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Beacon Power: My Top Stock Pick for 2008

by: Phillip Lyon August 26, 2008 | about stocks: BCON    

Phillip Lyon

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Beacon Power (BCON) is my top stock pick for 2008. Beacon Power is on the verge of commercializing its “flywheel” technology and the company has a ton of positive catalysts going forward. I think this stock could very easily be a multibagger.

Beacon Power’s flywheel energy storage system helps support stable and reliable electricity grid operation. The flywheel system stores excess electrical energy from the grid in the form of kinetic energy via a mechanical battery spinning at very high speeds (>20,000 rpm). When the grid is short on electrical power the motor driving the flywheel acts as a generator and the kinetic energy is converted back to electrical power. (Look at these two short videos from the Beacon website for a better understanding of frequency regulation: video 1, video 2.)

Beacon Power’s flywheel based energy systems have a couple of big advantages over lead-acid batteries which are also used for frequency regulation. First, flywheels are sustainable “green” solutions that do not use hazardous materials for production, nor create them during operation. Second, unlike batteries, flywheels operate reliably for many years with little or no maintenance.

The need for better grid operation is going to become very important because our energy needs will continue to grow. Also, the intermittent nature of electricity produced by the wind will greatly increase the need for frequency regulation.

Beacon Power is on the cusp of having a viable commercial product for this market and I think now is a great time to get in on this stock. Beacon’s flywheel technology has already passed tests in a couple of markets and the company recently announced its participation in an energy storage pilot program in ISO New England.

Beacon expects to have frequency regulation facilities in two locations before the end of 2008 with a total of five megawatts of capacity. Beacon Power has also received a land use permit in Stephentown, New York, which it plans as a possible location for the company’s first 20 megawatt frequency regulation plant (pending approval of an active interconnection request to NYISO).

Another major catalyst for Beacon Power, in addition to bringing on line new frequency regulation facilities, is that the company may get a loan guarantee from the Department of Energy for up to 80% of the project debt needed to finance the construction of its first 20-megawatt flywheel frequency regulation plant. Beacon Power has already been named as a finalist for this loan guarantee.

To get an idea of how quickly this stock price of Beacon can jump, take a look at the five year chart. Back in 2005, the stock price of Beacon jumped from around a dollar to over four dollars in just a month. The cause of this was an article written by TheStreet.com.

Also, just a few months ago in May the stock price of Beacon jumped from just over a dollar to over two dollars. The cause of this most recent spike was the announcement of the land use approval for the Stephentown site and an analyst upgrade. The analyst gave a price target of $3 dollars which I think will be conservative if all the previously mentioned catalysts come to fruition.

I think the recent price action in May shows that many investors have an eye on Beacon and they don’t want to miss the boat. The price spiked to around $1.70 just on the Stephentown permit news. The stock price of Beacon has sold off since then but I think now would be a good time to buy some shares while there is a lack of news. I think it would be foolish to wait for the news and then chase the stock price up. I am going to give a buy recommendation at Monday’s closing price.

Disclaimer: I currently own shares of Beacon Power.

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This article has 19 comments:

  •  
    Aug 26 09:46 AM
    Awesome videos! This is really interesting technology. Am I to understand what we are seeing is power input into a spinning wheel, which is later engaged to a magnet or something to get power back out of it? Once the wheel hits it maximum rotation speed, it can't accept any more input without wasting it? So maybe the excess power is routed to another wheel in the building. Is this almost like regenerative breaking in hybrid vehicles?
    Reply
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    Aug 26 10:04 AM
    Yes, it is like regenerative breaking. When a wheel hits it max speed, it do not accept and do not wast any energy.
    Reply
  •  
    Aug 26 10:28 AM
    How will Beacon make money off this setup? Who will they sell this storage to?
    Reply
  •  
    Aug 26 10:41 AM
    www.stockpickr.com/pro.../
    Reply
  •  
    Aug 26 11:49 AM
    Penny stocks can frequently jump from 1 to 4 (and back again), simply based on internet hyping (like this, perhaps?).

    Looking at BCON's financials (balance sheet, income statement, cash flow -- readily available from any/all of Google, Yahoo, the SEC, and the company web site), I see nothing that would lead me to believe they are poised to make the leap upward. Losses continue to increase, unabated, with no hint of a turn for the better.

    Sure, flywheels are a nice technology for storing energy, and they might become a lot more popular if we get a huge tax incentive for people and businesses to shift to wind or solar power, or if the national power grid becomes increasingly unstable, and people/companies decide they must have more stable electric power.

    Otherwise, their major use is as backup power in corporate UPS systems, and must compete against batteries in that area. Flywheel energy storage offers a more cost-effective alternative to batteries+diesel generators when the cost of diesel fuel becomes prohibitive. Given the low amount of diesel fuel consumed by the typical corporate UPS facility (as utility power mostly works), it seems unlikely that this will drive BCON sales through the roof, as batteries+diesel generators are a much cheaper alternative to BCON's products.

    There are hints that utilities might move to solar or wind farms on a large scale, and might therefore be expected to be potential customers of BCON, storing wind energy from off-peak times for later use during peak demand periods.

    Solar tends to produce peak output during peak energy consumption periods, so it is of lesser value, unless one gets nearly all of one's energy from solar. That occurs only in the case of households, so far as I can tell. And in case anyone has been living in a cave for the past year, housing is not experiencing any large inflows of capital these days.
    Reply
  •  
    Aug 26 12:29 PM
    Beacon's flywheels have virtually no carbon footprint. The utilities and the government likes this. Battery systems have a large carbon footprint and limited life cycle. Grid management is essential as fossil fuel plants now have to constantly be fired up to maintain power requirements and avoid uneven distribution. This is not only expensive but wasteful and time consuming. Flywheels engage in seconds. I have seen Beacon's plant and was impressed with it and the folks running the company. There are no guarantees that some other tech will knock them out of the box but I am betting on them to succeed. If what they propose works then they will make plenty of money as they will own the systems and have a constant revenue stream from each installation.
    Reply
  •  
    Aug 26 12:29 PM
    Punch presses have used this technology for more than 75 years. A punch press is used to press parts out of sheet metal. Some parts like car sheet metal parts (Fenders etc.) require 500 tons or more of pressure to stamp part from flat sheets of steel. Electricity cannot supply this much power in one second. What they do is get a flywheel spinning and then when flywheel is engaged it can stamp parts out of sheet metal with over 500 tons pressure in one second. My father saw a flywheel come off a machine and said it went thru 2 cement walls and went down the street and was finally stopped by a third cement wall. So you can see the amount of energy stored by a flywheel.
    Reply
  •  
    Aug 26 12:41 PM
    They would sell to any energy producer who can not produce a steady energy supply. Excess supply would be stored in flywheels to be used several hours later when demand reached it peak. (Theoretically)


    On Aug 26 10:28 AM User 251141 wrote:

    > How will Beacon make money off this setup? Who will they sell this
    > storage to?
    Reply
  •  
    Aug 26 01:40 PM
    When and if the market is big enough to support a profitable company the low barrier of entry will admit much bigger players who likely will eat their lunch. This is a great sentiment trading vehicle, however.
    Reply
  •  
    Aug 26 01:48 PM
    I believe Beacon has adequate patent protection so that they will have to be bought out at a premium. Time will tell. It always does!
    Reply
  •  
    Aug 26 08:00 PM
    Beacon Power will not be selling flywheels, it will be selling frequency regulation services. This is a market that is going to be over 1 Billion Dollars in the USA alone. Currently, almost all frequency regulation is provided by generators that bid into the market to provide this service. They do so by ramping their generators up and down to attempt to match supply with demand. It has been done this way from the dark ages of electrical generation. It is also highly inefficient and destructive to the generators. Additionally, it is a major source of pollution. Frequency regulation is a very lucritive market that is now opening up to technologies such as Beacon Power that can provide faster, better, and cleaner frequency regulation. A good analogy is that it's like moving from an analog to digital grid. Studies by the DOE show that flywheels are 100 time faster than conventional regulation and may be able to replace traditional regulation on a 1 for 2 basis. We shall see. Beaconpower.com has lots of great info under investor links.
    Reply
  •  
    Aug 26 11:00 PM
    Has anyone notice the land space needed for the 20Megawatt flywheel plant? Their battery storage competitor like ALTI has tested the 2Megawatt storage system and required only about 2 container size space. Only time will tell if the flywheel technology will be widely adopted.
    Good investing!!!
    Reply
  •  
    Aug 28 12:12 PM
    Beacon still has to engineer a touchdown bearing system for this product to supplement the magnetic bearings they use now. I suspect a product without touchdown bearings would be destroyed in a serious earthquake, so the product isn't ready for commercialization yet. Also, they are going to need more money, so they will be selling stock and will possibly dilute the value of the stock to do it. My impression is that their product isn't intended to supply power for more than a few seconds at a time (if that), which is why they refer to their market as the one for frequency regulation. I own shares of the stock.
    Reply
  •  
    Aug 28 01:48 PM
    What a cheery report...how irresponsible! Please people, read annual report. Company has no client. Wait a minute--at the end of this year they will generate (ready for this?) 11,000 dollars profit! Company is swimming in debt and are warning to stockholders they will issue more securities to cover its debt. There is no prospect in 2008 or 2009. Maybe in the future when they will have actually client.
    Reply
  •  
    Aug 28 03:25 PM
    Link please daniela as what you said is uncorrect. Beacon has zero debt and 16Mil cash as of the last report. In addition they were just given a 5Mil loan by the state of Mass that they have not tapped. The poster stating that they do not have a touchdown system is incorrect. The gen 2 and 3 flywheels have been certified to withstand earthquakes and the current gen 4 demonstrated a complete loss of mag lift followed by an uneventual spindown as part of it's final validation. I recommend that anyone with questions contact Chet Lyons at Beaconpower.com rather than blindly taking comments like these at face value.
    Reply
  •  
    Aug 28 08:01 PM
    Phillip, I'm curious how you respond to The Street's review of BCON. I pulled this off an article entitled "Six Alt-Energy Stocks That Could Go to Zero":

    "Beacon Power (BCON): Beacon Power makes energy storage devices that use the flywheel-based technology. The financials at this company are deteriorating at an alarming rate. Recently, Beacon reported a first-quarter net loss of $5.29 million, vs. a net loss of $3.09 million a year ago. Revenues for the first quarter plunged sharply to $20,000, vs. $393,000 last year. That’s a drop investors shouldn’t ignore.

    The company continues to dilute shareholders by issuing new stock to raise capital. If the company was accelerating revenues at the same time, then the new stock issues wouldn’t be such a problem. However, that just isn’t the case with Beacon. The company’s burn rate of $5 million per quarter and only $25 million in cash on hand is another serious red flag. That only gives them enough cash to operate for a year and forces them to raise more money to survive. The short sellers are leaning on more than 17% of the float in this stock, and I think they will be right.

    The financials on Becaon speak volumes: market cap $117 million, revenues of $1.02 million, EBITDA of -$16.24 million and quarterly revenue growth of -94%. There’s no “beacon of light” at Beacon Power. I am giving this stock a one-way ticket to zeroville."

    Source: www.stockpickr.com/pro.../

    Thanks,
    BD
    Reply
  •  
    Aug 29 03:33 PM
    I read that article too. Did you notice how he says nothing about why the burn rate went up? It's because they are moving into production. That costs money. How about the fact that the DOE selected them as of one of 16 finalists for government funding out of a field of over 140 applicants. No mention of that fact... I suspect that "The Street's" review was not an unbiased one. In fact, I believe they pulled the name of the author off the article the same day it was published. That doesn't inspire much confidence. I find it kind of funny how the stock has been under a great deal of short pressure but institutional ownership just keeps going up. To date the only revenue has come from government demo projects. You can't use that to compare quarter to quarter numbers. Real revenue starts this year and you will be wise to be into this stock before those numbers are announced...
    Reply
  •  
    Aug 29 09:24 PM
    That article about "six alternate energy stock that could go to zero" is nonsense. I am not going to say the person who wrote that article is an idiot but he or she is going to look very foolish on Beacon. If Stockpikr was confident in the analysis that was presented why did they pull the author's name? I read the article when it first came out and I believe the author was James Altucher (feel free to correct me if I am wrong).

    The last thing Beacon should be judged on is the fundamentals while the company has been developing its technology. The company is just now on the verge of commercializing its technology so of course the past fundamentals aren't very good.

    Another thing that shorts/detractors like to mention is possible dilution. The company may have to raise money through a stock offering but a lot of small upstart companies have to raise money to grow their business. This is normal.

    Beacon Power is headed no where but up and the shorts and dectractors are going to look pretty bad in the not too distant future (considering that they don't pull their name and hide).
    Reply
  •  
    Sep 02 01:16 PM
    I have owned and followed this stock for several years and I have watched the management jump through the hoops of regulations that are required one by one. There is definetly a hugh market and Beacon is definetly very close to commercialization. If you invest in this stock you must have faith in their management to get the job done. Look at their record and decide.
    Reply
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