Redflow experienced ‘tightness of capital for emerging energy tech’

Founded almost 20 years ago, Redflow brought a proprietary hybrid battery technology to the market which combined the electrochemical storage properties of liquid electrolyte-based flow batteries with the plating of zinc in the cathode.

From a base of installations in Australia which began with off-grid projects for large residential properties, to microgrids in Southeast Asia and deployments for telecoms base stations in South Africa, the company was gradually targeting scale-up.

It opened a factory in Thailand with 30MWh annual production capacity in 2017, scored its first megawatt-hour scale project overseas, in California, and secured another ten times the size in the US state shortly after the first went online in 2021.

Most recently, back in its home state of Queensland in Australia, it signed a contract a couple of months ago with a state government-owned power company for a potential 400MWh project.

Yet efforts to raise funding to develop and manufacture its latest flow battery product, the Redflow X10, from a new manufacturing base in Queensland fell short. The company was not able to raise equity funding to match the Queensland government’s pledged financial support.

Redflow entered administration last week and trading of its shares—the price of which fell below ten Australian cents (US$0.07) shortly before the announcement—remains suspended.

Energy-Storage.news Premium speaks with Deloitte’s Richard Hughes, a licensed liquidator under Australian law, who along with colleague David Orr has been appointed Voluntary Administrator.

Hughes says that the administrators are running a restructuring process and seeking parties to participate “pretty urgently,” although, as he said in a short news story we published earlier this week, he has been encouraged by interest already shown by unsolicited parties that have enquired about Redflow.

‘Breathing space’

The administration process, Hughes says, gives the company “breathing space” from its creditors and gives it the opportunity to restructure.

“The ultimate aim is to come up with what’s called a deed of company arrangement, essentially a contract between the company and its creditors to resolve how those claims will be dealt with in a restructured Redflow,” Hughes says.

“We drive that process, but it’s ultimately up to creditors to vote on it, and we’ll take that to creditors in about a month’s time.”

Asked if this process could mark the end of the road for Redflow, Hughes says instead that it presents “quite a good opportunity ” to reshape the company through the administration regime, albeit the administrators’ first priority is to seek the best outcome for creditors.

“A proponent coming through can kind of determine what parts of the business and technology they wish to take forward and those that they don’t. Obviously, they’ve got to be competitive, and we’re looking for the people who provide the best outcome for creditors, but essentially, there is that opportunity to change the operations of the business.”

What’s on the table could represent any outcome from new equity investment coming onboard to preserve Redflow and its subsidiaries as they are, to completely new ownership, or a combination.

Redflow has a range of different assets and IP, from the factory in Thailand to deployed systems in the field, products for sale and projects already booked. It will be interesting to see what type of investors or new owners want to take on those assets, but Hughes says it is still too early to say, at least publicly.

“It doesn’t necessarily have to be someone in the industry. It could be someone in the industry, or it could be a financial or strategic buyer or someone like that,” Hughes says.

“In terms of the assets, pretty much everything is there [for sale]. It’s the employees, it’s the IP, the knowhow to build batteries, the factory facilities. Basically, assets that are part of the Redflow group are all available for someone who’s interested.”

‘Foothold in America is pretty attractive’

Last year, following the successful start of operations at its first 2MWh project in California for a biofuels facility, Redflow was selected for a microgrid project in the US state with 20MWh storage capacity, for the Paskenta Band of Nomlaki Indians indigenous community.

Supported with funding from the California Energy Commission (CEC), the project was heralded as a big win for Redflow and a validation of the hybrid flow battery technology. It got its Notice to Proceed (NTP) as recently as February.

Asked what the future holds for this project, and others that are in Redflow’s development pipeline, or deployed in the field and already operational, Hughes says administrators will be “trying to preserve the business as much as makes commercial sense through the administration period.”

Ultimately, it will be up to a purchaser to determine which parts of the business they want to proceed with and which they don’t.

“Obviously, a foothold in America is pretty attractive, so we think that’s a selling point for the asset.”

That said, it is overall too early to say what the future looks like for Redflow and its portfolio of projects. Hughes says he and his fellow administrator will have a “pretty good direction on this in, probably, the next three to four weeks,” and that the industry will not be waiting long for answers on those questions.

“At the moment, our job is really to preserve the assets and offer them up. If we need to do some restructuring along the way to make things a bit more commercially viable, we’ll do that, but that’s not something we’ve made a call on or need to do at this juncture just yet, as far as the future is concerned,” he says.

Similarly, agencies supporting projects like the California microgrid, that have received commitments of public funding, should also be getting their answers along a similar timeframe of about a month, he claims.

Redflow’s announcement to the Australian Securities Exchange noted that the company had found it difficult to raise equity funding in the current market environment. It is not alone among energy storage companies, especially those bringing novel technologies to market, in encountering financial challenges.

“At the end of the day, the cost of money is higher today than it was as little as two years ago,” Hughes says.

“Therefore, there’s probably a little bit more tightness in terms of capital available for emerging technologies like this, and so that does make it more difficult, for sure, and you’re right, this isn’t the only one [to experience that].”

“I think there’s been a few where it’s sort of in that startup nascent phase, and still sort of coming through. The capital for those sorts of ventures is generally a bit tighter, that’s pretty well publicised. Redflow certainly experienced that when they were trying to raise capital. They did have a pretty extensive process to raise capital, and just unfortunately, weren’t able to get those commitments to match the Queensland Government’s commitment.”