Zeus Capital Research Director Dr Tom McColm caught up with DirectorsTalk to discuss ITM Power plc (LON:ITM)
Q1: Now Tom, there’s been a couple of RNS announcements for ITM Power in the last couple of days regarding the company’s activity in the power-to-gas storage. First off, can you tell what the power-to-gas storage is exactly and how ITM’s technology and business fit in with it?
A1: Yes, absolutely, a couple of good announcements, the one on Thursday was UK-related, the one today is EU-related.
If we just wind back a little bit, power-to-gas relates to storage of electricity and storage of energy and as we know storage is becoming a larger and larger thing because of the capacity of renewables and renewable energy rises on grids around the world including the UK grid. The profile of renewable energy is pretty random particularly wind i.e. you can’t predict when the wind is going to blow so sometimes the wind will be blowing heavily and they’ll be a high generation but if it’s the middle of the night the demand for power would be very low and the power’s not needed. Alternatively, maybe there’ll be a time at peak usage where there’s no wind blowing at all and everyone’s using electricity i.e. the generation profile of renewables doesn’t match the demand profile of people. The way to match these up is through storage, at the moment really when there’s too much renewable capacity coming on line it just has to be curtailed and switched off because any one point the grid can only give out what’s coming into it so if there’s too much coming in and not enough going out it will fry so the renewable capacity has to be turned off.
So where storage comes in is instead of turning off the renewable supply you keep it on and you switch on an extra demand to match the generation that’s coming on onto the grid and with that load you create energy which you then store. That stored energy can then be used when the renewable capacity is low and demand is high so i.e. storage enables full use of renewables so as renewables grow storage is growing. The one technology that everyone knows about with relation to storage are batteries, batteries store electricity and scale batteries are being used already to store sort of grid-scale power. The thing about batteries and other what are called power-in power-out technologies are that the energy is stored in the device i.e. if you compare the battery to an engine it’s like the engine and the fuel tank are the same thing so once the battery has charged and the energy is stored, that’s that full and until that energy is released that battery can’t be used for storage again. What’s interesting about power-to-gas is that the engine and the fuel tank have been essentially separated so what power-to-gas is when the renewable capacity is high and the load gets brought on it is an electrolysis load that uses that energy to split water into hydrogen and oxygen, that hydrogen is the energy vector, if you like, and can be stored. Power-to-gas where it’s stored is in the gas grid which is a ready-made huge energy dump readily available in the country so power-to-gas is a very very compelling storage mechanism in that the fuel tank is already there and the engine, if you like, the storage power, once the energy is stored it’s ready to go again so in terms of capex when you get to scale storage there is an argument for power-to-gas above batteries.
So getting back to ITM, 2 announcements, the one on Thursday, up to now the UK there’s been a blockage for power-to-gas in the UK in that the regulation dictates that hydrogen is not allowed basically to be injected into the gas grid which just kills the chance for any sort of market in power-to-gas. The announcement on Thursday was Ofgem basically funding a first power-to-gas sort of project in the UK and interestingly ITM Power’s technology was chosen to be at the core of that so it’s a very symbolic project. It’s not very large but it’s the key step in enabling a power-to-gas market in the UK which is very exciting for ITM because their technology is very well suited to power-to-gas which I’ll come to in a minute.
The second announcement, the announcement today was an EU announcement, again relating to power-to-gas and again was designed to further enable to market in that. To date, the definitions of storage in terms of tariffs and favourable regulations have been only for power-in power-out technology such as batteries, the announcement today shows that the EU have extended the definition of storage to include power to gas as a mechanism of renewable storage. This again is great news for ITM, the reason that it is all good news for ITM is that power-to-gas storage of renewables is probably one of their two largest target markets along with hydrogen fuelling and it’s good news for them. What ITM’s platform can do is very very valuable in a developed power-to-gas market and grid is that it can respond in sub-second, it can bring megawatts of load onto the grid in under a second which is very very valuable. There’s other technologies that can take 30 minutes, an hour even a few hours but to be able to bring load on that timeframe qualifies ITM Power and ITM’s technology for some of the most generous peak tariffs etc.
So quite a long explanation but those two announcements, although very small in their own financial terms, are hugely symbolic for ITM in terms of what it means for the development of one of their key target markets both in the UK and Europe going forward.
