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Is Redflow Limited the best clean energy investment?

Taken by Claude Walker in Germany (August 2014)

Some days I find myself wishing I’d taken my own advice. The truth is that I have more investment ideas than I have capital – and unfortunately I don’t always pick the best investment ideas. One such missed opportunity is battery maker Redflow Limited (ASX: RFX), a stock that’s up almost 100% since I covered it in June. The company makes batteries for energy storage that are suitable for storing electricity from solar panels. This electricity can be used for remote telecommunications networks, or as a back-up electricity source.

The share price is up another 9% today, on the basis of an announcement by the company that it will sell its batteries to Austrian energy storage integrator BlueSky Energy GmbH. Much of today’s share price rise can be attributed to the statement, by BlueSky’s Managing Director Hansjorg Weisskopf that:

“The Redflow battery and the containerized offering is well suited for the German and other European markets. The installed solar base is very high in Germany in particular and we believe the Redflow battery will suit this market.” [My emphasis].

Germany is likely to get from 5%-6% of its power from solar in the current year. However, to quote renewable energy expert Craig Morris, “the limits of solar in Germany without storage are coming fast.” That’s because solar panels put out much more energy on a sunny day in summer, and you can see why in the picture below. For the solar revolution to continue, we need better storage.

German Solar Fields Photo by Claude Walker (August 2014)

German Solar Fields Photo by Claude Walker (August 2014)

It’s interesting to note that the two money managers I know who currently hold Redflow shares are a momentum trader (who has taken some profits) and an investor who specialises in environmentally positive investments. The chart below compares Redflow with a number of other speculative clean energy stocks. It shows just how difficult it has been to pick a winner in that field.

12 month share price movement for Redflow, Carnegie Energy, Infigen Energy, Geodynamics and Ceramic Fuel Cells

12 month share price movement for Redflow, Carnegie Wave Energy, Infigen Energy, Geodynamics and Ceramic Fuel Cells

Source: Google Finance

The chart above compares Redflow to Carnegie Wave Energy Limited (ASX: CWE), Ceramic Fuel Cells Limited (ASX: CFU), Infigen Energy Ltd (ASX: IFN) and Geodynamics Limited (ASX: GDY). I’m always interested in these companies, and I want them to succeed, but they face great challenges without proper government support.

As you might guess, Carnegie is developing wave power technology and Ceramic Fuel Cells sells fuel cells that convert natural gas into electricity and heat on-site. That heat can then be used to heat water or replace a boiler, so arguably it is a more efficient technology. Infigen owns wind farms and Geodynamics had a shot at making hot rock geothermal work in Australia (before essentially giving up.) In one way or another, all of these companies have benefitted from clean energy incentives put in place by past governments.

This has not been a happy situation for shareholders. As the political situation has changed or, in the case of Geodynamics, as the technology has failed to live up to expectations, the share prices have been hit hard. In the last five years Infigen shares are down over 80%, Geodynamics shares are down 95%, Ceramic Fuel Cell shares are down 94%, and Carnegie Wave shares are down 80%. Redflow is down 75% since it listed at the end of 2010.

I hope that all of these companies become an Australian success story, but without government support, the odds are against them. Industries such as mining, farming, science and technology, and even manufacturing all enjoy significant subsidies from the government. Australian clean tech companies will struggle to compete with foreign companies if politicians fail to support the industry.

Although Redflow is likely to need to raise capital again, if the manufacturing arrangement with Flextronics (NASDAQ: FLEX) runs smoothly and the various trials go well, it should be easy to find more investors. Redflow might well succeed on a global stage, and although I wouldn’t be buying shares at current prices, it is certainly on my watchlist.

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Motley Fool contributor Claude Walker (@claudedwalker) does not own shares in any of  the companies mentioned in this article, but does have a small indirect interest in Redflow, Carnegie and Ceramic Fuel Cells. Please note that Claude doesn't always agree with his "indirect investments", and his exposure is due to his shareholding in an unlisted ethical investment company.

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