RedFlow Limited (RFX) Earnings Call Transcript & Summary

Good morning, everybody. And thank you for joining us this morning. We'll just give 5 seconds to allow people to come into the webinar. Thank you. So as many of you know, RedFlow recently signed its largest single battery sale to deliver 20-megawatt hours of long-duration energy storage. The company has also announced an entitlement offer to raise up to $18.9 million to deliver on the growth opportunities ahead. During our session today, you're going to hear from Tim Harris, Managing Director and CEO. And with him is Mark Higgins, who's President of Americas and Chief Commercial Officer; and also Trudy Walsh, Chief Financial Officer. We're going to hear today about RedFlow's current and future opportunities in key growth markets and the current entitlement offer. After the presentation, there will be an opportunity for Q&A that I will be moderating. Please, if you have any questions, please type them in the Q&A box, and we'll try and cover as many as we can in the time allotted today. We have about 45 minutes or so, and I'll just point out that Tim and Mark are in the U.S. And so thank you for your time. I know you've got a busy schedule, but glad you could set aside some time to talk to the investors today. I might hand over now to Tim to take us -- to start, to take us through the presentation, and we'll look back at the end for the Q&A. Thanks, Tim.

Thanks very much, Ronn and good morning and potentially good afternoon to everyone that's joining this session. Really delighted to be here, but especially delighted to join you from San Francisco for this briefing. Mark and I, it's been a really exciting week so far working across the U.S., visiting customers, partners and suppliers and we're sitting here in the Queensland -- Trade and Investment Queensland office in San Francisco to brief you here today. So delighted to be joined by Mark today. We'll also talk about the U.S. market and also Trudy Walsh, our CFO and Company Secretary. And so just to begin with, I think, really exciting thing that we wanted to relay as part of this presentation is what we really feel is the step change announcement that we made to the market on the 1st of June. And that's the announcement about our 20-megawatt-hour project here in California, that's a 10x larger project than the larger size that we've previously done, which is the 2-megawatt hour project that we did with Anaergia also in California. But we think this represents a huge inflection point and step change for us as a company both in terms of the size of projects that we're going to deliver, the revenue that we're going to generate and we've given guidance as USD 12 million project, but also the validation and visibility this project is giving us in the U.S., but also in Australia that really validates that we can scale our unique world-leading battery technology and solution to multiple megawatt hour size and scale. And we're also delighted to be working with the California Energy Commission on this project who really are very strategic in their view about how they can manage and enable California to achieve its renewable energy goals in the future, hugely exciting project for us. We're delighted to be working with our partners, the end customer on this and also the California Energy Commission. Mark, I hand over to you to provide a summary of the project and why we think it's so important here for the market in the U.S.

Sure. So the product has announced is a renewable microgrid, the solar plus storage, the idea being that the trade is trying to provide for as much of its energy resources basically on the reservation, this whole concept that ran around energy side, they want to be able to provide for themselves, provide their own resilience and sustain their operations for generations to come, not being reliant on others for the resources that we need. So even though this is a trial project, we see this as being very representative of the type of commercial and industrial project that we think is gaining a lot of traction in the U.S. market, both in terms of the size of the project, as well as the scope of the project. This is the renewable microgrid, the 24/7 renewable energy concept is picking up steam quite rapidly, particularly in California, but throughout the North American market. And so we see this as both being an example of our ability to scale to this very large size as well as our ability to integrate well with this concept of solar plus storage in the market. And the project itself, we're going to be delivering it over the coming year with battery delivery starting in late 2023 and then the current schedule showing it going through about mid-2024 timeframe. Good news for us, the contract itself is structured in a way. So there is milestone-based payments. We're going to be getting paid along the way so we can make sure that we're covering our costs and being able to pay our suppliers, do all the preordering that we need to do within our supply chain so that we can maintain cash flows throughout the process of executing on this project. And like I said, this is a big validation of both this use case as well as validation by the California Energy Commission, RedFlow has a key part of the State of California's long-term strategy on bringing long-duration energy storage technologies to market and making sure there's a vibrant, successful market that can deliver at scale to meet California's and the world's long-duration energy storage needs in the long run.

Thanks Mark. And I think as investors will appreciate -- when we first started the journey of investing in the California market on the back of our announcement of the 2-megawatt hour project, we really saw a market that was ready and willing to embrace new technologies and was also the largest energy storage market in the world. And California is about 50% of the U.S.'s energy storage market. So really it's a market to be in from an investment and an opportunity perspective. And what we've done with the recruitment of Mark and the rest of his team that's also based in California is that we've been steadily building to this position making sure that we've delivered on that 2-megawatt hour system that was supported by California Energy Commission building a team here and be really ready for this opportunity that we steadily developed over the last 18 months. The key thing that we find is that this is just not an investment opportunity and announcement that has been an overnight success. This is really based on a series of foundations that we steadily built over the last 4-plus years to enable us to get to this multi-megawatt hour breakthrough project. We know that we're a global leader in long duration energy storage, but we also have a really strong foundation of a leading technology. We have attractive long-term prospects in terms of our core chemistry performance and our ability to scale and other innovations like hibernation mode plus critically the fact that we're now operationally proven much more than other non-lithium alternatives in the market. We've delivered over 15 million hours of operating time since 2018. We delivered over 3 gigawatt hours of energy to customers over 250 deployments. And that really provides people like the CEC depth and breadth of experience that they can look at and have confidence that they've got the right product that they can bat to be a potential key component of California's energy transition. So we have competitive products. We have a manufacturing capability that we've established and is ready to scale. We have a series of reference projects and also energy partnerships that Mark and the rest of team have developed here in the U.S., but also in Australia that we think are really prime for us to leverage this opportunity and this announcement. And I think talking to Mark later on today, we've really seen a step change in market inquiries that have occurred in the U.S. after this announcement of the 20-megawatt hour deal because it really validates that we can scale this technology and scale the solution from a 2-megawatt hour system using exactly the same modular building block to 20-megawatt hours and beyond. And as we've spoken before, we really think that this announcement puts us in a breakthrough spot in terms of the market when you're looking at electrochemical long-duration storage in a very select group. This project really reflects our focus with focusing on the commercial and industrial market and really signifies our clear strategy that we communicated to investors about progressively increasing and earn the right to play in larger form factors and larger size. It reflects our really key focus on the markets of the highest opportunity, which is in the U.S. and in Australia. And as I mentioned before, it shows our ability to scale our existing model and product that we developed for the Anaergia 2-megawatt project and scaled successfully to a project, which is 10x the size. So we really joined a very small selected group of electrochemical long duration energy storage markets that we think we are at the same stage of commercial and technical maturity in a multi-gigawatt hour market. So that's why we think this really represents a breakthrough for us in terms of market validation and allows us to accelerate the opportunities in that pipeline, but also validates other opportunities that -- in that multi-megawatt hour large C&I and even potentially leading into utility space. So we believe that we're very well positioned to execute about the next stage of growth. We've got our ZBM3 product. We got core building blocks in terms of our Pod200. And we continue to invest in R&D because we know that we can enable further performance improvements, drive down cost and drive down margins into our business kind of further incremental innovation. We now have an established market presence, particularly in the U.S. and Australia. It's really ready for our solution. And we have a huge exciting pipeline that Mark and the team have developed, particularly over the last 12 to 18 months. that reflects that strategy and a series of partnerships that's going to help execute that opportunity. And so we really need to scale. We have Thai facility that's capable of scaling up to 80-megawatt hours. We're in active execution mode of scaling up that facility to make sure that we can execute against the timeframe of a 20-megawatt hour project. And then we also have capacity to execute on further projects also at the multi-megawatt stature. We think it's a very exciting moment for us and that announcement really represents a step change in our market positioning and I think, opportunity going forward. But critically also, we also feel that this project is very important in terms of our overall pipeline. And we feel that the pipeline that we've developed over the last 12 to 18 months really reflects our focus on the C&I market, but also our investment in a number of opportunities that are large scale compared to particularly the previous history of smaller systems where we have close legacy and history has been. Mark, perhaps you can comment on the platform [indiscernible] today.

Sure. So I think from a high level, we take a very conservative approach towards how we are laying out our pipeline. As we know, and when we're moving from small-scale projects into these larger scale multi-megawatt hour projects that we're working on, the sales cycles look very different from what we've historically seen. So we spent the last 18 to 24 months, building the kind of relationships, educating our customers, getting them comfortable with the technology, the bankability of the technology, the fundamental chemistry, operational profile and the maintenance profile of the technology such that these very large sophisticated customers have comfort level to be able to invest in large multi-megawatt hour orders and many millions of dollars. We continue to advance our pipeline in this space. And the thing that I'm most pleased about is that the maturity of our pipeline and the maturity of the relationships that we're developing continues to accelerate and strengthen as the months go by. But I think as Tim mentioned just a few minutes ago, just on back of the CEC announcement alone, the amount of interest and rekindle the interest amongst very sophisticated customers that we've been talking with for a long time has picked up significantly. And so customers that are like I really like what you're doing. I'm very interested in the technology. I love to be putting in your solution in the next few years to come back in other way, oh! I see the CEC announcement. I think now is the time we're engaged. We're really excited about what we're doing. I think the sales pipeline really reflects the -- that pivot -- that transition that we've been making into large-scale systems. As you can see, most of what we are doing today is at the multi-megawatt hour size range. We continue to pursue the core C&I customers that we've been pursuing for a long time now. You can see that we are doing that in Australia through things like the utility remote grid projects that we're doing that are multi-hundred kilowatt hour projects. We have a number of projects in the U.S. that are like that as well. But we are also focusing a lot of our energies right now on multi-megawatt hour projects and have some anchor partners and some anchor customers that we're very excited about right now. And I'll highlight one thing U.S. federal government, we're finding a lot of opportunity with the U.S. federal government for resilience type applications where things like our unique hibernation mode actually presented a very compelling and unique in the market technology solution to a big problem that they have which is ensuring that government operations can remain active and resilient in the case of power outages and this is for products in the U.S., but also around the world and the U.S. government operations around the world. We've got a lot of similar resilience applications that we're seeing in places like California. An example would be a hospital microgrid that we're working on. This project has a very similar profile to the Paskenta project that we were talking about before except that it is serving a hospital that needs to make sure that it has resilient, accessible power, when there is power outages because it's such an important piece of critical infrastructure within the community. And we continue to pursue some of the projects that we've been looking at that are kind of longer-term oriented as well around kind of utility scale projects. Those tend to be very long sales cycles that are further out into the future. We have to do a lot of work educating customers and getting them comfortable with the technology before those actually mature into multi-100 megawatt hour type opportunities. But we're making good progress without building the kind of relationships with some of the largest independent power producers in the world such that they will be comfortable with the technology when the opportunities arise for them to buy large volumes of long-duration energy storage technologies.

And I think Mark, we've been traveling around the U.S. this week, particularly with a workshop with a very large IPP that's dominates the market here. And I think we probably sort of through the stakeholders from within that company trying to understand our technology and undertaking modeling. And so I think that announcement that we had around the 20-megawatt hour project has just accelerated a lot of those opportunities and engagements. But we've also got a number of opportunities in the pipeline that are very exciting and mature stage as well. So look, I think the projects, I think, are going to add a significant stimulus to new opportunities in the pipeline, but also management of opportunities that we are currently working on. So just briefly then talking about the market opportunity. And I hope most people are aware of what we see the opportunity in terms of the shift of renewals, which is accelerating that really move of energy storage and in particular long-duration energy storage, which has really been seen as the bridge to the transition to a renewal energy requirement. And what we're seeing is the energy ecosystem, whether that's people like Ameresco that we announced the partnership with a few months ago, IPPs or governments starting to embrace that opportunity around long duration energy storage and the size of the market just keeps growing. And as you can see, the opportunity that we play in, which is the kind of intraday long-duration energy storage space between 8 to 24 hours is growing at an accelerated pace and a recognition of flow batteries sitting alongside lithium systems, hydrogen and Pumped Hydro is really starting to become very much in focus as the market moves and kind of stabilization of the grid using short duration lithium-based systems through optimization. How can I address those conductors? How can I effectively move a lot of bulk energy to when I need it most? And so you're seeing really LDES coming to the core of the energy transition planning, close at home in Queensland, Queensland Energy and Jobs Plan that has a 70% renewable target by 2032. There's lots of commentary around that plan around the role of long-duration, large-scale batteries as part of that plan. If you look at AEMO's recent report about the state of play around the energy transition that highlight the urgent need for long-duration energy storage. And on the U.S., Mark, the call for long duration storage is just accelerating.

Oh, absolutely. And you see that in the California state level, but you also see it within the Department of Energy federally, lots of money available, lots of focus on long-duration energy storage technology and then also a significant amount of focus of long-duration energy storage technology between the bilateral relationship of the U.S. and Australia. There is both significant amount of engagement between the U.S. federal government and the Australian Federal government as well as between State of California and various stakeholders within Australia around the kind of partnerships that can be developed in commercializing innovative technologies particularly in the long duration energy storage space.

So in Australia, we see tremendous opportunities for us, great to get support and visibility by people like [indiscernible] over the last couple of months. The key highlight that we want to say there is an MOU that we signed with Energy Queensland in February 2023. We did notice that the budget was released by Queensland last week that has a significant amount of billions of dollars to support the Queensland Energy and Jobs Plan, and we see a role for us to kind of play in that market. So hugely exciting for us. I suppose it's fair to say that Australia is probably a couple of steps behind key markets like California in terms of appreciation on long-duration energy storage. But particularly, I think with the new federal government or U.S. Federal government that real focus on renewable energy enabling Australia to be a renewable energy to power both domestically and on a global stage, is really just accelerating.

And I think that speaks to the core fundamentals within the Australian market. Australia has always been at the leading edge of the energy transition, but with the policy certainty that's coming to bear now within both Australia and the federal and state governments, we're really starting to see an emphasis on long-duration storage technology and investment dollars are starting to flow in this space in a way that really they haven't in the past in Australia. Whereas in markets like California, those dollars have been flowing for a while, so that, that market matured earlier than it has in Australia.

And we now talk about the U.S. market on what you're seeing.

Sure. So within the U.S. market, I would say, for a long duration energy storage technology, there's probably 2 core markets that we're seeing emerge. One, if you're looking at the commercial industrial space. It's this concept of solar plus long-duration storage as a key to providing as much self-supply and resilience for operations as possible, both to save energy, to meet sustainability goals and to provide resilience. And then on the front of mirror side, the utility side of the grid, if you're seeing that we are now to the point where renewables are taking up such a large percentage of the overall generation that you really need to start shifting from short duration technologies that just stabilize the grid in a short period to this bulk energy shifting need, which is kind of started out in 4 hours, and moving to 6, moving to 8, and that's going to continue to increase over -- and very rapidly over the coming decade and particularly as a result of the Inflation Reduction Act, that is driving a massive amount of solar and wind going to the grid. And pretty much we're seeing universally wherever we saw, then going a grid, those are now automatically being paired with energy storage because of the arbitrage opportunity around that by having energy storage that you can manage a lot of the risk that's associated with putting in these intermittent resources.

Right. I think as Mark mentioned before, we were delighted to see the announcement around the Clean Energy Alliance that was announced last month between President Biden and Prime Minister, Anthony Albanese and what we would note is that the real call out around the development of emerging battery technologies. We think that amongst Australian companies, we're really uniquely placed to be able to go and be at the forefront of some of those developments and initiatives going forward. And over the past couple of weeks, particularly on the back of the announcement of 20-mega project and our partnership with the CEC, significant and really positive support by the Australian government to support some of that ongoing dialogue, both at the federal level and also at state level here in California as well. So in just in terms of our strategy. I'm just going to go through this pretty quickly because as much of time, I want to allow and a bit of space for Q&A. So really our strategy on a page is we're very much focused on this kind of energy focus applications. And as Mark said before that solar shifting and energy arbitrage, which is the key opportunity, again, focusing on that really emerging market opportunity that meeting to long-duration focus that can afford a 12-watt plus also leveraging and what we think is a unique feature around hibernation mode, which is really important. We're still going to do business in the kind of the smaller C&I deployments under 1-megawatt hour but we really see the emerging opportunity for us, particularly on the back of the announcement around our ability to lean into that kind of medium to larger C&I deployments and we want to be positioned for even larger scale than that. We have huge ambitions for RedFlow, and we believe our chemistry and our solution is really well suited to even larger scale, and so we're leading to some of those dialogues and opportunities in the U.S. and also in Australia. We're a leader in what we are doing. I think this is a slide that we used before, but this is still very important. Now we have the highest energy density. We have the most active operational experience. We have a raw materials cost. We think is highly beneficial for us. And we have a lot of experience and visibility and deployment that we think puts us in a really unique position around the long duration energy storage space. And as we talked about before, we've been focused on developing a number of industry partnerships that's going to allow us to execute, provide valuable input in terms of our further product development, but also accelerate our channel to market and enable us to kind of close some of those deals and execute on those some deals really well. And so in terms of our platform, critically, we have in Thailand, and we're going to be scaling it up to around 40-plus megawatt hours by the end of Q4 of this calendar year to support the CEC project and then we've got active plans are going to scale beyond that. And at the same time, we're leaning into the opportunities to deliver at scale beyond then. And it's interesting to see that customers who are interested in doing projects with us, the teams [indiscernible] they're also very interested in what we can do and what we can deliver for them in the hundreds of megawatt hours or gigawatt hours kind of 2025 and beyond. So it's important for us to not only be ready for that opportunity, but also lean into things like the IRA, what's happening in Australia and how we can leverage some of those local centers, whether it's from the DOE or probably Australian government is going to allow us to scale up to that level with the maximum amount of support possible. And so our focus, C&I market, U.S. and Australian market and energy-focused applications, we want to execute on the projects and particularly the CEC project we've talked about, we want to use that momentum to convert that pipeline and we want to enhance our leadership position around the LDES market and drive further success and position for the next stage of our inflection point of growth that we think is very much in front of us and we're able to capitalize on it. So in terms of the pathway to commercial success, we're going to be delivering on our growth strategy. Mark and the rest of the team are really focused on delivering that kind of order book, creating new opportunities and executing against those. We're going to be focused on scaling up Thailand and also delivering operational excellence. But we need to be just lean around our cash management and we're going to be leaning into diversified sources of capital, providing a really strong framework about managing that active element of commercial growth and being very prudent about where we allocate our capital. And at the same time, driving the economies of scale into our business driving our current leadership and extending our leadership into the LDES space, it's amazing how much media coverage I think we got from the 20-megawatt hour project both in U.S. and Australia and even globally but also making sure that we can extend to capitalize on that excitement that we got. But at the same time, fundamental to us is driving shareholder returns. And we think that the 20-megawatt project that we announced is a very important stage in that process and one that shareholders have been waiting for some time, but one, I think we're absolutely ready to execute and capitalize on. So I hand over to Trudy just to summarize very quickly the entitlement offer that we have. Over to you, Trudy.

Thank you, Tim. On Thursday, the 8th of June, RedFlow announced pro-rata non-renounceable entitlement offer for us to raise up to $18.9 million. This entitlement offer is a 1 new share for every 2 shares on issue and it's at $0.21 per new share. This is a 9% discount to the last trade price on Monday 5 June, 14% discount [indiscernible] and 16% discount to buy [indiscernible] is open to our shareholders in Australia, New Zealand, Hong Kong, Singapore and the United Kingdom. And eligible shareholders are able to apply for additional shares but we can't guarantee that you will get them depending on how the take-up goes, but it's not open to buy if you want. The $18.9 million is going to be focused on capital for our ramp-up supporting our cost down and our capital requirements in our business development and also our ongoing R&D. Just on timetable in relation to the entitlement offer, we announced as I said on 8 June. Today is our despatch day. So the offer opens and people that have email communications will get an email today from Boardroom providing all the details of how they can take up the offer. The people that are on mail communications will actually get a mail sent out today, so that might take up to 3 or 4 days to get to you. The offer is open for 3 weeks. It closes on the Friday the 7th of July, and we'll then make announcements after that, Wednesday, 12th of July, we will announce how the result is and trading on the new shares will commence on Friday, 14th of July. Thank you, Tim.

Thanks very much, Trudy. Ronn, I think that's really the summary of what we were wanting to go through today. Look, we think that there's a huge market opportunity out there. We think we achieved a step change and that's been many years in the development, and we're hugely excited about the future. So perhaps I can hand back to you and help to answer any questions that you might have come through?

Thanks, Tim. And just to remind everybody in this Q&A session of today's webinar, please type your questions in the Q&A box. And please also identify yourself that would mean anonymous. We won't be asking questions from anonymous. Maybe we can start with the pipeline, Tim. There's been a few questions that have come in around the pipeline that you talked through with the 4 different stages -- sorry, we've got a lot of questions that have come in. Can you talk about -- can you provide more information on the progress of the pipeline, specifically the U.S. financial institution?

Yes, sure. So why don't we jump back to that slide, that's just going to help everyone in terms of anchoring the discussion, if you could just bear with me. Look, firstly, I suppose, as Mark commented about the slide and the opportunity, look, this is one that we've been diligently working on. And probably we're quite conservative in terms of how we're framing the opportunity sit here, potentially compared to other energy storage markets that really sort of pump up the ties around that a little bit. Now when we're starting to get to kind of active customer engagement and moving to close, this is when we have a very significant level of customer engagements, technical and commercial that are happening. It means that we provided contractual pricing. And usually, we're starting to frame up implementation time table that we've defined. That may include an MOU, a letter of intent, et cetera. And sometimes in terms of one opportunity that we kind of say is active customer engagement, we know that we want two for a multi-megawatt hour opportunity that is what we have been working on. So we're quite conservative in terms of how we're framing that. The typical thing sometimes is to define exact time table, where some of those deals are closing. And I suppose that's a good segue into the opportunity in a specific question about U.S. financial services company on the top left there. As probably your shareholders will know this is an opportunity that we've been highlighting and been working on for quite some time. That opportunity, I think, is still there. It's still very active and involved. And actually I met with the stakeholder from that earlier on this week to kind of talk about the opportunity, both that is involving very active internal business plan and optimization-based discussions and also us working with potential partners, all their customers to frame up, particularly around the civil side [indiscernible] those kind of branch opportunities. Mark, I don't know if you want to comment anymore?

Right. I mean it's more of a question with this particular customer around optimizing the sites and the kind of deployment schedule around the projects than it is around the technology selection. We've been a preferred technology provider for them for quite some time now, and that really hasn't changed at all. It's mostly that the customer themselves working through with internal stakeholders, targeting exactly the right sites to deploy given that there's this diverse portfolio sites that they're working with that have different return profiles for putting in place solar storage and other things on their various campuses.

Keep watching this space, but we remain optimistic and excited about the opportunity.

Another question on the pipeline. Are you able to give a sense of expectation levels. So if you go back to that previous slide? Are you able to give a sense of expectation levels. So for example, where you say moving to close, do you expect 50% of them will go ahead? This is a question from one of our investors.

The movement to close includes the CEC USD 12 million opportunity. I think what we kind of trying to say is that those opportunities that are moving to close, we are highly confident about. I think it would be fair to say. For some of those, we are at that point where we're a finalist. And the key thing sometimes to determine is the specific timing of when we think those opportunities are going to close, but we're very excited about the ones because they are taking up a significant amount of commercial changes on.

And I would say, in general, for projects that we have in this moving close category, we are the choice technology. It's more a question of finalizing the deal or the final go/no-go decision with the customer than it is where the company that they would go with, provides the lead that you end up going with project. When you're in active engagement, usually, we've been down selected and we're one of maybe a couple of finalists for the project. And so those ones we have a high degree of confidence, but not necessarily to the point where we can say, we really think this is going to go forward, it's more a question of when as opposed to if whereas the moving close ones. I think in general we feel like it's more a question of when as opposed to if. We have a fairly high degree of confidence around those projects.

I think, for example, Ronn, we talked about the 20-megawatt hour project with the [indiscernible] of previous pipeline. So we're being very transparent about where those opportunities are and highlighting, and I think we previously highlighted [indiscernible] is other things in our pipeline that have kind of subsequently closed. So look, we feel that this is a good transparent and accurate reflection about where we are in terms of our pipeline. And as I said before, we're pretty excited about the opportunity to close some of these deals that are in our pipeline at the moment, but also benefits that the validation of the 20-megawatt hour project provides in terms of accelerating some of those to get a firm commitment from the end customer.

We've had a number of questions around market competitive positioning and how our technology compares to others. So I'm going to kind of focus on that for the next couple of questions. And by the way, every question we're answering there's another 5 coming on while you're answering it. You have to, I think, answer in a bit more quickly or we're going [indiscernible] so I apologize. We won't have enough time to ask everybody's but I'll try and cover the key topics and blend questions where I can. So on the battery chemistry, how does RedFlow's chemistry compare in terms of cost with others such as sodium and lithium batteries.

Yes, sure. So our core chemistry has one of the lowest cost profiles of any chemistry within the battery space. Lithium actually because it's at such high scale and so high volume already, it's already pushed down to very close to the cost of its core raw materials whereas we have a significant amount of cost savings that will be incurred as we scale up manufacturing because our core cost profile is very low, a lot of where we get cost savings is, out of kind of volume agreements with suppliers, scale up in automation helps us reduce labor costs, factory -- overall manufacturing costs and then optimization around some of the supply chain and components that we're using that the R&D that we have ongoing is core to our cost down. So those things help us drive our costs. We believe in the long run that we're going to have a cost profile that is very, very competitive with lithium and we're very optimistic that we're going to be beating lithium at some point in the not-too-distant future.

I think just to add to that, the workshop we had with IPP earlier on this week was a really deep dive session in terms of, firstly, our operation profile, but also commercially. This is a company that buys gigawatts of lithium in terms of for its own use. We supply them and our views about where we can get the cost of the battery to both in terms of the capital cost, but also the levelized cost of storage and I am very excited. So this is a reflection of a company that is deeply familiar with lithium taking a look at our technology and looking at the product development roadmap that we can, as Mark said about getting our cost down to where we think it can has the potential to be. And we are very excited by the conversation. And so that's a really strong validation point for us and that as we scale this business, our ability to drive down cost was also driving margin into our business, we think is very exciting.

One of the great things about our own technology is because we have such a long implementation track record, we come across as much, much more credible and we're showing cost down forecasts and our ability to meet the price targets that they need to be at just because we know our bill of materials so well. We know where we can get to and where that really nobody else in the long duration energy storage space can with the same degree of certainty.

We've had a number of questions and just staying on this competitive positioning, had a number of questions that have come in around whether general or specific around why are RedFlow batteries not being used short- to long-term storage in Australia by the energy retailers and other governments, projects and so on. Could you perhaps shed some light on that?

Well, I think some of it is a question of maturity, Ronn, I think. Lithium battery is a very well known. People are very familiar with them. And it's really only -- I think over the last kind of 12 to 18 months that kind of long duration is starting to feature. And I think there's also a number of factors that's also driving some of the conversations that might not have been there potentially 2 years ago. Why is just the cost and volatility and availability of lithium and the kind of the huge sucking sound that the lithium batteries see in terms of EVs and the take-up of EVs and a very strong strategic decision to create diversification beyond lithium for that longer storage duration. So I think that's accelerating. The second aspect is just market education and confidence. And for a lot of these large utilities, they are operating in the tens of megawatt hours, hundreds of megawatt hours, gigawatt hour type size and scale. And there was always a question about RedFlow, having us pull back to the size that we are at, do we have the ability to go and implement projects of that size and scale? I think we're proved with the first 2-megawatt hour project with Anaergia that's now we have been successfully operating for 12 months, but big thumps up from Anaergia and all also California Energy Commission and also the announcement of the 20-megawatt hour project that's been funded by the California Energy Commission as part of this LDES program, really provides a strong validation point back to Australia and some of the conversations that we're having. But if you start to think about the MOU that we signed with EQ, a lot of other conversations that we're having with utilities, both in Queensland and in other states. Those conversations are happening. I think they're probably just happening a little bit slower than what's happening here in California, but I am deeply confident and optimistic that we have a very strong macro opportunity for us in Australia.

It will be great to see those very positive words of Minister [ Cusack ] actually translating to our Australian government projects and large projects here locally, hopefully very soon.

We would agree. Look, if you look to the Queensland budget, that's about $19 billion that are set aside for the energy transition in Queensland. As part of that EQ has publicly allocated I think it's about $150 million for battery programs. And so as it reflected in MOU that we signed with EQ in February, we believe that we've done a lot of that hard work to educate people like EQ about the power of batteries. It just takes a while for those utilities to start to move towards that. But having said that, we're very excited about the opportunity that's in front of us. And we look forward to getting first support by Queensland and federal government in terms of our ability to use Australia developed technology in Australia.

Just keeping on projects and so on, question is coming on topic. What do you see are the key differences with the opportunities in the U.S. now and the other opportunities that RedFlow has targeted in the past. So things like residential ZCell batteries, China telecoms industry. So can you give -- shed some light on that, please?

I want to give my perspective, I'm sure Mark will have his perspective as well, as he has been with the company for a couple of years. I think for us, our natural pipeline where heritage was, was in the smaller systems. It was in the residential space and also in the kind of smaller telco space. But as we've linked into the opportunity, we've got a little bit of I suppose operational experience behind ourselves. We started to realize that the features that we have and what we can provide are actually really highly valued by the commercial industrial sector. These are customers that rely on a cost-effective, reliable energy, who are relying on critical infrastructure for their operations. And so rather than sort of potentially building 1Gs and 2Gs of smaller systems whether it's in the smaller kind of telco space or residential. Actually, we see the scale opportunity for us is in that C&I space because we also feel, it's a great market for us, but also allow us to drive scale much more effectively into our business, it's going to drive our cost down to be more competitive and also driving margin at the same time. From a geographical perspective, I think we lead into China a couple of years ago because we did see a great opportunity there. The combination of COVID, but I think the size and scale and opportunity around the U.S. market has significantly overtaken that. And the fact that we're very familiar about doing business in the U.S. compared to other places like China just means that the U.S. and Australia are natural choices for us at this stage. And as we've seen, the pipeline that we've been able to generate over this period, particularly in the C&I space, really reflects the interest that we've had around our technology. Mark, some comments from you.

Yes, absolutely,. So I think historically, our bread and butter has been to deploy projects and particularly in remote and off-grid applications. And those are applications where there really wasn't a lot of alternatives to long-duration energy storage technology. But what we found over the last couple of years is that, that really deep commercial operational experience that we got in building those projects. And honestly, the R&D that went into designing a product that was resilient and have really unique features like the hibernation mode has translated really well into having a product that means it needs a much, much larger market segment within the C&I space that is not necessarily remote. It's customers that actually have very large loads and very significant needs in markets where there's a significant need to do peak shaving for example, amongst the corporate customers that are really trying to do more of their own self-supply. So it's really around, obviously, the scale of opportunity that we're seeing now as well as the use case that we're seeing has rapidly shifted as long-duration storage technologies have become much more central to the conversation for the grid -- grid large rather than just for these remote and off-grid applications.