Beacon Power and the Long Road to a Loan Guarantee

More than 10 months have passed since Beacon Power, a developer of flywheel energy storage systems (large spinning discs that provide power), won a conditional commitment from the Department of Energy for a $43 million loan guarantee. According to Beacon’s latest filing with financial regulators, the company does not expect to close on the loan until the second quarter of this year — sign of how long the road can be between a DOE nod and money in the bank.

But Beacon’s filing also shows a major financial milestone coming within reach for the 13-year-old company in its effort to deploy a lower-cost, high efficiency solution for balancing the second by second variations in electrical supply and demand (a growing challenge as variable renewable sources like solar and wind power come onto the grid). Beacon, which has been focusing on power grid applications for its technology since 2004, anticipates it could possibly see revenue from the first full-scale commercial deployment of its systems before the end of 2010.

Based in Tyngsboro, Mass., Beacon uses large spinning discs contained in a vacuum to keep electricity flowing over the power grid at a steady frequency — basically helping to stabilize the grid and allowing it to run more efficiently. Flywheels need little maintenance over their 20-year-plus life span and don’t have some of the toxic chemicals found in many batteries (see our smart grid energy storage FAQ). As the NYT’s Green blog has explained, each wheel in Beacon’s system connects to a device that can function “as a motor, taking current from the grid and spinning the wheel faster, and as a generator, taking momentum from the wheel and converting it to electricity.”

The DOE awarded the $43 million loan guarantee for a planned 20 MW plant in Stephentown, New York. According to Beacon, the U.S. Treasury’s Federal Financing Bank would fund the loan itself to cover 62.5 percent of the estimated $69 million in total project costs.

The Stephentown facility is already under construction, and Beacon says it has incurred $14 million so far in project expenditures that will count toward its $26 million cost sharing requirements under the DOE program. Beacon says it’s now, “in the process of finalizing the administrative aspects of the loan.”

Beacon has two other 20MW already in the works: One facility is planned for the regional power grid known as the PJM Interconnection (likely in the Chicago area) that’s backed by a $24 million smart grid stimulus grant. Another is slated for Glenville, New York, where Beacon has bought an option to lease land and applied for a grid interconnection.

Beacon raised $20 million in equity investment late last year, and the company says a portion of those funds “will provide the remaining capital required to close the DOE loan.”

The company anticipates that it will take another year to 18 months after closing the loan to complete the Stephentown project. So if everything stays on schedule, the plant will be ready to go in mid 2011 or early 2012. A portion of the project could come online and start generating revenue, however, by providing frequency regulation services as early as the fourth quarter of 2010, according to Beacon.

Since its founding through the end of March 2010, Beacon has lost around $211.5 million — including about $5.5 million in losses during the first three months of this year. The company does not expect to become cash flow positive until reaching the vague milestone of deploying “a sufficient number of merchant plants and/or sold turnkey systems.”

Beacon says it has enough cash to fund its operations through the first nine months of 2010. But carrying out its plan for 2011 will require the company to raise $18 million to $20 million this year, and additional funding next year, according to the filing.

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