Three markets, one untapped

ArcActive founder Stuart McKenzie says there are three markets for batteries used to store solar power (Deakin has an array) – or to enable a system for buying power from the grid at cheap times of day, storing it, then deploying it during peaks (or blackouts).

He sees two of the three as active and well-catered to: the home market, where batteries are small and practical, and the utility market, where some power companies have created giant banks of batteries to help smooth demand.

But the third, the commercial and industrial (or “C&I”) market, is the barest, despite having the most potential to cut power bills via batteries, McKenzie says.

“C&I should be massive, but it hasn’t developed,” he tells the Herald.

“If I can save $100,000 per year with a $300,000 battery, it should be a no-brainer.”

So what gives? The insurance and regulatory costs associated with lithium batteries, McKenzie says.

A house can burn down, but it’s a quantifiable, contained insurance risk. And while a utility’s battery bank might catch fire, it will be in the backblocks or otherwise quarantined. It’s expensive but again, a defined, quantifiable risk.

By contrast, “In C&I, you might have a $500,000 battery close to a $20 million building, and a fire could cause damage to third-party properties as well, so it’s hard for an insurer to qualify.”

That means a lithium battery being deployed in a business often requires new fire hydrants, blast walls, firewalls and other protections, plus reams of regulations associated with compliance.

McKenzie says he spoke to one company, with multiple properties, which abandoned a lithium battery installation after estimating it would have to spend about $500,000 on paperwork alone.

“There’s a book of regulations a foot thick, and you have to comply with every paragraph,” McKenzie says.

So far, so thankless

So far, the ArcActive founder has succeeded in painting the commercial and industrial market as completely thankless.

So what’s his firm’s angle?

Its lead-acid batteries that, unlike lithium-based ones, “fail in a very gentle way. Lead-acid batteries literally can’t burn”, he says. Only the plastic casing can catch alight, if it’s not fireproofed.”

That’s in terms of fires. Lead-acid batteries can leak hydrogen, which can explode if there’s a spark. But McKenzie points to a 2020 multi-country study by the National Fire Protection Association (NFPA) that found only 26 incidents between 1979 and 2019, amid hundreds of millions of installs (lead-acid batteries are common in cars and boats, among other uses).

In short, the NFPA and others see lead-acid as far lower risk than lithium-ion-based batteries.

“In recent years, lead-acid batteries have been replaced by lithium-ion batteries in many applications,” the NFPA report says.

“This is a result of the lithium-ion batteries having a greater energy density, efficiency, and lifespan as compared to lead-acid battery chemistries. These batteries, however, are capable of storing large amounts of energy and often utilise a volatile or combustible electrolyte and thus are prone to fires and explosions.”

While lead-acid batteries have only generated 26 reported incidents across decades, Christchurch City Council alone had 40 fires in its rubbish trucks last year caused by cast-off lithium-ion batteries.

No special safety protections required

The ArcActive container at Deakin will become part of the Melbourne university’s renewable energy microgrid, which sits in a field off its Geelong campus on the edge of the city.

But at the Sydney customer – the big manufacturing facility – the ArcActive container will be installed just 600mm from a building, McKenzie says. “And we’ve only left that gap so we can change filters and so forth.”

The unnamed manufacturing customer has not had to pay for any new hydrants, or install any new blast walls or firewalls or any other new measure, McKenzie says. Regulatory approval was “cookie cutter” because of the lower risks involved with lead-acid batteries.

If the Sydney and Melbourne 100kWh containers prove worth their salt, McKenzie plans to use them as the showcase to raise about US$75m ($133m) in venture capital to fund ArcActive’s development of a 1MW system that will be both safer and priced below the lithium competition.

Second stab

At this point, long-time readers might be having flashbacks.

In 2024, the Herald interviewed McKenzie as ArcActive was developing a home battery prototype that will sell for half the price of Tesla’s lithium Powerwall, with attendant plans to raise $70m in venture capital.

What happened? “When we started to raise capital, we met Origin,” McKenzie says.

The Aussie gentailer convinced him to abandon ArcActive’s putative home efforts to focus on the little-catered-to commercial and industrial segment.

The Hornby-based ArcActive has already raised around $45m from its existing shareholders, the largest of which is Gallagher Group with a 23% stake. High-net-worth individuals including Sir Stephen Tindall and tech entrepreneurs Mike Chisholm and Brendan McNeil have also chipped in funds.

21st-century makeover

The first lead-acid batteries were developed in 1859.

ArcActive had its genesis in a 2007 meeting between McKenzie and Canterbury University professor John Abrahamson, who was researching a process (now patented by ArcActive) for arc-treating carbon fibre – now harnessed to improve the efficiency and longevity of lead batteries.

Over a decade, the start-up developed proprietary electrodes, wrapped in carbon fibre fabric.

Its electrodes are sent to US partner Advanced Battery Concepts, which installs them in batteries that are then shipped back to Christchurch to be containerised. ArcActive has 20 staff in Hornby.

The stem includes ArcActive’s battery energy storage system (BESS), which can take cues from Origin’s Virtual Power Plant (VPP) platform, which wrangles the process of storing power when the price is low and discharging it when rates are high.

Deakin will use its ArcActive battery to store power collected from the university’s solar farm during the day, then run the energy out at night.

So far, McKenzie’s focus has been exclusively on the larger Australian market, where Origin has courted his firm.

“I’m a bit embarrassed to say it, but I haven’t even talked to anyone in New Zealand,” he says.

Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer. He has recently written about Auckland startup Aotea Energy, whose recently launched battery promises to let homeowners “be their own gentailer, Gallagher Group’s drive to hire 100 staff and Christchurch’s push to become a high-tech hub.