From the CEO

2018 was an exciting and eventful year, but it was perhaps above all a year of maturity. Ten years have passed since I founded Ripasso Energy with the express ambition of “developing and commercialising the incomparable ability of Stirling technology to convert thermal energy to electricity.” During the first nine years, the company’s focus was on just that, development. On developing and streamlining the Stirling engine, and on adapting it for series production. On developing a solar energy solution. On developing a hybridisation function so that the same Stirling engine can be run on both solar energy and gas combustion, and on developing the engine and the PWR BLOK to be able to convert residual gases.

2018 thus differs considerably from previous years. This year, our focus has been more on developing our own organisation, focusing on sales and starting up production of the PWR BLOK 400-F. The best way to sum it up is probably to say that in 2018 Ripasso Energy took the first step into the next phase of the company’s development. From the development phase to the production and sales phase. Of course, this does not mean that we have put down our development work – on the contrary. What it means instead is that we have come one step closer to our vision of “establish(ing) the Stirling engine as the best alternative for local, sustainable electricity generation.”

STRENGTHENED ORGANISATION

In order to cater to the growth we see ahead, we needed to strengthen our own organisation. This was a priority in 2018. At the beginning of the year, Heije Westberg was hired as Ripasso Energy’s Chief Technology Officer (CTO). This gave the company a CTO with a very strong management background, numerous years of experience developing and building technical organisations, solid experience in the energy industry, and significant knowledge and expertise in the area of combustion technology. Since 2018 Heije has built up a Technology and Product Development organisation at Ripasso Energy with a large number of technical experts and engineers drawn from the energy industry and the automotive industry in particular.

In 2018 we also recruited a Chief Financial Officer (CFO) – Jens Bruno – with nearly 20 years of experience in financial management and the financial markets, and a Chief Communication Officer (CCO) – Sven Ljungberg – who has worked with communication in a
number of capacities for almost 30 years. Along with myself, Heije Westberg and our Chief Operating Officer (COO) Fredrik Abrahamsson, they are part of the Ripasso Energy management team.

We have also opened a dedicated sales and service office in Johannesburg, South Africa that is working on the installation at Afarak Mogale, as well as local sales and marketing. In 2018, the number of employees at Ripasso Energy increased from 9 to 28, and today the company has an organisation in place in Sweden and South Africa that is equipped for expansion.

SOUTH AFRICAN BREAKTHROUGH FOR THE PWR BLOK 400-F

At the very end of 2017 – just three months after the launch of the PWR BLOK – we signed our first order with the South African ferrochrome producer Afarak Mogale for the sale of seven PWR BLOK units for delivery in 2019. The deal garnered a lot of attention in the South African metallurgical sector, and we were contacted by one of South Africa’s largest ferrochrome producers as early as the spring of 2018 – Glencore Operations South Africa. During the summer of 2018, we were asked to submit
detailed proposals for a PWR BLOK installation at two of their facilities. In October 2018 we inked a letter of intent with Glencore for the installation of at least 44 and no more than 136 PWR BLOK units in South Africa. The value of such a deal runs to between SEK 240 and 740 million (EUR 22–68 million) and reduces carbon dioxide emissions by between 154,000 and 476,000 tonnes/year.

The extent of the interest shown in the PWR BLOK in South Africa also prompted us to decide, in August 2018, to postpone the delivery of three hybridising Stirling engines to a solar facility in Italy. This decision was taken in light of the fact that just this initial market for the PWR BLOK would be capable of generating sales of SEK 2.5 billion in the coming years. If we succeed, we will also bring about an annual reduction of South African CO2 emissions of 1,750,000 tonnes. That is three times as much as the emissions caused by Swedish domestic aviation.

The buzz around the PWR BLOK in South Africa has also attracted interest from other players in the country’s large metallurgical sector. There have also been expressions of interest in utilising the technology for local projects in South Africa where the PWR BLOK could be used for distributed electricity supply at a lower cost than purchasing from the national electric utility.

PWR BLOK PRODUCTION START

In the summer of 2018, work intensified ahead of the delivery to Afarak Mogale. In early September, we had a prototype PWR BLOK 400-F in place with the possibility of conducting real-life tests. Because the PWR BLOK is a brand new and commercially untested product, we wanted, at the earliest possible stage, to gain knowledge, experience and data that laboratory tests cannot provide, giving us the opportunity to adapt the functionality of the PWR BLOK before start of production. Thanks to these tests, we were able to gain early insights into the fact that the South African requirement profile related to safety routines and functions was more extensive than we had estimated. We also gained other valuable insights as a result of which we introduced some new functionality in the PWR BLOK 400-F. These adjustments made the container portion of the PWR BLOK more expensive than forecast, and certain adjustments had to be made to the delivery plan. During the autumn, we also commenced production of the PWR BLOK for Afarak, shipping the first unit to South Africa for installation in Q1 2019 at year-end.

Because of the higher costs for the container portion and the fact that we chose to finance the deal with Afarak Mogale ourselves and to be paid over a period of 3.5 years, liquidity in the company has diminished faster than planned. On the positive side, the Stirling engines themselves have become 10% cheaper to manufacture than our cost target. Now that we have been able able to review how future generations of the PWR BLOK 400-F will be manufactured, we have confirmed that a gross margin of 30-40 percent can be expected.

In order to secure the company’s future working capital needs, at the end of 2018 the Board of Directors resolved to convene an Extraordinary General Assembly with a proposal for the issue of convertible bonds in the amount of just under SEK 80 million with preferential rights for existing shareholders. The proposal was adopted at the Extraordinary General Assembly of 16 January 2019, and the issue in February 2019 was oversubscribed.

A CONSTRUCTIVE YEAR THAT BODES WELL

Successful and instructive – that is a good summary of 2018 at Ripasso Energy. We have further advanced our positions and can now report significant market interest in South Africa. We strengthened our organisation in 2018 and are well-equipped to cater to this interest. We have gained valuable knowledge about the PWR BLOK in real-life ferrochrome production operation in South Africa that will greatly benefit us, and have started up our own production of the PWR BLOK 400-F.

In Q2 2019, the PWR BLOK 400-F will be proven commercially in operation at Afarak Mogale. When this happens, we will have shown that our product can generate electricity at a lower cost than any other type of energy, while at the same time significantly reducing carbon dioxide emissions. To close, I would like to thank all of our investors, employees and partners for their commitment to developing our business. We are convinced that we will make Swedish industrial history and we made further progress towards our goal in 2018.

Gunnar Larsson
CEO

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