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1 RedFlow Limited RedFlow s M90 being positioned at the University of Queensland to support a Solar PV array Quarterly Report Period ending 30 th June 2012

2 Corporate Directory Board of Directors RedFlow Group Companies ACN Mr Howard Stack (Chairman) Mr Bruce Brown (Non-executive) Mr Pat Mackey (Non-executive) Mr Richard Aird (Non-executive) Mr Chris Winter (CEO) RedFlow Limited RedFlow R&D Pty Ltd RedFlow International Pty Ltd Company Secretary Mr Paul Clarke Address - Australia 27 Counihan Road Seventeen Mile Rocks, Brisbane QLD 4073 Australia Contact Details info@redflow.com Phone: Fax: Business Development Manager Bruce Ebzery Phone: bruce.ebzery@redflow.com Patent Attorneys Fisher Adams Kelly Bankers Commonwealth Bank of Australia ANZ Bank Solicitors Thomsons Lawyers Auditors PricewaterhouseCoopers RedFlow s 3 year mission statement: To become a world leading supplier of zinc-bromide flow batteries for energy storage systems from 5Kw to megawatt scale in RedFlow s global target markets. 2

3 Corporate update The June Quarter was a period of significant change and progress in RedFlow. On the 16th April 2012, following a strategic review led by its revamped Board, the Company announced a significant restructure, including a change of CEO. Please refer to this ASX release on RedFlow s website for further details. The Company is now focused on selling its core ZBM batteries into global markets via global System Integrators who will incorporate them into complete Energy Storage Systems (ESS) The types of System Integrators RedFlow is focussed on are global companies with technical expertise in electrical systems, who bring or are developing channels to major energy storage markets. RedFlow is currently in negotiation with such companies, with international market reach, to develop large demonstration systems involving end customers, and the Company expects to make more specific announcements in the near future. Production of RedFlow s commercial ZBMs will be fully outsourced by the end of Note that Jabil s, manufacturing involvement has been deferred pending a staged outsourcing of key components to approved suppliers and volume of commercial sales achieved. Ongoing product development, to keep RedFlow at the forefront of flow battery technology, will continue in Brisbane, Australia. Staff numbers, and burn rate, have been more than halved while the Company implements its core System Integrator strategy. Highlights of the Quarter Over the last 3 months, since the restructure, the Company has made rapid progress in delivering on this refined strategy. Highlights of the June quarter were; Our Business Development Manager was relocated to the US to finalise two of the important System Integrator relationships that are quickly developing over there. Five of RedFlow s smaller R510 battery systems were deployed in the US to support the activity there. RedFlow deployed a M90 containerised demonstration system at the University of Queensland in Brisbane, Australia. This is a 90kW/180kWh Energy Storage System. The Company signed a $670,000 contract to deploy a 120kW battery system in the basement of a new building at the University of Queensland, before the end of The Ausgrid Smart Grid Smart City trial of residential energy storage systems began to deliver the first results. RedFlow expects to receive a cash payment of approximately $3.0m before the 31 October 2012 from the Research and Development Tax Incentive Scheme. Please refer to the Company s website for additional updates, 3

4 CEO update RedFlow s strategy is now founded on selling commercial ZBMs to System Integrators who use them in their own Energy Storage Systems (ESS), which they then on sell to end users. RedFlow has developed a 36 month plan to execute this strategy. The two key tasks are; Partnering with System Integrators who have shown interest in incorporating RedFlow s ZBM batteries into their Energy Storage Systems. To support these System Integrators RedFlow has established a new operating group to assist them in this integration. Optimising the outsourcing of RedFlow s unique ZBM battery manufacturing to meet the cost, quality and quantity targets anticipated to be required by the market. To achieve this, RedFlow how now engaged internationally experienced outsourcing experts who have begun assisting RedFlow in this keytask. These two primary tasks align with the strategy of the Company to focus on the core ZBM battery technology and then provide these batteries to a limited number of large System Integrators who will be RedFlow s direct customers. The senior management team has been adjusted to align with this strategy, and the following operating groups have been put in place. CEO CFO & Admin ZBM Manufacturing (Offshore) ZBM & System Development (Brisbane) System Integrator Support Sales & Business Development RedFlow presented at two conferences in Germany and the USA during the last quarter. Electricity Storage Association, Washington DC. International Flow Battery Forum, Munich, Germany They generated significant interest, which RedFlow is following up on. Selected recent media coverage, refer to RedFlow s website for additional information Florida Gulf Coast University, A shot of solar efficiency The Australian, RedFlow works to recharge batteries 4

5 Business Development update The graphic below outlines RedFlow s strategy, which is supported by a range of large potential partners. The company was restructured to focus on the two primary tasks To drive the future growth in sales of ZBMs via this System Integrator strategy the Company is participating in the establishment of a limited number of significant demonstration trials together with System Integrators and end customers, both in Australia and internationally. The first three of these are expected to be put in place during the next 12 months. They are a prerequisite for significant commercial orders. These larger demonstration trials will absorb all of RedFlow s capacity over the next months, after which it is anticipated that our System Integrators will have fully developed their commercial Energy Storage Systems, and will then begin to market and sell them to end customers including electricity utilities and renewable energy companies. It is intended that the majority of the cost of these trials will be funded by the System Integrator partners and the end users. This is because the primary work is to be done by the System Integrators in developing their Energy Storage Systems. RedFlow s ZBM is already well developed. One of these larger trials will be of the order of $5m for which RedFlow will supply the ZBMs at cost. In addition to the business development activities listed under the highlights for the quarter a range of other activities are taking place in the US and Asia. These will be detailed once final agreements are in place. Field trials and System Integrator Support RedFlow has signed an agreement to deploy a building integrated energy storage system (BIES) in the new Global Change Institute the "Living Building" - on the St Lucia campus of The University of Queensland. The Agreement has a total contract value of $670,000. The 120 kw system will use 36 Gen 2 RedFlow ZBM batteries and is based on RedFlow s M-class technology. It is scheduled for installation by October 2012 however the building will not be completed by then and commissioning maybe delayed until

6 Powerco in New Zealand has received and commissioned an R510 demonstration system, which is now undergoing initial testing. RedFlow has begun technical exchanges with selected potential System Integrators in preparation for the use of RedFlow s ZBM in their planned Energy Storage Systems. The M-class technology demonstration system has now been developed by RedFlow. It comprises up to 36 ZBMs along with power electronics in a self-contained Energy Storage System. It can deliver up to 120kW and is available to demonstrate how RedFlow s ZBMs can be used in utility as well as commercial and Industrial applications. A 90kW version, the M90, was recently deployed at the University of Queensland to support a large solar PV array. RedFlow s M90 M-class system deployed at the University of Queensland An example of one operating mode of the M90 at the University of Queensland 6

7 Market opportunities The technical characteristics of RedFlow s ZBM are ideally suited to applications needing 2-6 hour discharges and multi-hour charging, and as such the key market sectors that RedFlow and its System Integrators are targeting are; 1. Transmission and Distribution ( T&D ) investment deferral Demand for electricity during the typical evening peak is growing more quickly than the average electricity demand. The ZBM has the ability to shift electricity from the non-peak period, e.g. during the early mornings, to the peak period and so defer the need for expensive upgrades of the wires, poles and substations that make up the electricity grid. Typically utilities are looking for 4 hours of discharge capability, which is right in the sweet spot of RedFlow s ZBM. 2. Renewable integration One issue with renewable generation is the lack of control around the timing of generation we cannot control the wind or the sun. The ZBM has the ability to shift renewable energy generation from when it is generated to when it is required, increasing utilisation of renewable energy devices and stabilising electricity networks. This becomes more important as the feed-in level from renewable sources exceeds 15-20%. This is already the case in many areas and below the future targets of many countries. 3. Energy Management At the residential and commercial level, managing electricity demand from the grid by using the ZBM as an electricity buffer is an opportunity that is now generating significant interest because of the potential to reduce electricity bills. The Smart grid trial with Ausgrid in New South Wales, which RedFlow is part of, is an example of how this can change the way we use electricity. 4. Remote power opportunities Electrification of remote areas is a large potential opportunity that the rapidly falling prices of renewable energy generators such as wind turbines and solar panels are opening up. The ZBM has the ability to manage the variability in these energy sources to match supply with demand. A potentially attractive market niche for RedFlow is supporting the mobile phone network infrastructure in remote areas, which currently uses a large number of diesel generators but is now introducing renewable energy sources to reduce the operating costs. The market opportunity represented by the grid applications listed above has been investigated by Lux Research in their report Grid Storage under the microscope: Using local knowledge to forecast global demand One of their conclusions is that the global demand for grid storage will reach $113.5 billion by 2017, and that zinc-bromide flow batteries, such as RedFlow s ZBMs, will capture 19% of this market. This would represent $21.5 billion of ZBMs, which is far beyond our 5-year planned capacity. Lux also estimates that Japan and China will each account for about 18% of the market; United Kingdom and Germany, will each account for about 9%; and the US will account for about 23%. This supports RedFlow s strategy of engaging with international System Integrators to address global markets. 7

8 ZBM Manufacturing and outsourcing Outsourcing of RedFlow s unique componentry has proven more difficult than expected by the Company. It has now engaged external outsourcing experts from Zebulon based in the US, to support RedFlow in successfully outsourcing the ZBM. The aim is now to outsource the complete commercial ZBM before the end of Outsourced manufacturing of electrodes has now begun. This is one of the key subsystems of the ZBM. Note that Jabil, our Tier 1 manufacturing partner s involvement has been deferred until staged outsourcing to key suppliers in in place and until large ZBM quantities are required by selected customers. While the initial components and sub systems are being outsourced, final assembly of ZBMs is continuing in Brisbane. During the last quarter 36 ZBMs were manufactured. ZBM final assembly area in Brisbane, Australia Product Development The first of RedFlow s long-term test batteries has now demonstrated over 1000 cycles using partial charge cycles. Longer term life-cycle testing which is important to effective battery cost is continuing. 3 rd party testing at Sandia National Labs in the US is ongoing and testing in the US will be expanded during the next 12 months. 8

9 Sandia National Labs Test site with our newly installed R510 The first Gen 3 Stack has recently been assembled and is undergoing initial testing. RedFlow s first Gen 3 Stack undergoing initial testing Gen3 ZBM CAD drawing The Generation 3 ZBM is expected to be commercially available later in It will provide improved performance at a reduced cost versus the current Gen 2 ZBM. The ongoing development of next generation ZBM batteries is a key focus of RedFlow. This will ensure that the Company remains at the forefront of flow battery technology. 9

10 Financial $3.0m Research and Development Tax Incentive RedFlow expects to receive a cash payment of approximately $3.0m before the 31 October Starting with the restructure of RedFlow on the 16 th April, staff numbers and burn rate, have been more than halved while improving the Company s ability to deliver on the core System Integrator strategy it is now following. Going forward Redflow is targeting cash burn of $0.7m per month, down from $1m in June 2012, and ~ $1,45m per month prior to the strategic review RedFlow has taken an impairment charge of $8.54m on the capitalised research and development asset at 30 June This decision has no cash flow impact and does not affect the Company s tax position and the Research and Development tax incentive claim. More information can be found at, Chris Winter, CEO, RedFlow Limited If you have any questions, I would be pleased to assist. Phone chris.winter@redflow.com 10

11 A look back in time One of the first zinc-bromide batteries made by RedFlow s founders in 2002 and where RedFlow is today 11