• – SiliconAurora has made significant progress defining the revenue stack for the Aurora Project
• – SA Water is progressing approvals for ongoing development of the GAS-TESS at the Glenelg site
• – New highly scalable system for PCM-containment will use SiBox trademark

CHAIRMAN’S LETTER

The quarter has been pivotal for your Company’s technology development and revealed a potential strong revenue opportunity from the Aurora acquisition. Our breakthrough silicon technology, trademarked as SiBox, continues to perform robustly in air at high temperature, confirming its potential for large-scale phase change energy storage.

As Marie Pavlik reports below, our Aurora Project is looking positive for early strong revenue from a hybrid renewable energy plant utilising a combination of photovoltaic (PV) generation to the grid and a large battery selling frequency support to the NEM. The longer-term plan is to add a large 1414 Degrees TESS providing long duration firmed power to tap higher electricity prices.
Our immediate focus is revenue generation from the project using a large battery storage system (BESS) sharing inverters with the first stage 70MW of PV already approved for development in 2021.

We have proposals from other thermal generation and storage providers who had bid on the Aurora project before we acquired it. We are therefore considering a thermal energy park whereby several generators share the connection managed by our subsidiary, SiliconAurora. Under this arrangement, SiliconAurora would earn revenues based upon the amount of energy exported by each project.
The Aurora project team is targeting financial close in 2021 and is in discussions with potential project equity and finance partners. A project management group is being assembled from people with previous experience with large scale PV and battery installations in South Australia.

Maretta Layton and the engineering team are working with SA Water on a plan to raise the technology readiness of the GAS-TESS while designing and testing technology for the commercial model. As Jordan Parham reports below, the deficiencies in the energy recovery system have been assessed by the technology provider and they are collaborating to develop a higher temperature heat exchanger.

For the larger TESS-GRID, we are continuing to work with an international specialist supplier of energy recovery systems for large power plants. The aim is to cost-effectively generate electricity from our new SiBox silicon storage to provide long duration, high value firmed power supply. As reported during the Quarter, we have identified that our system could compete with large scale pumped hydro on a levelised cost of storage basis, but with the added advantage of being independent of location, unlike hydro dams.

Our R&D team is also continuing to develop the new SiBox silicon storage, which will provide the basis for a scalable TESS product and has the potential to also appeal directly to high temperature industry markets. The Business Development team is investigating these early commercial opportunities.

When I began with the Company four years ago, the Company’s technical team were optimistic for early commercialisation of the technology, but that has been shown to be unrealistic, as outlined in the recent technology review. In the past two years, the Company has upskilled the technical team and acquired assets that can realise the twin objectives of revenue generation and technology development. Your Board is now working on a restructure of the corporate team and leadership to manage the immediate revenue opportunities while advancing the core technology. We expect to announce details in the current quarter.

CORPORATE OPERATIONS

1414 Degrees had $4.4m in cash at quarter end and the Company is currently preparing for its FY19/20 R&D tax rebate. The payroll has been supported by JobKeeper receipts and this is expected to continue until the end of September.

With ongoing disruption from Covid-19 the Company maintains stringent fiscal controls over cash flow, while progressing core priorities of the Aurora project and storage technology development. Workplace productivity remained high this quarter, with 95% of team members working from the corporate office and our research facility.

Following changes to staffing and reduced remuneration across the company in March for a contracted period of four months, 1414 Degrees has just completed another review of human resources. The Board and senior management have agreed to continued cuts of between 25% and 75%. The majority of other team members have reduced hours while some have returned to full time work on critical work requirements. These new agreements with staff will be reviewed again in September. Three redundancies have occurred.

ENGINEERING OPERATIONS

SA Water Glenelg Wastewater Treatment Project In the last quarter, SA Water completed its business case evaluation for engines and GAS-TESS at the Glenelg Wastewater Treatment Plant. Although the GAS-TESS pilot was unsuccessful in the procurement process, SA Water remains supportive of the GAS-TESS technology and is progressing approvals for ongoing development at the Glenelg site. The installation is also important for development of our new silicon storage technology relevant to the scaling up required for the TESS-GRID.

We are focussed on increasing the electrical efficiency of the GAS-TESS to better demonstrate its competitive advantages of time-shifting, no gas pre-treatment and lower operating costs compared to reciprocating engines. A key step for higher electrical efficiency is to increase the electrical output of the turbine, which is currently limited by the heat exchanger not operating to its design specifications. Flex Energy, the heat exchanger supplier, is collaborating on the design of a supplementary sub-unit that will increase heat exchanger and turbine performance. This will be supplied and tested jointly with the manufacturer on the GAS-TESS.

The technical data gathered to date and calculations used to inform the business case evaluation has provided a good basis for the commercial strategy for the GAS-TESS. Its advantages will be presented to other water utilities to drive commercialisation of the technology, in parallel with technical development work on a commercial model.

On-site testing has been suspended pending resolution of the heat exchanger performance limitations with the manufacturer and an extension from SA Water to current permits.

Storage Technology Development

Our technical team have continued intensive test work to validate the thermo-physical properties of our new highly scalable system for containing and storing heat in molten silicon phase change material (PCM). We will use our SiBox trademark for this new PCM-containment and its deployment in different configurations as a “thermal payload” in our thermal storage system (TES). SiBox continues to pass all tests to date for robustness, thermal storage capacity and heat transfer. Pre-manufacturing samples from our European partners are now being tested in their R&D laboratories and our facility to verify key performance metrics prior to deployment. The technical advantages of the Sibox product could open new markets in high temperature industry, which will be assessed as a commercialisation opportunity.

In addition to its improved robustness, a key benefit of SiBox is its flexibility in geometry and scalability for heat transfer and storage. Hence current design and development work on the TESS-GRID and GASTESS upgrade is focussed on optimising the heat transfer to and from the SiBox in different configurations. Our team is developing new, transient computational models of heat transfer to evaluate TES design configurations. The modelling predictions will also be validated by physical testing to provide confidence in designs before deployment in the TESS-GRID and GAS-TESS upgrade.

Our engineering team is also working closely with key external equipment suppliers on the energy recovery system (ERS) design configuration, as this is the key to maximum electrical efficiency. This evaluation of current and future technology options will result in more robust and higher efficiency energy recovery systems for heat and electricity supply. 

It is an exciting time as major advances are being made by the 1414 Degrees technical team and our strategic partners delivering innovations in PCM-containment, heat store design and the energy recovery system. These developments will increase the energy efficiency and decrease costs of the TESS technology, in accordance with our overall R&D plan to drive down the Levelised Cost of Storage of the TESS technology. Demonstrating them on the TESS-GRID and GAS-TESS will provide confidence in the TESS technology as a competitive, value-add clean energy solution to customers and partners. 

BUSINESS DEVELOPMENT

Members of the business development team have had a busy quarter working with a range of parties including energy recovery system providers for the TESS, potential PPA customers, and project partners for the Aurora Project.

Potential partners for future TESS-GRID sites continue to contact us. These range from multi-nationals with off-grid sites and heat requirements to large utilities planning for a low carbon future and integrating more renewables into their generation profile. These opportunities show there is a future market for large scale thermal storage in stabilising renewable generation.

We are advancing cooperative agreements with energy recovery providers to deliver the efficiency improvements required for the next stage of TESS. These involve progressing a number of innovative solutions for energy generation.

Aurora Project: In late 2019, the Company made a strategic acquisition of the Aurora Project to demonstrate its grid-scale thermal energy storage, however, the project planning has surprised with a strong early revenue case using a large battery. The resultant vision for 14D’s subsidiary company SiliconAurora, which owns the project, is to deploy a hybrid power station with a sustainable business model generating revenues from renewable power generation, frequency control and stability services commencing in 2021.

The next round of modelling is expected to provide a clear basis for individual asset sizing in an optimised business model and consequently the operational cost and required investment for the first stage.
Several other companies have expressed interest in investing and/or positioning their technologies in the project. SiliconAurora is, therefore, preparing a long term plan to deliver a larger solar power generation and storage park that fully utilises the 1100 hectare site under the 40 year lease from the South Australian government. The plan envisages SiliconAurora managing and owning the transmission connections to earn revenues from power supplied by multiple assets, including the hybrid power station and other technologies. The site’s potential is to capture higher electricity prices from firming power supply and providing generation on demand. The Aurora Solar Thermal Park would contribute to making clean, affordable energy available to all.
Development plans are progressing and will provide employment opportunities in the Upper Spencer Gulf and South Australia more widely, not only during construction but also permanent ongoing positions in maintenance and operations. The Aurora project team is targeting early financial close. It has been actively seeking and negotiating with financing and equity partners. The transmission connection specifications are under study. A project management group is being assembled from people with previous experience with large scale PV and battery installations in South Australia.

Revenue Generation Opportunities:
In parallel with the development of the hybrid power station design, SiliconAurora has made significant progress defining the revenue stack and is in negotiation with retailers for long-term PPAs. A BESS could generate substantial revenue from frequency support services, and the aim is for the TESS to generate long duration, high value firmed power.
The overall strategy is to grow the utilisation of the assets and increase the energy value. Solar PV will generate renewable electricity, short duration BESS will target high energy fast frequency services (FFR and FCAS) and long duration TESS-GRID will secure firming contracts and deploy grid stability services.
SiliconAurora commissioned specialist agencies CQ Energy and ITP Renewables (ITP) to test various scenarios on historical data. They reported positive simulation results with attractive revenues and margins based on the past five years of National Energy Market (NEM) and Frequency Control and Ancillary Services (FCAS) trading. ITP’s model co-optimises all its decision variables simultaneously to achieve the highest combined revenue for the parameterised data. As shown in the chart below the report shows the maximum possible revenue if the system had perfect foresight and 100% access to available services. This indicative revenue stack combining solar PV generation and BESS (Battery Energy Storage System) is very encouraging. 

Ongoing financial modelling includes simulating the effect of other BESS in the grid and then adding a TESSGRID providing both FCAS and firmed power from the site.

Simulated annual revenues for a 70MW PV plant with varying battery storage size from zero up to 140MWh using historical NEM market data for South Australia. NB: this is not a projection. 

• – A green hybrid storage solution for Aurora Project takes shape 
• – Simulation of past five year data indicates strong revenue prospects 

A revenue generating hybrid energy storage solution for the Aurora Project near Port Augusta, South Australia is looking promising, involving a mix of solar PV, batteries and 1414 Degrees’ TESS. Together these allow access to revenue stacks ranging from power purchase agreements (PPAs), ancillary services (FCAS), wholesale energy trading and highly valued long-duration firmed power sales. 

1414 Degrees is pioneering this competitive solution for grid stability under the leadership of Marie Pavlik, who is preparing for development by commissioning optimal asset modelling from specialist agencies CQ Energy and ITP Renewables (ITP), and teaming with energy retailers to bid on PPAs.  

To support marketing of the Aurora Project power, CQ Energy modelled 20 years of solar PV generation with allowance for declining output. CQ Energy also provided guidance on maximisation of revenue from battery storage including spot price arbitrage and FCAS revenue. 1414 Degrees has used the results for competitive pricing of PPA tenders and offers. 

ITP have now provided a progress report using solar profile data collected over several years at the Aurora site to simulate operation of a 70MW solar PV farm with a battery energy storage system (BESS) to maximise National Electricity Market (NEM) wholesale and ancillary services (FCAS) revenue. It varied battery size from zero to 140 MWh and allowed for degrading performance to reflect real efficiencies. The modelling utilised a maximum 70 MW transmission connection as initially accepted by ElectraNet in its Connection Options report for 1414 Degrees. In a subsequent modelling, ITP will extend the optimal revenues from additional long duration (firmed) generation by a 1414 Degrees TESS-GRID. 

Simulated system of annual revenue for a 70MW PV plant with battery storage size ranging from zero up to 140MWh under a range of historical NEM market data for South Australia.

Source: ITP Renewables

Their simulation based on the past five years of NEM and FCAS trading showed that an optimum battery size of 70 MWh with sale of electricity from the PV would have generated annual revenues ranging from $44m to $80m. The historical pricing showed that 70 MW of PV without batteries would have generated annual revenues ranging from $12.5m to $28m.

1414 Degrees Executive Chairman Dr Kevin Moriarty, said, “Although based on historical data that may or may not be a guide to future conditions, these revenue simulations are very encouraging for the development of our Aurora Project. We are working to lock in PPA’s to secure cash flows for the first stage of PV generation to complement the BESS revenue streams. The addition of our TESS will provide a complete green hybrid solution for a global market as renewable penetration increases.

The Aurora Project can provide robust system strength throughout the NEM because it is situated on major transmission lines, generating revenue stacks from many different services.”

Background

1414 Degrees is developing thermal energy storage systems (TESS) in South Australia. A NEM connected solar PV farm with BESS and TESS will attract revenues across wholesale energy, frequency control and ancillary services (FCAS) markets. The full system under consideration is depicted in the following block diagram:

The progress report describes the modelling to maximise NEM revenues under a configuration that includes only the Solar PV Farm and the BESS system. The combined system is assumed to be transmission network connected and can participate both in wholesale energy and FCAS markets.

The second phase of this modelling will include TESS-GRID operational dispatch decisions of the complete system.

The Board of 1414 Degrees (ASX:14D) (‘14D’ or the ‘Company’) is pleased to announce the appointment of Mr Richard Willson as an Independent Non Executive Director effective 1 July 2020.  

An experienced, Non-Executive Director, Company Secretary and CFO with more than 20 years’ experience in both publicly listed and private companies, Mr Willson brings a deep understanding of innovative technology start-ups as well as established commercial enterprises. He has worked with 1414 Degrees as Company Secretary for almost three years. 

Mr Willson is a Non-Executive Director of Titomic Limited (ASX:TTT); AusTin Mining Limited (ASX:ANW); Non-Executive Director and Company Secretary of the not-for-profit Unity Housing Company;  Company Secretary of Wilgena Resources Limited and Beston Global Food Company Limited (ASX:BFC). He is also Director and Treasurer of Variety SA. Richard is the Chairman of the Audit Committees of AusTin Mining Limited, Titomic Limited and Unity Housing Company, and is the Chairman of the Remuneration & Nomination Committee of Titomic Limited.  

He has significant experience having previously been CFO, Company Secretary and Non-Executive Director of a number of other ASX Listed Companies. 

Mr Willson has a Bachelor of Accounting from the University of South Australia, is a fellow of CPA Australia, and a Fellow of the Australian Institute of Company Directors. 

Mr Willson fills the vacancy created by the resignation of Non Executive Director Mr Ian Little effective 1 July 2020. The Board would like to acknowledge the contribution of Mr Little during these unprecedented times. 

Our commercial review announced last week shows the TESS will be competitive with other storage technologies when compared with the levelised costs of storage (LCOS) analysis, based on the respected Lazard methodology.

The pilot installations have shown that we can now build a TESS at a significantly reduced cost (see chart below). Furthermore the projections for future systems will decline steeply. The future LCOS of the TESS will be comparable with long duration pumped hydro.

1414 Degrees confirmed today that SA Water has completed its business case evaluation for engines and GAS-TESS at the Glenelg Wastewater Treatment Plant. They have advised that 1414 Degrees has been unsuccessful with the current evaluation process.

SA Water said the GAS-TESS has potential for its future generation projects after demonstrating significant improvements in electrical efficiency. As announced by 14D yesterday, this limitation has already been identified in the Company’s recent technology review and is being addressed for future designs.

1414 Degrees will work with SA Water on a plan to progress development on the pilot site and will continue commercial discussions with wastewater treatment facilities.

• – Further R&D required to deliver higher efficiency TESS to raise commercial readiness level
• – New development path mapped for long duration storage competitiveness
• – Long term levelised cost of storage (LCOS) predictions are positive compared to other technologies

1414 Degrees can now report key findings of the technology review as foreshadowed in the last quarterly report.

There have been significant learnings since the 1414 Degrees Thermal Energy Storage System (TESS) was first demonstrated in the prototype in 2016 and then scaled up to build the TESS-IND and GAS-TESS pilot devices, the latter having now operated for more than a year. Over this time the Company has greatly increased its capability for technical management and development, appointing highly qualified materials and mechanical engineering specialists. Its business development team has gained valuable insight into commercialisation prospects by conducting numerous economic assessments of potential customer sites. Therefore, as Executive Chairman I recently commissioned reviews of the technical and commercial status and recommendations for future directions.

A key finding is that earlier expectations for sales of product were optimistic. Although the larger pilot TESS systems performed well in generating power for up to 8 hours and very efficiently charging from gas or electricity, key components of both the storage and energy recovery subsystems require significant development to deliver reliable performance, in particular:

• – the prototype silicon storage technology could not sustain many cycles without degrading. In response to this challenge, 1414 Degrees operations management was refocused to work on developing a robust, scalable and energy dense storage technology for air and combustion environments. That work is progressing well.
• – the third-party energy recovery system (ERS) could not perform to the required efficiency specifications. 1414 Degrees is working with external specialists and partners to deliver a commercially robust, high performance ERS.

The commercial review found that a fully developed electric charging TESS is not currently competitive with fossil fuel heating in most customer sites due to the higher input cost of electricity with transmission charges, even when the TESS is configured in its most efficient mode of storing electricity and supplying heat only.

With the experience gained from the pilot installations, our now highly qualified technical team has mapped out a path to make the 1414 Degrees TESS technology competitive in the expanding long duration energy storage market with comparable technologies such as pumped hydro and molten salt.

Following their wide-ranging customer assessments and surveys of growth markets, our business development team have identified major commercial opportunities for the TESS in the well-funded markets for long duration grid scale storage, and hybrid power plants. Further, in addition to preparing to service the utility market with the GAS-TESS, the commercial priority is to partner with utilities on large scale innovative energy solutions.

Our new storage technology and ERS improvements can be proved in the GAS-TESS pilot device and followed at larger scale in the first stage of the Company’s Aurora Project.

The 1-2 year revenue potential for the Company is to commence electricity sales from the first stage Aurora 70MW solar farm. The 2-5 year potential is expansion of the Aurora Project to generate 400MW from PV with TESS (Silicon Power Plant) to sell firmed power and grid strength services, and sales of improved GAS-TESS to global utilities.

Dr Kevin Moriarty
Executive Chairman

Click here for major review results