Last year, I took notice after energy storage solutions developer Energy Vault Inc. (NYSE:NRGV) successfully commissioned the world’s first grid-scale gravity energy storage system (GESS) that does not use water in China. The 25MW/100MWh EVx GESS is located outside of Shanghai in Rudong, Jiangsu Province, sited adjacent to a wind farm and a national grid interconnection site with a view to balancing the country’s national energy grid through long-duration renewable energy storage. The deployment–the first for Energy Vault’s G-VAULT segment–is coordinated in partnership with tech investment company Atlas Renewable Energy, environmental services firm China Tianying (CNTY), alongside EIPC (a policy oriented NGO of the Investment Association of China) and select provincial and local governments. I thought that milestone would prove to be a turning point for a stock that has been in free fall ever since it went public in February 2022 in a deal with a special purpose acquisition company (SPAC). Unfortunately, the shares have continued to tumble, with the ticker in grave danger of being booted off the New York Stock Exchange after shares crashed -54.5% in the year-to-date to $1.06 at the time of writing from an all-time high of $21.60 in April 2022. This is a precarious point in Energy Vault’s short public life because the share price tailspin towards the $1-a-share danger zone is only encouraging a vicious cycle of more selling. Consider that investors are motivated to sell because shareholders holding shares after a delisting are only able to sell them OTC, meaning less liquidity, wide bid-ask spreads and potentially being left in the dark about the inner workings of a company. Maybe a reverse stock split is in order at this juncture to buy the company some time for a turnaround. In my view, Energy Vault’s G-VAULT segment is very promising, and this company needs some time to gain proper traction.
The biggest reason why this company continues being deeply out of favor despite making decent progress in a promising niche can be chalked up to shrinking revenues. Last month, Energy Vault reported Q1 2024 results with first quarter revenue of $7.76M (-32.0% Y/Y), $5.53M below the Wall Street consensus while GAAP EPS of -$0.14 was in-line. Adjusted EBITDA improved $4.6 million or 24% year-over-year to -$14.4 million from -$19.0 million, mainly due to lower operating expenses while cash OpEx of $16.7 million improved 22% year-over-year and 14% quarter-over-quarter due to cost-side measures undertaken in Q4 2023.
More alarmingly, during its Investor & Analyst Day Presentation held on May 9th, Energy Vault provided full-year FY 2024 guidance as follows:
In other words, this company expects 2024 revenue to fall 70-85% Y/Y after posting $341 million in 2023 due to the timing of revenue associated with licenses for its gravity energy storage technology. I find this puzzling considering the company is set to start recognizing licensing revenues for a major project at the end of the year, as I have reported below.
Thankfully, Energy Vault’s longer-term outlook appears healthy. The company expects revenue for 2024-2025 revenue to clock in at $500-$700M, good for 23% growth after realizing $487M in 2022-2023. This points to a sharp revenue ramp in 2025 considering the company expects to bag not more than $100M revenue in the current year. Gross margin guidance for 2024-2025 was 15%-20% compared to 16% for the previous two years. The company has decent revenue visibility with ample growth runways considering it has a backlog of 710 MWh worth $225M contracted and/or in progress with $2.7B developed pipeline (9.9GWh) for potential
conversion over next 12 – 24 months. The company describes Developed Pipeline as short-listed or awarded projects at gross contract value.
Plenty Of Promise
In this section, we take a deeper look at Energy Vault’s GESS system. Energy Vault built the Chinese storage facility using its proprietary EVx system that uses excess renewable energy to lift massive, 35-ton composite blocks then lower them when needed to spin generators to supply electricity to the grid. The company’s GESS system is comparable to Pumped Storage Hydropower (PSH), but replaces water with custom-made composite blocks, or “mobile masses” made from local soil, coal combustion residuals (coal ash), mine tailings and end-of-life decommissioned wind turbine blades. Building these huge blocks out of concrete is prohibitively expensive, so Energy Vault partnered with Cemex to develop less-expensive blocks made of aggregate materials, primarily dirt from nearby locations. According to the company, its EVx system can achieve a respectable round-trip efficiency (RTE) of 80-85%. Whereas the concept is old, producing enough stored energy by raising and lowering massive blocks of material was viewed as impractical for decades. That’s because you’d typically need ~2,000 blocks weighing 25 tons each moving in perfect unison to produce 40 megawatts of electricity. Only recently has automation and computer technology made this feasible at scale. Energy Vault employs a cylindrical stack of bricks and an AI-controlled crane system to lift the bricks to gain potential energy in the form of gravity. The crane system allows gravity to take over and lower the bricks to generate electricity when needed. EVx comes with one big advantage: Unlike other storage solutions, it allows rapid, on-demand power discharge. Energy Vault’s modular, cylindrical stack can provide storage capacity of between 10 MWh and 35 MWh with 2 MW to 5 MW power output. Another big advantage: EVx mirrors PSH plants without the environmental damage that pumped hydro can cause.
According to company CEO Robert Piconi, Energy Vault’s current systems can provide energy for about five to 10 cents a kilowatt-hour, considerably cheaper than lithium-ion batteries, which come in at about 13.5 cents, according to BloombergNEF. Piconi says that the company is aiming for a Levelized Cost of Electricity (LCOE) below 5 cents per kWh.
As far as long-duration energy storage systems go, Energy Vault’s pioneer EVx facility is quite modest considering it’s capable of supplying 25 MW of electricity to the grid for 4 hours at a time, enough to power ~4,100 American homes. In comparison, Calpine’s upcoming billion-dollar Nova Power Bank in California will be able to power about 680,000 homes for up to four hours when fully charged. Hailed as one of the world’s largest battery storage plants, Calpine’s project is scheduled to come online in the summer. However, it’s important to note that Energy Vault’s work in China has just kicked off. The company has licensed six additional EVx gravity energy storage systems in the Middle Kingdom, including a massive 2 GWh facility in Inner Mongolia, with the other five ranging in capacity from 100 MWh to 660 MWh. Currently, the company has a seven-project GESS pipeline in China totaling over 3.7 GWh. Overall, the company estimates that its EVx deployments in China are worth $1+ billion in project scope. Energy Vault’s gravity storage could end up being in high demand in China considering Beijing’s mandate that all renewable energy facilities must integrate 20% of the nameplate generation capacity’s worth of storage. In the U.S., only California has a comparable mandate for its power companies. The state is expected to need about 50 gigawatts of battery storage to meet its goal to have 100% carbon-free power generation by 2045, up from about 7 GW today.
Since the China commissioning, Energy Vault has made significant progress in the gravity storage space and Battery Energy Storage System (BESS) businesses.
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The company announced continued commissioning, testing, energization and initial operation of the China Tianying Inc GESS project and extended its contract with Atlas Renewable from 7.5 to 15 years.
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Back in February, Energy Vault signed a 10-Year licensing and royalty agreement with Gravity Energy Storage Solutions (GESSOL), which is expected to facilitate multi-gigawatt hours of long-duration storage in the Southern African Development Community (SADC) region. Essentially, GESSOL secured the rights to deploy Energy Vault’s GESS tech throughout the 16 nations of the Southern African Development Community region. The company expects to recognize GESSOL licensing revenue later this year. The GESSOL contract is structured to pay Energy Vault an ongoing stream of royalty payments of 5% of project revenues as well as an additional $20 million over the term of the exclusivity agreement. This is potentially a highly lucrative market for Energy Vault , with SADC’s total addressable market regionally for energy storage expected to be 125GWh+ through 2035, yielding a market potential of multi-billion dollars in EPC (Engineering, Procurement and Construction) projects and associated royalty streams to construct gravity energy storage systems throughout the 16 member-state SADC region.
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Last month, Energy Vault announced a partnership with Chicago-based Skidmore, Owings & Merrill. SOM is a widely acclaimed architecture firm that has designed some of the world’s tallest buildings including Burj Khalifa, Tianjin CTF Finance Centre, Willis Tower, and One World Trade Center. SOM will license Energy Vault’s EVx and EVu superstructure tower design, which improves unit economics and enables GESS integration into tall buildings through the use of a hollowed structure with heights over 300 meters, and up to 1,000 meters tall. For some perspective, Energy Vault’s Shanghai project is about 150 meters (490 feet) high.
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Energy Vault has expanded into short-duration battery energy storage system (BESS) integration with a two-stage 400MWh order for developer and independent power producer (IPP) ACEN Australia. Energy Vault will provide ACEN Australia with the BESS technology for two separate projects that are both connected to ACEN’s 720MW New England Solar project in New South Wales.
Takeaway
With current market cap at $156M, Energy Vault shares are trading at just 0.69 times current backlog, suggesting they are grossly undervalued. The company has $2.7B in developed pipeline for potential conversion over next 12 – 24 months, with initial results for its Chinese projects very encouraging. I believe Energy Vault’s GESS products are very promising, with good potential to propel this company to annual revenues of $1B in the next 3-5 years.
Nearly 20% of Energy Vault shares are sold short with 17 days to cover. This presents an opportunity for a nice short squeeze should the company be able to meet or exceed its revenue estimates in the coming quarters. Wall Street’s consensus is that Energy Vault is on the verge of breakeven, with the company set to post a final loss in 2025, before becoming profitable in 2026. Based on 4 Wall Street analysts, Energy Vault has an average price target of $2.50, good for 138% change from current price. I find this price target reasonable considering the bar has been set so low. However, out of an abundance of caution, I give this company a Hold rather than a Buy rating considering it’s expected to report subpar 2024 revenues.
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