Shareholder Update January 2017

31 JANUARY 2017

HIGHLIGHTS

Engineering

  • Prototype TESS commissioned
  • Better than expected ERD efficiency of 31% electricity and 80% CHP
  • AusIndustry signs off and concludes its 50% funding of the Prototype
  • Testing and design underway for commercial 10MWh and 200MWh modules

Finance

  • Company debt free after conversion of all convertible notes and loans to equity
  • New issue of up to 20m shares at 10 cents per share raised $506,848 by end quarter
  • Appointment of new Chief Financial Officer with listed ASX company experience

Corporate

  • Company converts to Public Limited type
  • Name change to 1414 Degrees Ltd
  • Streamlined board of directors supported by company secretary with stock market experience

Marketing

  • Pitstop Marketing working to extend awareness of the potential for 1414 Degrees technology
  • Major utility companies and energy users drawn by our large scale energy storage
  • Pre-registration for IPO prospectus now open on website

 

CHAIRMAN’S UPDATE

This has been a pivotal quarter for your Company. Your Company is ready to design and build its first commercial installations.

Kevin Moriarty

The commissioning of our Thermal Energy Storage System (TESS) prototype established the viability of storing and retrieving electrical energy at the very high temperature of molten silicon, unlocking its unique combination of high latent energy density and efficiency.

The prototype had its first run on September 30, producing better than expected results at such an early stage of testing using less than 50% silicon load. Peak electrical output from the Stirling engine and generator was 30.4kW during the first run on stored latent heat recovering 20kWh. The Electrical Recovery Device (ERD) efficiency was 31% while the Combined Heat and Power (CHP) efficiency was better than 80%.

Different materials and configurations are being evaluated in continuing test runs. A high efficiency ERD will be tested in the current quarter if seed funding is available (see below).

The technology clearly works and can now be extended to commercial scale. One challenge is to size the commercial TESS products according to market requirements.

The market for energy storage systems is vast but most technologies address the requirements for small localised storage such as homes with solar cells. These are expensive and will be used by those who want to invest in going off-grid or need backup for energy security. They are typically much less than 1 megawatt hour (<1 MWh) with some commercial installations of up to 5MWh.

At the other end of the scale pumped hydro is the most efficient for the large capacity energy storage but there are limited locations worldwide, and few in Australia. These are unlikely to be economically viable or environmentally acceptable to current sentiment.

Our technology is suited to the middle of the capacity scale where there are few viable technologies, and none are yet commercial. A crucial requirement for success of larger scale storage is it be economical, and our products will cost about 10 times less than batteries at the scales we have chosen. Another advantage of the 1414 Degrees products is scalability to meet differing requirements.

Accordingly we decided on a modular approach allowing us to service markets ranging from district heating, farms or factories to city grids and wind farms requiring gigawatt-hours. The two modules have storage capacities of 10MWh (TESSIND) and 200MWh (TESSGRID), with scalable energy recovery technology.
TESSGRID will be the basis for multi-gigawatt hour installations to make renewable generation more efficient and solve grid stability issues – particularly where wind generation is dominant. Your Company is assessing wind farms at which to build the first commercial TESSGRID module. Once operational, it will be expanded by adding modules to provide maximum efficiency. This approach will allow us to test and perfect the design.

Your Company is evaluating several hydroponic farms and industrial sites for the first TESSIND installation. Wind, and possibly solar, generation will be installed to charge the TESS which will then provide heat and power as needed. This should attain efficiencies above 80%.
The specifications of the electric power recovery systems of both TESSGRID and TESSIND are being designed to meet grid operational requirements to allow sale of power into the grid.
We estimate these first commercial storage modules can be built for less than $10m and qualify for government co-funding and rebates of 40-50%.

This modest capital expenditure will demonstrate the viability of large scale TESS and have a worldwide impact because it will increase the efficiency and reliability of renewable power generation.
We have been developing a business model to build value through capital appreciation and securing cash flow. Your executive team has been analysing the economic impacts of adding TESS storage to various components of the power and energy grid.  For example, efficiency gains from storage are estimated to have a substantial impact on cash flow from renewable generation. We also want to protect your IP. Accordingly, our preferred business model is to retain ownership of the TESS by licensing to operating companies that earn income from the energy flows. 1414 Degrees will have an equity stake in these companies, thus building long term cash flows.

Taking into account the considerable intellectual property (IP), more than $3m in cash expenditure, and the unpaid time of directors and executives, Directors estimate a valuation in excess of $9m at the commencement of the Quarter. Prior to this, your Board accepted a recommendation that the most strategic source of capital would be from the public. Accordingly, the convertible note holders and creditors agreed to convert all debt to equity to prepare for an issue of new shares at 10 cents to raise up to $2m. This has been well received with over $500,000 subscribed by the end of the quarter, enabling an acceleration of the commercialisation program.

The subscribed funds are allowing us to use the prototype to test materials and configurations for the larger modules and patent applications covering a series of technological advances. I would like to say more about the challenges of perfecting the prototype and the exciting new technology, but we need to protect our IP. While the principle of the TESS is straightforward, the configuration and choice of components has involved a large investment of knowledge and test work that  will be progressively patented.

I believe shareholders are well positioned to benefit from the strong corporate profile and technological success. Your Board is preparing for a public offer and ASX listing to raise the remainder of the funds for the first commercial installations.

Kevin Moriarty
Executive Chairman