet bigger demands, explaining “The maturity of operations, level of automation, and depth of manufacturing experience within each company’s subsidiaries gave us increased confidence that production scaling is a manageable risk.”

In particular the company is trying to rapidly scale its production of batteries for electric vehicles, a market that could drive sales of up to $7.9 billion (16.9 gigawatt-hours) in 2015, according to Pike Research. In A123’s 2009 year financials its transportation unit saw revenue more than triple over 2008 to $45.3 million — more than it collected from any other business unit, including consumer products ($20.1 million) and electric grid storage ($11.1 million). The company is planning a major expansion and announced on Tuesday that it now aims to add another 200 megawatt-hours at its Livonia, Mich. facility — bringing the plant’s total capacity to about 560 megawatt-hours — up from a planned 120 megawatt-hour expansion.

At least some of that capacity will be used to supply batteries for startup Fisker Automotive’s upcoming plug-in hybrid vehicles.) To put that in perspective, A123 shipped batteries equivalent to a total of 66.5 megawatt-hours during all of last year.

But like many juicy opportunities, there’s more than a little risk involved in the coming electric vehicles market, and timing is crucial. Analyst John Gartner of Pike Research told us last month that A123Systems and other U.S. battery developers planning to build out new plants in the next few years, “are not sitting on a lot of cash.” As a result, “Once they establish that manufacturing, they need to be instantly generating revenue.”

A123Systems said in its release this week that it expects 2010 to be “a year of focus on execution,” and building a “foundation” for significant growth in 2011 and 2012, when it anticipates customer programs (i.e. electric car makers) will, “move into full scale production.” The company’s doing its part to ensure that actually happens, having offered a leg up to customer Fisker Automotive in the form of a $23 million investment.

According to a release from the South Korean government, its Ministry of Land, Transport and Maritime Affairs plans to jointly invest 30 billion won (about $26.4 million) with steel giant POSCO into the technology. Together with the Korea Institute of Geo-science and Mineral Resources, they plan to develop the tech and set up a plant (with capacity to produce 20,000-100,000 tons of lithium) by 2015. The hope, according to the release, is to “not only meet domestic demand but dominate the global lithium market.”  

“If the price of lithium does go high enough, it theoretically is possible to extract lithium from seawater,” Brian Jaskula, the U.S. Geologicical Survey’s mineral commodity specialist on lithium told us in an email today. ”Just about every element in the periodic table is available in seawater. It’s just that its a very expensive way of extracting metals and minerals,” he explained.

Mitsubishi has estimated that demand for lithium — which now costs less than a dollar per kilogram — will outstrip supply as early as 2015, and Jaskula told us last year that he expected demand to begin driving lithium prices up in the next 10-15 years. But high costs make it unlikely that schemes to pull lithium from seawater will succeed in the near future, Jaskula said.

According to Financial Times, researchers who worked on a seawater project in Japan for some 30 years concluded the technology was five times too expensive to commercialize. South Korea’s land, transport and maritime ministry claims it has a technology that’s 30 percent more efficient than the Japanese tech.

The ministry says it has promoted development of what’s called marine dissolved lithium abstraction technology since 2000. But the race for new lithium reserves has heated up over the last year. As the New York Times put it this afternoon, mining executives’ yawns over ho-hum lithium are suddenly “being replaced by eurekas” in anticipation of new demand from the electric vehicle sector.

The U.S. imports most of its lithium from Chile and Argentina, while Bolivia (which has resisted giving up its resource to foreign miners) has more than half of the planet’s total lithium deposits in the brine beneath its salt flats.

Bolivia’s salt flats and the world’s seas however, don’t represent the only hope for meeting a growing lithium appetite, Jaskula noted. “Obtaining lithium from geothermal waters,” he said, “does have potential for success,” by way of contrast with the sea water option.

Jaskula pointed to a company called Simbol Mining that’s now “exploring the feasibility” of drawing lithium from geothermal sources, and the Times reports that some 60 mining firms are conducting feasibility studies, “that could potentially lead to more than $1 billion in new lithium projects” in Argentina, Nevada and Serbia over the next several years. ”If successful,” said Jaskula, “there are a vast number of geothermal sources in the western United States that could be exploited.”

Photo courtesy of Flickr user Dom H UK

The developer of the project, First Wind, just got a $117 million Department of Energy loan guarantee for the project, and Xtreme Power says it will be managing not only its battery, but the entire wind farm’s output via a home-built smart grid network.

Xtreme’s Evolution

Xtreme’s PowerCell chemistry was born in a 1990’s joint venture of Ford Aerospace and defense contractor Tracor that was shelved after its target market — California’s zero-emissions vehicle fleet — collapsed in the wake of the state’s decision to back off its ZEV mandate. Xtreme, backed by about $25 million from investors including Sail Venture Partners and the state-run Texas Emerging Technology Fund, bought the technology in 2004 and put its first 500-kilowatt PowerCell in place at the South Pole Telescope, an extreme environment to be sure, in 2007. Since then, it has also tested a 1.5-megawatt PowerCell at another 30-megawatt wind project on the island of Maui.

Xtreme has made some extreme claims for its technology. According to CEO Carlos Coe, PowerCells act more like capacitors, charging and discharging at high speeds, while at the same time keeping the qualities that make batteries better than capacitors for long-term energy storage. Combined with Xtreme’s own power electronics, PowerCells can yield a 90-percent or better “AC-to-AC” energy efficiency, he said — that is, a measure of the input and output of grid-friendly alternating current from the system, rather than the direct current that batteries actually accept and provide. The PowerCells also have deep discharge capability combined with long cycle life, and Xtreme is also working on a line of portable batteries, he said.

As with all new battery technologies, the proof will be in the deployments, with close attention being paid to how long, and for how many cycles of varying depths, the systems can operate before degrading.

Energy Storage Economics

Coe wouldn’t give any price figures for the PowerCell, saying that costs vary too much from project to project, not to mention application to application. But Sam Jaffe, analyst at IDC Energy Insights, said that Xtreme has been targeting $500 per kilowatt-hour as a profitable price point for grid storage systems, though he expects the Hawaii projects to exceed that, given their novelty.

At $500 per kilowatt-hour that compares well to costs of about $800 per kilowatt-hour for sodium-sulfur batteries, the primary battery technology now widely deployed for grid backup, or between $622 to $1,500 for flow batteries, another technology competing for grid-scale markets, Jaffe said. (Pumped hydro and compressed air energy storage are cheaper, but require hard-to-find canyons to dam and fill up with water, or underground caverns to fill with air, while batteries can be placed next to wind farms or at utility substations.)

As for lithium-ion, it hasn’t been deployed for grid storage at a wide scale, although projects are being planed — Southern California Edison got a DOE stimulus grant to back up wind farms with an 8-megawatt lithium ion battery from A123 Systems, for example.

The lithium ion battery industry could be scaling up to the point where it can compete at grid power — laptop-sized lithium ion batteries are available for about $250 per kilowatt-hour. But Jaffe noted that putting together a megawatt-sized lithium-ion battery is a much greater challenge when it comes to one of the main drawbacks to that chemistry, its potential for thermal runaway. Xtreme Power’s batteries, on the other hand, work at room temperature, Coe said.

There’s one thing for sure — as solar and wind power grow, they’ll place bigger demands on the grid to absorb their on-again, off-again power. Experts including Energy Secretary Steven Chu say storage will play a critical role in the country’s renewable energy growth, and DOE has targeted energy storage for $120 million of its $4 billion in smart grid stimulus grants. A California energy storage bill that would require utilities to store about 5 percent of their peak generation capacity by 2020 could be the start of increasing requirements that renewable power projects back themselves up with storage of some kind, Coe noted.

Island grids pose particular challenges to integrating big amounts of wind power, Coe said. First, they need to clean up the power to grid quality through power electronics. Then, they need power to “up-ramp and down-ramp” through the times where the wind dies down and picks up again — a cushion of sorts against big fluctuations that would otherwise require firing up fossil-fueled generators. Most wind farms today have natural gas-fired power plants standing by to cover those fluctuations. Hawaii, on the other hand, generates 90 percent of its power from burning oil.

Eventually, if you’ve got a big enough battery, you can shift loads, Coe said — storing power at night, when the wind tends to blow the hardest, and putting it back onto the grid in the afternoon, when power consumption tends to reach its peak. Today’s wind farms tend to manage all of these tasks separately, if at all, Coe said.

On the Horizon

Coe added that Xtreme will also be providing a smart grid network management system for the utility, Hawaiian Electric Company, to manage the wind farm, PowerCell storage device and all. Building batteries might seem like enough for a company with some $25 million in funding, but Jaffe said that anyone making grid batteries better be finding ways to link them up with utility’s control systems, both legacy and “smart grid” enabled, in ways that make them trouble-free to operate as part of the overall grid system.

Xtreme is nothing if not big in its ambitions — the company is seeking financing for a $425 million plant to roll out an eventual 2,000 megawatts of batteries per year, and has gotten state backing to build it on an old Ford Motor Co. site in Wixom, Mich.. Solar developer Clairvoyant Energy expects to build a solar panel plant, using Oerlikon Solar equipment, on the same site. Coe said that Xtreme and Clairvoyant are working on integrating solar and storage, though he wouldn’t provide details.

Image courtesy of Xtreme Power.

We recently sat down with Maurice Gunderson, senior partner at CMEA, who previously co-founded venture-capital firm Nth Power, to discuss his thoughts on the future of the greentech industry, and the how CMEA – and its portfolio companies – are prepared to thrive in the new economy. Here are some excerpts from our conversation:

Q: How have your tactics changed in the recession?

A: The question is how do you keep small companies covered and lay out a financing plan from beginning to exit? Certainly we’ve had to be creative and make lots of adjustments to our operating plans. In general, people are looking for more capital efficient investment opportunities and are figuring out ways to scale back or be smarter about how to grow the size of the business. You don’t get to have a long run if there’s no short run. We’re generally looking at plans that require less cash than if we were looking in 2008. And we’re a lot more flexible about where to look for capital.

Q: What do you see as some of the long-term impacts of the industry focus on Washington?

A: Wall Street has not moved to Washington. It’s moved to the emergency room, which happens to be in Washington. But it will move back to Wall Street in a more rational way. The thing about government is it’s very helpful, but it doesn’t require the same kind of returns that we do. With the feed-in tariff in Germany, if you were a solar producer when it started, you could sell all you could make, and it didn’t matter if you were a low- or high-cost producer. That was a good thing.

But [as the tariffs decline] and the market goes back to normalcy, high-cost products go away and low-cost products thrive. It’s the same thing here. If you invest in a company that doesn’t have a path to grid parity, the only way it can survive is through subsidies. But if it has a path to grid parity and subsidies help it grow, cool.

Q: One difference is that the feed-in tariffs in Germany declined steadily to help make renewable electricity competitive, while the stimulus programs are short-term. How will that impact the industry?

A: Feed-in tariffs in Germany were designed to stimulate the market over a preset period, while the government subsidies we’re seeing now were designed to avoid the second Great Depression. We certainly wouldn’t want to slow it down. Everybody’s got to realize this is explicitly a short-term thing. You’ve got to design your strategy accordingly.

Q: If companies are changing their business plans to take advantage of government programs, could that backfire once the programs disappear?

A: Yes, this distorts people’s business plans. It’s an extraordinary situation. To take advantage of this, companies had to change their business plans and maybe distort them. If the stimulus and the reaction to it has the effect of hatching a lot of clean-energy companies that wouldn’t be there anyway, it’s not a bad thing if there’s a little distortion. If you’re going to take advantage of a short-term thing that was not [available] before, yes, you’ve got to change tactics.

Q: Does this mean we’ll see a dip once the stimulus funding ends?

A: You bet. Entities that were propped up by it will go away and those that were incubated by it will survive.

Q: What are some of the biggest potential future opportunities?

A: I see three big breakthroughs in the future that will change everything about the energy landscape. No. 1 is fusion, which is the farthest out there. If we get fusion to work, we don’t need solar or other renewable generation. But it requires fundamental breakthroughs and it’s a harder challenge than humankind has ever taken on – it makes Apollo look like a weekend project. Say it’s 100 years off.

No. 2: grid scale storage. New chemistries that enable bulk storage on the same economic footing as power generation would turn renewables into dispatchables, which triples the value of the power. It also says we can build all we want because we don’t have to worry about grid balancing problems. That would probably make a 10-to-1 difference in the amount of wind we could develop and use. It’s huge, and it’s 10 – 15 years away.

No. 3, the nearest term, is cheap nuclear that lets us get off coal — and that’s now.

Q: Many companies are developing energy storage for the grid today. Why do you believe it’s still 10 – 15 years away?

A: People are trying warmed-over chemistries and are making a lot of incremental advances, but the technologies don’t have the economics and don’t have the life [needed for bulk storage]. I haven’t seen one yet that really could solve this problem, but I know of several breakthroughs coming in the 10-15 year time frame.

The idea behind the technology, developed by Dan Nocera at the Massachusetts Institute of Technology, is to use an intermittent source of energy, such as solar power, to split water into hydrogen and oxygen via electrolysis. When the energy is needed, the hydrogen and oxygen can either be recombined to produce electricity, such as with a fuel cell, or the hydrogen can potentially be converted into a liquid fuel, like ammonia, and used to power vehicles.

If Sun Catalytix’s energy storage technology is successful, it could help spur the deployment of renewable energy. Solar and wind power are intermittent, meaning that the sun doesn’t always shine and the wind doesn’t always blow, and these events can’t be controlled according to electricity demand. Energy storage has long been considered a Holy Grail for enabling large amounts of distributed renewable-power projects.

But so far, energy storage for these applications has been too expensive. Sun Catalytix hopes to change that and is working with cobalt-phosphate catalysts consisting of compounds in solution, instead of the usual metal surfaces. “The real benefit is that the materials are dirt cheap,” said Metcalfe, who is also a general partner at Sun Catalytix investor Polaris Ventures and the former CEO of defunct biofuel startup GreenFuel Technologies.

Aside from the catalysts, the rest of the device also is made of cheap materials, such as plastic, he added. “All the materials we have [on the device] running in our office now come from Home Depot – we’re talking PVC, not stainless steel.”

Because the compounds deposit themselves on the electrodes, constantly repairing themselves as the device splits water, this technology can also use salty or dirty water, he added, a big advantage where clean water is in short supply. While normal electrolyzers shut down in minutes if they’re run on dirty water, Sun Catalytix’ electrolyzer has already run for days at a time with no degradation, Metcalfe said. In addition, if the hydrogen is converted back into electricity, the reaction produces clean water as a byproduct, a potential plus, say, off the grid in Sub-Saharan Africa.

Sun Catalytix hasn’t yet decided whether its ultimate product will be electricity or fuel, Metcalfe said, adding that the technology could potentially address any application that currently relies on a big diesel generator. For example, the technology could be used to provide backup power for telecommunications towers or mobile land bases for the military – and the hope is the technology could eventually target residential and commercial markets, as well, he said.

Make no mistake, the startup is still years away from commercialization and doesn’t yet have a market plan in place. It’s currently working to meet technology milestones under the two-year ARPA-E contract, Metcalfe said, adding that Polaris generally aims to invest for five to seven years. Sun Catalytix will have plenty to prove, including its efficiency, stability and reliability, as well as its ability to manufacture its devices cheaply and at scale and volume, before it can meet its potential.

Until recently, those batteries were being developed in Vancouver, Canada by a company called VRB Power Systems — that is, until Prudent Energy bought out the struggling company’s assets in Jan. 2009. Apparently new investors Northern Light Venture Capital and Sequoia Capital China, and existing investors DFJ and DT Capital, think Canadian technology and Chinese manufacturing are a winning combination.

China is the biggest financial backer of cleantech in a world that’s seen governments take over that critical role from banks and venture capital firms over the past 18 months of economic distress. According to the Stern report released in April 2009, the Chinese government had set aside some $200 billion in cleantech stimulus funding over the coming years, compared to about $112 billion from the U.S. government.

This year should see government stimulus jump to a global $182 billion, up from $79 billion last year, according to an analysis by the Cleantech Group. The cleantech research firm also reports that Asian companies “absolutely dominated” IPO and M&A activity last year, including the world’s biggest cleantech IPO of 2009, the $2.2 billion fourth-quarter offering of wind power producer China Longyan Electric Power Group.

He who pays the piper, calls the tune — and in China’s case, that’s expected to mean a lot more focus on leveraging the country’s manufacturing might and cost advantages to mass-produce technologies developed both at home and abroad. A recent example is ECOtality, the Scottsdale, Ariz.-based electric vehicle charging system maker that just announced a $300 million credit line from Chinese partner Shenzhen Goch Investment. That money isn’t just going to build equipment for export. While ECOtality’s subsidiary eTec also won about $100 million in U.S. stimulus grants in August, China is expected to build about half of the world’s EV charging station in the next five years or so, according to Pike Research.

Depending on one’s point of view, China’s emergence is either a major threat to U.S. competitiveness, or an enormous market opportunity for U.S. cleantech companies and U.S.-Chinese research partnerships. China has already become the world’s biggest maker of solar panels and wind turbines.

While that growth has been built on export markets, China is also developing some of the largest wind and solar projects in the world within its borders, with the goal of getting one-fifth of its power from renewable sources by 2020. China has also set its sights on building a nationwide smart grid that could cost about $10 billion a year through 2020, Bloomberg reports, and this has drawn the interest of such major smart grid players as General Electric and IBM.

Prudent Energy’s batteries might find a role to play in these smart grid plans. Flow batteries share characteristics with fuel cells, in that they’re powered by liquid catalysts that can be refueled or recharged. While flow batteries have long cycle lives and lower costs than other battery technologies, they don’t tend to be as efficient at storing power, meaning that pound for pound they’re best suited to stationary applications — say, storing wind or solar power for the grid.

Other flow battery startups include EnerVault, which recently raised $3.5 million from Oceanshore Ventures and U.S. Invest, Deeya Energy, which raised $30 million in May from Technology Partners, BlueRun Ventures, Draper Fisher Jurvetson and New Enterprise Associates, as well as Premium Power and ZBB Energy Corp.

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Fisher told us in an interview that the company plans to turn on its initial production line by April, with plans to churn out hundreds of prototype battery cells each day in the short term. In the second or third quarter of this year CFX plans to ramp up to more than 30,000 per day, and by year’s end the company hopes to start shipping to customers.

Co-founded in 2007 by Rachid Yazami, research director of France’s National Center for Scientific Research, Caltech professor Robert H. Grubbs and French chemist Andrew Hamwi, CFX Battery is working with technology developed at Caltech to produce prismatic (flat), cylindrical, thin-film and coin battery cells.

As part of this year’s planned ramp-up, CFX (one of our 20 Battery Startups Hitting the Road with Lithium-ion) expects to grow its team to 50 people over the next four months, up from just 26 today and only seven people a year ago. Fisher anticipates half of the new hires will be engineers and lab technicians, and the other half will work on production.

Today’s announcement comes nearly six months after CFX Battery announced the first $5 million of this round, and it brings the startup’s total financing to nearly $30 million. According to Fisher, the startup’s current funding will see CFX through the middle of 2011, when it then expects to seek additional financing.

Already, Fisher told us CFX has a “major effort is under way” pursuing government funds from a range of sources, including grants and loans at the state and federal level, military projects, and programs funded by the Department of Energy, DARPA and the National Institute for Standards and Technology (NIST).

“We purposely didn’t go after a lot of the auto funding opportunities,” said Fisher, notably the battery grant program. “We didn’t want to take our eye off the ball,” he said. Many of the smaller, venture backed startups that applied for funding under the program, and were disappointed to see big grants go to some of the industry’s heavyweights, “really were only dreaming,” said Fisher.

CFX business development chief Eric Lind explained some of the earliest markets for CFX tech will likely be niche transportation applications, like tire pressure monitoring, and specialty applications like custom RFID cards and displays. Potential customers in the consumer electronics and defense sectors have also expressed interest, he said.

This plan is consistent with what CFX has described in the past: focusing first on building “primary” lithium batteries, which can’t be recharged, gaining a foothold in established markets, and then reinvesting the revenue into the company’s rechargeable battery work for applications including electric cars, as well as mobile phones and laptops.

In March, CFX plans to reveal some more information about “why our tech is different from all the other stuff that’s out there,” said Lind, which could involve a partnership or two, he added.

CFX hopes to “play” in the automotive, as well as the smart grid, market “eventually,” said Fisher, but it’s targeting lower-hanging fruit to start. ”We’ll let the big guys fight it out on the smart grid and auto, and hype it,” he said. “In the meantime, we’ll go after smaller, more profitable niches.”

Entrepreneurs and VCs are now looking for innovative ways to tweak this decades-old technology and startup General Compression has come up with an effective way to use compressed air for energy storage without burning natural gas. On Tuesday, the company announced the close of a $17 million Series A round of funding to help it build a commercial-scale unit to test the proposition.

The round was led by US Renewables Group and included Duke Energy, a utility with a lot of wind power to back up. It comes on top of $9.9 million the Newton, Mass.-based startup raised in 2007, according to Mass High Tech.

General Compression’s “GCAES” units use isothermal compression and expansion to generate power without burning any fuel, according to the company’s web site. The company claims its 2-megawatt modular units can store power at 70-75 percent round-trip efficiency. Because the units can respond in less than 30 seconds and cycle between compression and expansion quickly, they could be used to back up wind farm power output, which is the company’s main focus. As for a working model, General Compression has set an early 2011 date to start building its first commercial project — where and for which customer, it doesn’t say.

Nor does it list costs for its energy storage systems, either in kilowatt or kilowatt-hour terms. In general, big (100-300 megawatt) underground gas-fired CAES storage costs about $600-$750 per kilowatt of storage capacity built, according to the Electric Power Research Institute. Smaller scale (10-20 megawatt) above-ground CAES costs about $1,000-$1,800 per kilowatt and $200-$250$250 to $450 per kilowatt-hour, EPRI reported — still cheaper than pumped hydro to build, if not to operate, and cheaper in kilowatt-hour terms than the battery technologies EPRI surveyed in its 2008 cost comparison. (Here’s a handy primer on various energy storage technologies.)

General Compression isn’t the only startup competing to deliver low-cost, no-fuel CAES. UK-based Isentropic Energy says that its method of heating and cooling adjacent tanks of gravel and capturing the stored energy via a heat pump can pull costs down to $80 per kilowatt-hour. Right now there are only two working CAES plants in the world, one in Huntorf, Germany and another in McIntosh, Ala., so new technologies have a lot to prove.

It’s certainly the right time to be bringing new energy storage technologies to market. Any big push to make wind and solar power account for more than a tiny fraction of the world’s energy supply will have to deal with the intermittency problem — the wind doesn’t always blow and the sun doesn’t always shine, but the grid’s power demands follow predictable peaks that have to be met.

The Department of Energy’s $4.5 billion in smart grid grants late last year included $185 million for 16 energy storage projects. Among the batteries, flywheels, fuel cells and other technologies that got a boost were some CAES projects — Pacific Gas & Electric got $25 million to help build a 300-megawatt CAES plant near Bakersfield, Calif., and West Lebanon, N.H.-based SustainX won $5.39 million to develop its own CAES technology. New York State Electric & Gas is working on a CAES facility using an underground salt cavern, and municipal utilities in Iowa have been planning a CAES project since 2003, though construction hasn’t started yet.

According to an executive summary from EnerVault, the company plans to use the funding to build a prototype that can demonstrate that their flow battery technology can scale to megawatts, as well as for adding on staff and attracting new customers. Once the prototype is built, EnerVault says it will look for follow-on and government funding to build a full-scale field-deployable system.

Why will flow batteries be so important for the future of the smart grid? The technology — which generally uses large storage tanks full of electrolytes and pumps that circulate the solution throughout the system — has had decades of research, could offer one of the lowest cost grid storage options out there, and can be safer and more reliable than other energy storage technologies like advanced batteries, which can become overheated.

EnerVault CEO Craig Horne told us last May that the company’s flow battery can run around $100 per kWh, but says that price could also come down when the company scales up production. In comparison, lithium-ion batteries can cost from $200 per kWh to $500 per kWh and up to $1,000 per kWh for more advanced batteries with more expensive materials.

Like other forms of grid energy storage, flow batteries will become increasingly important as utilities look to add clean power to their portfolios. In particular utilities that have state renewable portfolio standards will need to make sure that the intermittency of the clean power (the sun and wind are only available at certain times of day) that they add on doesn’t make their grids more vulnerable.

Other flow battery companies are raising funds, too. Last year flow battery maker Deeya Energy closed a $30 million financing round from Technology Partners, BlueRun Ventures, Draper Fisher Jurvetson and New Enterprise Associates. Deeya is a 5-year-old firm that hails redox flow battery inventor Lawrence Thaller as a technical adviser and has raised $53 million.

Image of flow battery courtesy of Electric Storage Association.

According to market forecasts from Lux Research, global sales for these batteries will reach about $3.7 billion (6.3 gigawatt-hours) in 2015. Production capacity in that year, however, could be nearly triple that amount, with companies equipped with capacity to supply 18.2 gigawatt-hours, for some $10.7 billion if they were all sold. Lux senior analyst Jacob Grose told me in an email, ”We are definitely predicting a Li-ion glut coming.”

Given the number of companies planning to break ground this year on new lithium-ion battery manufacturing facilities (see our map of the U.S. green car battery buildout), or expand existing facilities, John Gartner of Pike Research (which pegs the global lithium-ion battery market for transportation applications alone at $7.9 billion and 16.9 gigawatt-hours in 2015) anticipates we could start to see excess capacity starting in 2012. “How much of this capacity is actually used, that’s an open question,” he said, but supply could outpace demand by 2012 as well.

“Battery manufacturers are preparing for a best case scenario,” said Gartner, noting that quite a bit of uncertainty remains. “The financing isn’t all in place. They probably won’t live up to some of their own expectations, mainly in the U.S.,” as opposed to Japan and South Korea’s battery giants that already have commercial-scale manufacturing operations.

Not everyone anticipates a looming battery glut. Oliver Hazimeh of the consulting group PRTM said today that while his firm does not expect “any significant overcapacities in the next few years” for the sector as a whole, individual suppliers may find themselves with unused production lines as automakers search for their groove in the EV business. Original equipment manufacturers, or OEMs, said Hazimeh, may “re-source” or change their battery supply agreements.

For young battery companies in the U.S., Gartner commented in an interview today that excess capacity could present a major hurdle in the coming years. A123Systems and other U.S. battery developers planning to build out new plants in the next few years (some of them with ambitious production goals tied to government funding), “are not sitting on a lot of cash,” noted Gartner. “Once they establish that manufacturing, they need to be instantly generating revenue.”

“Everyone will have their own estimates of future market demand and production capacity,” said Maurice Gunderson of venture capital firm CMEA Ventures. So while declining to offer specific projections, Gunderson told us this week he thinks it’s “likely that the current rate at which battery production capacity is being built will exceed the growth of demand, and so temporary overcapacity will result at some point in the future.”

But you know what? That’s not such a bad thing, he said. “Production capacity growth will slow, and demand will have a chance to catch up.”

It’s a pattern Silicon Valley has seen before. “We see this in many fast-growing industries,” said Gunderson, offering solar, disk drives and semiconductors as examples. “It’s not unique to energy, nor is it a fatal flaw in a new industry. In fact, it’s a natural consequence when supply and demand are both growing very fast.”

Asked if this trend is informing CMEA’s investment strategies at all, Gunderson said no, for the time being, “because we believe an oversupply condition is several years away.”

Photo credit General Motors

Related reports on GigaOM Pro (sub. req’d): “How EV Battery Startups Can Cross the Valley of Death,” “How To Break Into the Energy Storage Market,” and “Better Battery Life Motivates Mobile Chipmakers“

Gottesfeld also told us CellEra already is working with a major manufacturer and is integrating its fuel cells into backup power systems. CellEra plans to use its new cash to turn its working prototype into its first commercial product, he said, adding that the company aims to have products ready for the market in two years.

According to the release, CellEra believes it can cut fuel-cell development and manufacturing costs by more than 70 percent by eliminating the most expensive material – platinum. The precious metal, which is by far the costliest part of a fuel cell, is normally used as a catalyst to create the electrochemical reaction that converts hydrogen, air and water into electricity.

The key to CellEra’s platinum-free fuel-cell technology is its proprietary electrodes, Gottesfeld said, which are the positively and negatively charged areas where the reaction takes place. The company isn’t developing the platinum-free catalysts itself, instead working with partners that use raw materials such as iron, cobalt or silver, he added.

CellEra’s plans to initially target stationary applications, such as providing backup power for hospitals, which already spend more than $3 billion for lead-acid batteries each year. CellEra also plans to target the diesel-generator, telecommunications and information-technology markets.

Further into the future, the company also seems to be considering the elusive vehicle market. Christian Schütz, a partner at BrainsToVentures, told the Financial Times’ German edition that he expects CellEra to introduce fuel cells for hybrid cars by 2015.

Gottesfeld shied away from giving a date, saying that “given the flux in this market today, I would not venture to make any projections.” Still, he added that the technology could work “very nicely and cost-effectively” with batteries to extend the range of electric vehicles in the future.

If CellEra succeeds in significantly lowering costs, it could help fuel cells overcome one of its key obstacles. Fuel-cell companies, delivering huge promises and few mass-market products for decades, have long been an easy target for skeptics. The technology’s ability to convert fuel, such as hydrogen, into electricity with no emissions other than water vapor has led automakers to tout fuel cells as the next big thing for vehicles since at least 1993, when Ballard Power Systems originally demonstrated a fuel cell in a vehicle and planned to make it available in just a few years. But high costs, as well as infrastructure issues and some technical challenges, have kept the technology in the wings.

The CellEra announcement is part of a spate of recent news, including advances from automakers, customer announcements (see here and here) and new government programs in the U.S. and the UK, that may help to bring back a bit of optimism about the potential for fuel cells.

Spyker, which agreed to pay GM at least $74 million in cash for the brand, released plans today to operate Saab as,”an independent performance-oriented niche car company with an industry-leading environmental strategy,” and announced the goal of making it profitable by 2012. Lampe-Onnerud told us in an interview yesterday that the Massachusetts-based startup now has “people deployed on the ground” in Sweden (she declined to specify how many), and Saab is still engaged in the project. 

Heading into the Swedish EV project, Lampe-Onnerud said, “We knew there was some business risk.” But the potential gains and opportunity to learn about deploying its batteries — currently used as premium upgrade batteries for Hewlett-Packard laptops — in electric vehicles and figuring out “the ideal handshake” between the battery and the drive train, made the collaboration a “no brainer” for Boston-Power. She said the startup is “thrilled with Spyker coming in.”

Other partners in the EV coalition, which is receiving funding from the Swedish government, include electric powertrain developer Electroengine, project incubator and manager Innovatum Technology Park, and Swedish power industry trade group Power Circle. According to the coalition’s December 2009 announcement, the group has built a small number of demo models and plans to produce more than 100 vehicles in 2010.

According to Lampe-Onnerud, Boston-Power has other auto projects in the works. While the company is “trying to be very humble with our customers,” and let them make any announcements about planned plug-in vehicles and battery suppliers under consideration, Lampe-Onnerud said Boston-Power is involved with automakers that are testing vehicles at various scales and stages — from tens to thousands of cars per month. “This is not a real market, it’s an emerging market,” she said. “So every project is one-off.”

Despite the supply contracts automakers ranging from General Motors to Fisker Automotive have recently handed to LG Chem, A123Systems and other battery makers (and the battery ventures that companies like Nissan and Daimler have established) to support upcoming plug-in vehicle lineups, Lampe-Onnerud sees the very nascent electric vehicle market as still fairly open for battery makers. There’s a common perception that “all automotive companies have picked their batteries. Not in our experience,” she said. “Everybody will need multiple sources.”

There’s room for “large, competent battery players” that are “very likeminded” with legacy automakers, said Lampe-Onnerud, but also for “agile battery players able to respond” quickly to an evolving market. For now, low-volume projects are the name of the game for Boston-Power in the EV space. Running up against capacity constraints, Lampe-Onnerud said, “20,000 cars would sell out our capacity…We have to be careful in allocation of cells.”

For the foreseeable future, any expansion in production capacity will most likely take place overseas. After the Department of Energy denied Boston-Power’s request for $100 million to set up manufacturing operations in the U.S. last year, Lampe-Onnerud said, “We went right back to China.”

Screen-printed solar-cell manufacturer Suniva and battery maker GS Battery are teaming up to help solve that problem by pairing solar projects with batteries. It’s a common pairing for off-grid systems, which need batteries to have electricity at night, for example, or on cloudy days. But the companies also want to add batteries to systems that are connected to the grid.

GS Battery claims its batteries can help on-grid customers get a far better return on their investment. For example, customers in areas with time-of-use pricing, where they pay more for electricity used at times of peak demand, could store the solar energy and use it – or feed it back into the grid, if they get credit based on the time of use from their utilities – during those peak periods, then use grid electricity when it’s cheapest.

The companies wouldn’t estimate how much money the combination might actually save customers, saying only that the numbers will depend on the specific application and cost of the energy being saved. But they may get a better idea of the range of savings customers can expect after completing a series of demonstration projects planned across the U.S. The first system, which will include 30 kW of solar panels and 3,000 amp hours of battery storage, is slated for GS Battery’s headquarters in Roswell, Georgia.

While other projects are still under wraps, Bryan Ashley, Suniva’s chief marketing officer, told us that a system similar to the one under construction in Roswell could be available as soon as the second quarter of this year. Suniva and GS Battery ultimately plan to target commercial, industrial and potentially residential markets, with sizes as small as 3-4 kW – although many could also be in the 30 kW range, Ashley said.

Batteries have often been proposed as a solution to the intermittency problem, with companies such as Deeya Energy, EEStor, Altairnano, A123Systems and NGK Insulators all are working to develop viable grid storage, but batteries previously have been too expensive to make sense for the grid.

One thing that’s changed is a stimulus provision, which starting this month allows battery storage systems to receive the same 30 percent federal investment tax credit as solar projects.

GS Battery also claims its nano-carbon lead-acid technology will last much longer, even with frequent charging and discharging, than other lead-acid batteries, which lowers the cost. The batteries can last up to 4,000 charge and discharge cycles, “which is dramatically more than your average car battery,” said Ashley. “When combined with Suniva’s high-power solar modules, it is a much more affordable value proposition than in the past.”

Image courtesy of GS Battery.