Eos wins $400M DOE loan guarantee to build longer-lasting batteries

To make the switch to clean energy, U.S. power grids are going to need a lot of batteries — including those that can store power for far longer than the two to four hours that lithium-ion batteries can cost-effectively deliver today.

On Thursday, the Department of Energy offered a $398.6 million loan guarantee to Eos Energy Storage, one of a number of companies that have been struggling to deliver a longer-duration battery to serve that growing need.

Eos Energy Storage hopes this low-interest loan from DOE’s Loan Programs Office (LPO) will help it cross a chasm to commercial success that has eluded many other long-duration energy storage startups over the past decade. The Edison, New Jersey–based company plans to use the backing to invest $500 million at its Pittsburgh, Pennsylvania-area factory to produce as much as 8 gigawatt-hours of its batteries per year by 2026.

Eos has deployed its zinc-based battery technology in a variety of smaller-scale projects that have discharged more than 1.4 gigawatt-hours of energy over their collective lifetimes. It has gigawatt-hours’ worth of batteries under order from clean energy developers, utilities and government agencies, according to its most recent quarterly earnings report.

But Eos has only recently begun updating and automating its manufacturing processes to support the kind of large-scale production necessary to meet its order backlog and drive costs down. And three years after going public via a reverse merger with a special-purpose acquisition company (SPAC), Eos has had to continually raise debt and equity financing to cover costs that continue to outpace its revenue.

The LPO loan guarantee announced today is conditional, meaning that Eos has to meet certain milestones before it closes the deal and puts the low-cost capital to work. If Eos does win the loan guarantee, it could use the federal pledge to cover any losses to loans to the company from private-sector lenders to attract even more low-cost capital — a necessary step in its quest to scale up and reach profitability.

“Even with an LPO loan, we’ll need capital to scale the company,” CEO Joe Mastrangelo said in a recent interview. ​“And you have to remember, the size of the market out there is a drop in the bucket compared to the potential for the company in the long term.”

Eos also represents a first foray into non-lithium-ion batteries for the LPO, which has played an important role in lending money to early-stage wind and solar power developers and to Tesla for its first EV factory. The office has seen a resurgence under the Biden administration, offering more than $10 billion in loans to U.S. EV battery manufacturers since 2021, and billions more in support for lithium-ion battery recyclers, materials production facilities and lithium mining and processing projects.

Should the loan guarantee from LPO’s Title 17 Clean Energy Financing Program come through, Eos hopes to harness the federal backing to become among the first alternative battery chemistries to break through. To do so, it must contend with the challenges of succeeding in an industry littered with failed and now-defunct companies — Alevo, Aquion, Imergy and ViZn are a few. So far, it’s simply been too hard to compete against the dominant lithium-ion technology, whose cost has been driven down by decades of mass production for use in consumer electronics, electric vehicles and storing power at the building and utility installation scale.

A handful of alternative technology providers are starting to gain traction, such as iron flow battery maker ESS and ultra-long-duration battery startup Form Energy. But these companies have yet to build a track record — or in the case of Form Energy, an actual battery — to secure confidence from the utilities, clean-energy developers and other target customers that they offer a long-term alternative to lithium-ion.

Why a zero-carbon grid needs longer-duration energy storage 

As the need grows for batteries that can store energy for eight, 10, 12 or more hours at a time — a duration that lithium-ion batteries are ill-suited to delivering — the pressure to find a viable alternative is mounting.

LPO has also invested in what’s called ​“seasonal energy storage,” a form of long-duration storage that aims to stockpile energy for months at a time. Last year, it issued a $504 million loan guarantee to a project in Utah seeking to produce hydrogen with surplus renewable power and store it indefinitely in underground caverns so that it can be burned to generate electricity when the grid faces supply shortfalls.

But there’s a wide gap between the hourslong storage capability of lithium-ion batteries and projects with monthslong potential — and a zero-carbon grid depends on that gap being filled.

DOE’s recent Pathways to Commercial Liftoff report found that by 2060, the U.S. grid may need 225 to 460 gigawatts of ​“intermediate” long-duration energy storage capacity — ​“inter-day” capacity systems with between 10 and 36 hours of storage and ​“multiday/​week” systems with between 36 and 160 hours of storage — to achieve a net-zero carbon economy. That represents $330 billion in cumulative capital investment.

To hit that goal will require scaling up U.S. long-duration energy storage manufacturing and deployment capacity to 3 gigawatts per year by 2030 and 10 to 15 gigawatts by 2035, up from less than 1 gigawatt today. It will also require the costs of long-duration energy storage technologies to be cut roughly in half by 2030.

Eos doesn’t disclose pricing for its batteries, but Mastrangelo said the company’s new manufacturing process has halved the cost of production compared to the prior generation of product, bringing its batteries into a cost-competitive range with lithium-ion batteries for longer-duration applications. The company expects to reduce costs by another 15 percent in the first full year of production under the new manufacturing regime.

That won’t make Eos batteries competitive with lithium-ion in the settings where that dominant technology thrives, Mastrangelo emphasized. ​“Two hours a day, 365 days a year — that’s not our application.” But Eos batteries can pack far more hours of energy storage into a far smaller space than lithium-ion batteries, he said.

The company’s zinc-based chemistry also eliminates lithium-ion batteries’ risk of overheating and fire, he said, reducing safety concerns and cutting out the cost of temperature-management and fire-suppression equipment that lithium-ion batteries require.

The incentives for U.S.-made batteries and other clean energy technologies created by the Inflation Reduction Act also help Eos, whose products are ​“built with American hands, using predominantly American materials on American manufacturing equipment,” Mastrangelo said. Those incentives include a production tax credit for U.S.-made batteries and a 10 percent boost or​“adder” to the tax credits for companies deploying clean energy and batteries made domestically.

Zinc is also much cheaper and in far greater supply than lithium, which is facing a global supply crunch due to skyrocketing demand from the EV industry, noted James West, senior managing director and head of sustainable technologies and clean-energy research at Evercore ISI, an investment banking advisory firm.

But even with these advantages, the main question for Eos is whether it can continue to raise enough money to carry out its plans, West said. ​“These guys need liquidity. Bringing in private equity is expensive — and the DOE loan is cheap.”

The path ahead for Eos 

Earlier this month, Eos reported a second-quarter loss of $131.6 million on revenue of only $200,000 and a $23.2 million cash balance as of June 30. It has raised about $90 million in capital so far this year and can raise as much as $84.4 million more through existing agreements with investors.

Eos has been conservative with its manufacturing expansion thus far, Mastrangelo said during the company’s August 14 earnings conference call (sign-in required to access audio). ​“We’ve been very, very cautious about how we’ve launched this product to make sure that we’re spending every dollar we have wisely.”

The company reported booked orders of $86.9 million for the first half of 2023. Eos batteries are being deployed at sites including a solar farm in South Carolina developed by Pine Gate Renewables and another solar farm in the Canary Islands undertaken by Enel Green Power. Both developers confirmed to Canary Media that they are working with Eos on the projects.

Eos also claimed a backlog of $535 million in pending projects under binding commitments with customers and another $1.5 billion in firm commitments with letters of intent signed with project developers. During the August 14 conference call, Chief Financial Officer Nathan Kroeker said the company has signed large-scale agreements with two customers whose identities are being kept confidential, one a ​“leading Northeast developer of solar and storage projects” and the other a ​“very large utility and one of the largest operators of energy storage in the U.S.”

But some of the customers that Eos has named as prospective large-scale buyers of its batteries have come under scrutiny. In July, Iceberg Research, a secretive research firm known for publishing critical research notes on publicly traded companies, issued a report highlighting the legal troubles and questioning the financial viability of the parent company of Bridgelink Commodities, a customer that represents 45 percent of Eos’ current backlog of orders.

Eos responded with a statement that it believes Bridgelink Commodities is ​“a separate legal entity which is not implicated in the legal matters” outlined in Iceberg’s note, and that the customer ​“continues to build pipeline and is actively seeking financing for energy storage projects” covered in its agreement.

West, the investment analyst, underscored that Eos’ prospects are far more dependent on shorter-term success in raising capital and scaling up its manufacturing capacity. ​“They’re going to take that customer base and branch out significantly,” he said. But ​“they need to get to scale — and get capital.”