Faraday Battery Challenge. A Case Study: Denchi Group.
READING TIME: 7 MINUTES
In 2020, the Faraday Battery Challenge showed how the UK began planning to expand its own battery industry in preparation for meeting the sustainability targets for 2030, and to elevate the nation’s own battery businesses. It has been widely discussed that government with this programme are aiming to reduce overseas reliance of battery production. It was understood that the programme’s investment portfolio is made up as £78m for the Faraday Institute, £88m for collaborative R&D and £108m for the UK’s Battery Industrialisation Centre, which is where the institution trains its staff on battery related projects and where they aim to scale up and becoming fix centres. The current industries which the programme is targeting are those which depend on high energy output such as aerospace, automotive, defence, agriculture machinery, marine, energy storage, mining and the railways.
Most investment vehicles come in the following three forms:
(1) A grant such as INNOVATEUK; and/or
(2) Taking on debt such as Capital Equipment Financing, Inventory Financing, Invoice Financing; and/or
(3) Accepting Equity Investment such as Crowdfunding or leveraged via Private Equity Vehicles like an Angel Investor or Venture Capital group.
So what type of groups are grabbing these opportunities?
Nick Russell is the Managing Director of Denchi Group. The company are a leading supplier and manufacturer of batteries and charges supporting the global defence industry primarily, but also oil & gas and medical equipment. In a discussion to promote the Faraday Programme, Nick discussed that the company have been working on a Prima Electronic Service (2018) for the Battery UK Industrial Group. Currently they use batteries for usage in the dismantled radios of soldiers and for night vision goggles. He continued to explain that he has a team of approximately 35 people who are targeting the business aiming to reach a customer base of 4-4.5 million people. However, they don’t have a sustainable model and require a new growth strategy. To do this, they are using the strategy of diversification, which Russell claims should be a platform for providing future growth for the company. The main areas Denchi are looking to concentrate on are:
(A) MILITARY VEHICLES – they aim to replace lead acid batteries, which will be a huge cost in savings to the consumer. Currently they’ve been sold to 5/6 major clients, and future contract sales have been slowly increasing as the product gets adopted.
(B) LARGE SCALE ENERGY STORAGE – the InnovateUK grant provided assistance on working on battery architecture to create a new commercial/industrial battery of 100kW/h units for their target consumers.
(C) INDUSTRIAL AREA MARKET – they want to supply to offshore in the Far East. They want to put investment towards alternative products such as stair lifts, which clients in overseas territories will increase in demand with their aging populations; Denchi envisions getting together with an engineer team, designing the right fit of battery for the client.
The group stood to achieving 4.5M sales units in 2020, and look to 10M sales in the next 4-5 years, with a high goal of 20M by 2023.
So what have they gained from their diversification process?:
Russell reported that Denchi’s comfort zone has been cemented in defence since 2014/15 and supplying for military vehicles was always an obvious choice. But with the way the use of Energy Storage Systems are changing, they knew that targeting residential batteries would be the way to go. With capital focussing less on industrial demand, the market will favour residential demands instead. And once Denchi took the time to understand the battery market in the 2020s and 2030s, they were able to get a better sense of the commercial sector as a whole. They are certain on wanting to be a part of the macroeconomic changes to take place in Asia, specifically in China. They also want to spread the message that collaboration projects with clients are also good for networking and social morale. These opportunities have pushed themselves outside of their comfort zone and they have now achieved building relationships and gotten over fears of geographical barriers.
How have Denchi sorted the financing of their future venture(s)?
Russell explained that some funding has come from ‘Highlands and Islands Enterprise’. They are an economic and community developing agency, who produce grants. Also since the company is located far from London, they are also able to obtain more financial support packages, coming from trusts in Wales. They have taken on debts through methods of invoice financing, inventory loans, Challenge Trust Banks and obtaining regional funding, all of which the group find is better than requesting assistance from a traditional bank, and they find it a more pragmatic way for their business to grow.
The major point Russell stated was that start-ups require a huge cashflow. If the start-up has products they are confident in, and a solid customer base, then he recommends hiring out financial advisors, who will find the right funding options available, and then the business can take on getting investment members. Once the start-up is comfortable at this stage, the next step is to scale up the volume of product.
What type of research are Denchi involved in and how will the Battery Faraday Challenge aid in this?
Denchi are partnering with University and Club R&D spaces to focus on cell chemistry. They are focussing on future battery electrodes, using ‘electron spun nano fibre mats’ to increase the energy density, decreasing battery charging times and slowing down battery degradation, within a cell, which will have obvious consumer benefits. Denchi over the past few years have seen the dedication towards battery research and the space of AI integration will become a vital part of the industry, as automation will help the UK meet their scale-up volume targets. Alternative projects involve have flow battery liquid electrolyte in external tanks and energy can be withdrawn from the electrolyte. Partnership projects have involved tampering with zinc bromide chemistry giving results of 25 kw/h at a peak of 5 hours usage.
What are Denchi’s future ambitions?
They want to eventually tackle the transport sector, find affordable sustainable energy solutions for electric vehicles and goods vehicles, and break into periphery sectors like rail networks (installing hydrogen-fuel battery cells) and the agriculture industry.
Denchi have said one of their main inspirations is ANESCO (a Scottish firm focussing on designing and operating grid scale renewable energy projects) who themselves are focussing on Flextricity Limited - being Britain’s first demand response energy company (now owned by Quinbrook Infrastructure Partners since September 2020). The company is also taking inspiration from projects currently underway such as those in ESS Inc, Primus Power, Antora Energy and Energy Vault, showing just how big and how fast this space in the industry is becoming.
Denchi’s future plans also include projects to decreasing the price of lithium-ions as in the UK they are too expensive for grid-scale applications, and more suitable for electric vehicles and cell phones. This is because the batteries tend to last 4 hours maximum and then their charge power fades over time.
Finally, Russell mentioned that potential areas for government intervention would be implementing policies to produce more tax credits in the wind and solar industries as well as advocating for batteries in the geothermal/biomass market. Or even partnering insurance companies with risk-averse utility companies. Because all in all it lays the foundation for more research and development opportunities, more collaborative projects and the path to a more self-sustaining and sustainable Britain.
