Bill Gates-backed battery company gets an outperform rating from Cowen

Published Tue, Nov 2 202110:10 AM EDTUpdated Wed, Nov 3 202111:47 AM EDT

Newly public battery company ESS is tackling a key issue with renewable energy — what to do when the sun isn't shining — and it's well positioned for the long term, Cowen said in a note to clients. The firm launched coverage on the Bill Gates-backed company with an outperform rating, pointing to ESS' "differentiated low cost technology." The company, which was founded in 2011, makes long-duration flow batteries with an electrolyte made of iron, salt and water. ESS' batteries can store energy for up to 12 hours, according to the company, which is longer than more widespread lithium-ion batteries can. These batteries can typically store energy for four hours, although metrics vary. Unlike other flow battery technology, ESS's patented pump means the system can be cycled more than 20,000 times without capacity fade, making it more efficient. All told, this leads to a "significantly lower levelized cost of storage than competing technologies." "ESS's iron flow batteries are able to offer unique performance characteristics with the ability to operate in a wide temperature range while posing no explosion or fire risk," the firm's analysts led by Thomas Boyes wrote in a note Monday, adding that the batteries' components are abundant and low-cost materials. ESS began trading in October after going public through a reverse merger with special purpose acquisition company Acon S2 Investments. Bill Gates' Breakthrough Energy Ventures and SB Energy, a subsidiary of SoftBank, were among ESS' early backers. A number of clean energy companies have entered the public market in the last few years, thanks to a jump in demand for renewable energy investments and the proliferation of SPACs. Shares of ESS gained 26.92% on Oct. 11, the first day of trading, before surging 128.41% to an all-time high of $28.92 on the stock's second day of trading. The stock jumped from $8.21, where it traded Oct. 8 — just prior to the newly combined company entering the public market — to $18.75, where it closed Monday. Cowen has a $23.50 target on the stock, which is about 25% above where it closed Monday. The firm noted its target is a 50% discount to ESS' broader peer group, but said the discount is warranted given that ESS is a pre-revenue, pre-production company utilizing a new technology. ESS told CNBC that it started shipping products in August, following its most recent financial filings that referenced its pre-production status. "However, we expect future multiple expansion as the company ramps production of its G200 battery modules," the firm said. Given that widescale adoption of solar and wind power depends on energy storage technology, many companies are rushing to develop batteries that use new technologies and new materials. Form Energy, which is also backed by Breakthrough Energy Ventures, is making long-duration batteries using iron . Fluence, a joint venture between Siemens and AES that provides energy storage products and services, went public last week . ESS' 12-hour storage capability is a sweet spot since in the case of solar, for example, it allows energy to be stored overnight. "The proliferation of low-cost renewable energy like wind and solar is causing stability and resiliency issues for electrical grids around the world," the firm said. "ESS's iron flow battery design is well suited to address these issues, offering a low cost, scalable technology that possesses unique operating characteristics vs. Li-ion," the firm noted. —CNBC's Cat Clifford contributed reporting.

A worker inputs data from an Energy Warehouse, housing iron-flow batteries, at the Energy Storage Systems Inc. (ESS Inc.) facility in Wilsonville, Oregon, U.S., on Wednesday, Sept. 28, 2021.

Tojo Andrianarivo | Bloomberg | Getty Images

The firm launched coverage on the Bill Gates-backed company with an outperform rating, pointing to ESS' "differentiated low cost technology."