The new QINOUS managing director talks about sales targets, electricity costs and the future fund for financing customer projects.
Reinhard, how did QINOUS perform in 2018?
Reinhard Edelmann: We almost quadrupled our sales compared to last year. This is a great achievement, especially since the Qinous staff has hardly grown since 2017.
What are Qinous’ sales targets for the future?
Reinhard: We are aiming for an annual revenue increase of a high double-figure percentage – at least. The market potential is truly gigantic. With the Rolls-Royce Group we now have a strategic partner who, for example, delivers first-class quality in container production and supports us in sales. This partnership allows us to concentrate on our core competencies: We design and develop systems, we write and optimize the necessary software – and finally we bring the finished products to market.
Rolls-Royce’s entry into Qinous at the end of September drew a lot of attention among experts. You have been through many financing rounds in your professional life, mostly sitting on the other side of the table, often as a venture capitalist. What was special about this financing round?
Reinhard: We didn’t want a purely return-oriented venture capitalist, but a strategic partner who would help us grow. Money alone would not have been enough. We therefore talked with several industrial companies right from the start – and in the end found an ideal partner with Rolls-Royce Power Systems and its German subsidiary mtu in Friedrichshafen.
How did you personally experience this financing round?
Reinhard: When I came to QINOUS in mid-February 2018 through the arrangement of Investitionsbank Berlin (IBB), the financing round was already in full swing and various investment documents were already available. I was able to build on this and bring negotiations to a conclusion. My predecessor as CFO had left the company in December 2017, and so Qinous founder and managing director Steffen Heinrich had to temporarily shoulder the finance part as well, which was an enormous burden in terms of time and strength.
Now the financing of QINOUS is secured. But there are certainly still pitfalls lurking n day-to-day business, aren’t there?
Reinhard: Battery manufacturers are a problem. In the lithium-ion segment there are only a handful of producers worldwide. This oligopoly can dictate prices and select customers. Size plays a decisive role here. The larger the order volume, the better the negotiating position. That is why we want to form purchasing cooperatives with other companies in the future. In the past, we were nevertheless able to purchase the necessary quantities of battery cells, thanks to Steffen´s good connection to LG and Samsung, that stems from his Younicos days.
Speaking of which: QINOUS founders Steffen Heinrich and Busso von Bismarck had both worked together for several years at Berlin-based storage specialist Younicos. How important was that for QINOUS?
Reinhard: Both founders certainly acquired profound market knowledge during their work at storage pioneer Younicos. During this time, their common idea matured to offer storage capacity between 30 kilowatts and several megawatts in the commercial industry segment. Both presented their idea to the Younicos management, but the latter waved away, and QINOUS was finally founded in 2013…
Most industrial microgrids worldwide still run on diesel engines. So why should hotel owners or hospital managers rely on electricity storage and renewables?
Reinhard: Eventually this the result of commercial logic. A generator can produce about three kilowatt hours of electricity with one litre of diesel. At current prices of around 60 euro cents per litre, one kilowatt hour of diesel electricity costs 20 cents. On top of this to this you have maintenance, depreciation and other costs. To give an example: In the Chilean Atacama Desert, where we have already equipped a luxury hotel with a QINOUS storage system, solar power is now being produced at low cost. Added to this are battery costs of eight to ten cents. All in all, a PV storage hybrid is much cheaper than a diesel generator. Nevertheless, many managers are reluctant to convert their electricity production to renewables.
Reinhard: The price of a photovoltaic or a wind power plant is much higher than that of a diesel generator. After installation however, renewable enrgy plants run almost without any operating costs. The switch from operating costs to one-off investment costs is therefore extremely sensible. But it is nevertheless a huge hurdle for many of our potential customers, because they simply lack the liquidity for this investment.
Don’t they get any money from banks? Aren´t such storage projects bound to attract investors?
Reinhard: In the storage sector between 30 kilowatts and several megawatts, project financing by institutional investors such as banks and insurance companies is generally not available. The money needed for schools, hospitals and hotels are simply too small. Our customers have to raise between 400,000 euros and 1.5 million euros. The lower limit for institutional investors is between five and twenty million euros. This is mainly due to the high due diligence costs they have to pay for an investment audit.
Can this problem be solved?
Reinhard: We plan to help our customers to purchase our products by arranging liquidity for them. We are aiming for a kind of leasing model. With a PV storage hybrid system, a customer can save tens of thousands of euros in electricity cost every year. Now imagine these savings being regularly transferred to QINOUS. Then after a certain period, typically between six and eight years, the customer has completely paid off the system; it then belongs to him. In the world of finance such a solution is called “BOOT”.
What does BOOT mean?
Reinhard: The abbreviation stands for “Build-Own-Operate-Transfer”. We will try to raise capital for a fund that owns all of our clients’ investments. Clients pay interest on their investments and these instalments flow into the fund.
What role does QINOUS play in this fund?
Reinhard: We will be responsible as partners for all technical risks and ensure that any technical problem is solved quickly. We are currently trying to attract fund partners who can cover political risks. Our aim is to offer investors the greatest possible security for their deposits.
Who will manage the fund?
Reinhard: An experienced fund manager who makes his decisions independently. He must decide for himself in which of our customers’ projects he does want to invest – and in which he does not.
Why don’t you manage this fund yourself?
Reinhard: On the one hand, as CFO of QINOUS, I simply don’t have the time. On the other hand, we avoid possible conflicts of interest from an investors’ point of view. Otherwise it would be conceivable that we equip customers who are not so strong with investment money just to increase our turnover – while all financial risks are passed on to the fund investors. This will not happen because the fund manager, who is independent, would not finance such customers.
Do you expect strong demand for shares of the QINOUS fund?
Reinhard: Absolutely. Institutional investors often invest between five and ten percent of their assets in alternative investments, which include solar and wind farms as well as QINOUS storage projects. Currently we are benefiting from the general situation on the financial markets: Investors are in real trouble because government bonds hardly yield any interest. At the same time, state-subsidized energy projects in Germany and other industrialized countries are being phased out. In the future, only energy projects with a clear business model will be marketable – like ours.
What does this mean in concrete terms?
Reinhard: The QINOUS fund will offer attractive conditions. Depending on the project, returns on equity of between 15 and 25 percent are possible.
The interview was conducted by Joachim Müller-Soares.