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As federal funds dry up, Beacon Power still has reason for hope

By Erin Ailworth
Globe Staff / November 27, 2011
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For the last few years, steady financial support from the federal government helped bolster Beacon Power Corp. as it advanced energy storage technology that could make wind turbines and solar panels a much larger component of the nation’s energy mix. Now, the government is pulling back from Beacon Power, forcing the Tyngsborough company to make it on its own - without one of its largest assets.

Beacon, which filed for bankruptcy protection last month, recently agreed to sell a first-of-its-kind energy storage plant in Stephentown, N.Y., to quickly pay off a $39.1 million loan balance it owes the US Department of Energy. The sale will leave Beacon Power with its technology and manufacturing capabilities, analysts said, but also with a question that many alternative energy firms may face as deep federal budget cuts loom as early as next year.

Can the company attract enough private capital to stay afloat?

Beacon Power chief executive Bill Capp said he remains optimistic about his firm’s ability to attract new investment and emerge from bankruptcy as a reorganized company. The reason: Many industry specialists view its technology as integral to allowing the power grid to best use energy generated by renewable sources.

“We’re on our fourth generation device,’’ Capp said. “If people are thinking about buying the plant, they’ll be thinking about a relationship with Beacon.’’

Beacon has been compared to Solyndra, the California solar company that filed for bankrupty after receiving more than $500 million in loans guaranteed by the federal government and is now the subject of federal investigations. Analysts say the comparison is unfair because by the time it got its loan guarantee, Solyndra’s technology was no longer competitive, while Beacon’s flywheels are still promising.

Beacon’s flywheel technnology uses giant, heavy cylinders spinning on bearings, which create a magnetic field and a near-frictionless environment that allows large amounts of energy to be stored.

“It’s a good technology,’’ said Walter Nasdeo, research director at Ardour Capital Investments in New York. “These guys could come along and help stabilize the grid.’’

Even so, Beacon has had a star-crossed existence and still faces challenges to survive. Founded in 1997, the company went public 11 years ago, just as the telecommunications industry on which it had pinned its business hopes crashed. Beacon had planned to use its flywheel storage system to bridge the gap between a power outage and when back-up generators at a telecommunications relay station could kick on.

Dogged by weak stock prices, Beacon Power cut jobs. It took several years before Beacon reworked its technology to enable it to store and release large amounts of energy moving through regional power grids - a key to saving power generated by intermittent energy resources, such as wind turbines and solar panels, for later use. Then, the Great Recession hit, drying up capital the company needed to finance the commercialization of its technology.

“It’s a casualty of the financial crisis,’’ said Theodore O’Neill of Wunderlich Securities, a New York brokerage. “Just when they perfected the technology at the end of 2008, the financial markets shut down.’’

Steady support from the Department of Energy helped the company move ahead. In 2009, the energy department awarded the company a $24 million stimulus grant. Last year, Beacon Power also signed a $2.8 million contract to develop components for an advanced flywheel for the Energy Department, and closed a $43 million loan guarantee to build its Stephentown plant.

That loan guarantee program, said energy department spokesman Damien LaVera, was created to encourage private sector lending to “innovative, first of their kind projects that have the potential to be game changers, but have trouble getting debt financing in this tough economic climate.’’

LaVera said program officials scrutinized Beacon’s application for “months and months,’’ conducting a technical review and analysis of the company’s technology and the potential market for its product. Energy officials also reviewed Beacon’s finances, before approving the loan guarantee. Approximately $39 million was eventually disbursed, and the plant was built.

Still, Beacon had trouble finding other investors to finance the company as it further developed its technology, and couldn’t keep up with debt payments. Now that the firm is in bankruptcy, LaVera said, the energy department’s priority is to recoup that money.

“We have one job, which is to maximize the amount of money the taxpayers can get back,’’ LaVera said.

Steve Poftak, research director at the Pioneer Institute, a Boston think tank, said the federal government probably should not have risked taxpayer money on Beacon and other alternative energy firms in the first place. Picking winning technologies and companies is best left to the private sector, he said.

In addition to Solyndra and Beacon Power, he also cited Evergreen Solar, the bankrupt Marlborough solar panel manufacturer that received millions in incentives and other aid from Massachusetts.

“One of the big challenges is simply the government’s capacity to make good choices with the money’’ it invests in companies, Poftak said. “Judging from the current run, the government doesn’t seem to be very good at it.’’

Despite the challenges of dwindling government support and attracting investment in an uncertain economic environment, Capp, the Beacon Power chief executive, said he and the company are staying focused on positives. For instance, workers agreed to a 20 percent pay cut and remain on the job, avoiding layoffs.

The company’s technology is still considered cutting edge, and the company’s bankruptcy and the scrutiny around the Energy Department’s loan program have raised the company’s profile among some investors. The combination might help the company raise the capital it needs to survive.

“We’re being introduced to new people who tend to focus on distressed [companies] or special circumstances,’’ Capp said. “We hope to bring in new capital to reorganize.’’

Erin Ailworth can be reached at eailworth@globe.com. Follow her on Twitter @ailworth.

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