To the Invinity Energy Systems plc investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q&A tab situated on the right-hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I would like to submit the following poll, and I would like to hand you over to Jonathan Marren, CEO. Good afternoon, sir.
Thank you very much. Indeed, good afternoon, everybody. I am also joined, of course, by my two colleagues, Matt Harper and Adam Howard, we are all here in London. Delighted to be talking to you together. We have about an hour session here, aim is to go through the presentation in about half an hour and leave enough time for some Q&A. We have already had some really interesting questions come through, so want to leave as much time as possible to go through those and answer all of your questions. Recognizing that on this call, we have a number of people who have been with us for many, many years, but also some who are new to the story. So there are a few slides to go through just introducing the business and where we are up to, and then we will get into the interim results themselves.
But one thing I would like to do for whether you are new to the story or whether you have been here for some time, is just to talk about how we are describing the business at the moment. The reason being is that we thought long and carefully about how we tell people who we are, and how we differentiate ourselves from the competition. That is not just to investors, but that is also to the commercial space. What is reassuring is, I think as you hopefully hear the message now, we are getting very good traction as we talk about this, particularly with the commercial customers. The reason being is that we are able to say what we offer is a flexible energy storage solution. The reason flexibility is important is that markets are changing rapidly.
By that, with electrification, the requirements from the grid are changing rapidly. There is a real risk that if you do buy an asset that does not have flexibility, that it could quite quickly become a stranded asset. That obviously is quite a big danger. There are examples of that across markets. A particular one is in the U.K. where five or six years ago, a lot of half an hour, and one-hour batteries were put onto the grid chasing a particular revenue stream. Quite quickly when that became saturated, they became stranded. We have a flexible battery solution. It is flexible because there is no restrictions on cycles, and it will last for 30 years. Particularly as you start to talk about things such as the power requirements for AI data centers, that is a really difficult and changing market.
When we offer a solution that really can change with the requirement from such an AI data center, that is really attractive. When we talk to industrial businesses who are designing these solutions in, that is really, really exciting. We do that across the globe, across all markets, but we do do it on a localized basis. That is really quite attractive as well, because you are seeing across international markets a drive for localization, which is being valued. That is particularly true across the U.S., it is true across Europe, it is true across Japan and other markets. We will come to the U.K. in a little bit, and there is obviously some good questions on cap and floor, and I will comment on that and we will be covering that in more detail. If you look about our technology as well, we really are a proven mechanical technology.
Mechanical, I say that because if you look at the assets that are typically put onto the grid, over the last 100, 150 years, those are all mechanical assets. They are a gas asset, they are a coal-fired power station, they are a nuclear asset. What they are not necessarily is something that was really designed to go in a mobile phone or an EV, and then has been sort of pushed forward and put onto the grid. Therefore, just like a car, if something goes wrong with that car, you can get in there and you can change that component part. You can change the wheels, you can change the oil. With us, it might be a valve that is not working, it might be a pump or a pipe. That is quite easy to go in and resolve.
If you have something such as a mobile phone here, typically when that goes wrong, you are throwing the entire cell away. Typically that can come with some quite complicated ramifications, when you look to replace that across a wider field. Therefore we are more akin to perhaps a pumped hydro in a box. Pumped hydro separates your power and your energy storage in terms of your water that is used with gravity and pushed downhill through a turbine that generates the power. For us, we do that via chemical reaction, but ultimately it is the same. For a user looking at this, it is not a new technology at all. Flow batteries were first patented in the 1880s. NASA did some good work accelerating that forward in the 1970s, and we have been working on commercializing this since the merger in 2020.
When you talk to a commercial business, this is not a new step forward per se. This is technology that has been established. It just has not had the investment to date to accelerate it as fast as other technologies. When we talk through what we are doing in some of the other areas, they get much more comfortable in that. Of course, we offer that in two separate areas. We offer that in a containerized solution, Endurium, but also we are able to talk about the FlexBase solution at the bottom. What you will note is I have not talked about LDES, and I have not talked about non-lithium, and that is deliberate, because actually, that flexibility means we can offer different types of duration storage, not just LDES that forms part of it. Of course, we are very good at doing that, and we are competitive in that area.
That FlexBase project is a 2.5-hour system. That is not long duration, but actually that is a use case that works very well for us. In terms of non-lithium, I have never liked saying we are a non-lithium business. You do not go and buy or you do not try and sell someone an SUV by telling them you are not a performance sports car. Tell them exactly what you are. I think that is really important. That flexible energy storage really resonates. When I talk to customers, we move on and talk about the track record, because actually, having those 2,000 batteries installed in the field and working for our customers is a real differentiator.
We very recently announced that we had 10 GWh of power dispatched from our batteries that we were very proud of, and you will see in the interims yesterday, that is notched on to 11 already and growing rapidly. That is important because all of the projects we talk to now, they typically send in technical consultants to review where we are. They need the track record, they need the data. These assets are looking to go in the field for 30-years plus. They have to work, and they have to work in a robust way. The other point is that demonstrable cost reduction. Because ultimately we can have characteristics of a battery that are attractive, but if it is not at the right cost, at some point you will not get through the financial gateways.
The work we have been doing to bring costs down, is really opening up that market. When finally we talk about where we are indicatively from a price point, we are having some really interesting and accelerated conversations that we have not had before. On this slide, we have 180 or so employees. To some people that sounds quite a lot. To others, not very many at all. A lot of those are working on that cost-down approach. It is a product that ultimately is steel, it is plastics, it is liquid, and its component parts.
Actually, as you iterate those together, there is about 60 or 70 work streams that the team is working on to take cost out, and we are putting the resource and the investment into that to make sure that we can step ahead of all of our competition, and that really is important. So a reminder of why we win. It really is that unlimited cycling. That is where we focus on. The unlimited cycling, the lack of degradation, the fact it will last for 30 years. Those are characteristics which are really, really valued by customers. We do talk about the fact that there is no thermal runaway risk. That is one of the reasons, but not the only reason why we are involved in the FlexBase project. Increasingly, as you look across the world, that lack of thermal runaway really does make a difference from a permitting perspective.
Anecdotally, you will see the Moss Landing lithium battery fire that closed the highway in California a number of years ago is back on fire over the weekend. These can be really unstable assets. For us to be able to talk about the fact there is no thermal runaway risk makes a real difference from that planning perspective. In terms of manufacturing, what we are able to do is localize that so that we can take advantage of those local programs as well. Domestic content is really important, and I think there is a question coming up on that as to whether we can take advantage of that, particularly in the U.S., and I will not prejudge the answer to that matter. We will come onto that in a moment. What is really, really important to me is how our customers think about us.
11 GWh is ultimately the result that you cannot hide away from, and that will be a growing number. What is really important to me is that customer journey from order through to pre-delivery, through to delivery and then commissioning, and then looking after customers afterwards. Dr. Craig Reeder there, who is from Viejas, that is the site just outside of San Diego where there is our battery connected to solar outside a casino, powering that casino. That asset is being worked extremely hard. That was recently commissioned, and Indian Energy are really relying on our battery to be providing the work at that site. Look at the testimonial on the site. We have no stronger fan of the business than Indian Energy, and that is really, really positive.
One of the reasons why the funder of that project, the California Energy Commission, the CEC, is again, looking to push projects our way. You saw that from the announcement quite recently of Pacific Steel Group. They were a funder of that, and as you can see, the results of the track record on that battery have been really positive towards us. We push the team very hard. We do go the extra mile to look after our customers. It is a small industry and they do talk, and having that word-of-mouth referral is really, really important to us. From an international perspective, it is interesting how this slide has developed over the last couple of years. We do have a version of this that shows where we were two years ago, and this looked like quite an empty map two years ago.
Now you can see we have a significant number of projects in the U.S., particularly on the West Coast. Again, reference to the California Energy Commission that has supported to us. These are projects that are either working in the field at the moment or where we have signed contracts and are delivering. That sits across both the East and West Coast in the U.S., but also across Europe as well. You will see we have the FlexBase project, which we will talk about in a few moments' time. The Copwood Energy System, which will be commissioned very soon. At least the connection to the grid has just been finalized. At the moment we are ready to go, we are just waiting for others to do their work. Then of course, on the far right, Spencer Energy.
That's a site that's been in the desert in Australia for a number of years now, and it's probably almost our longest and best performing asset in some really harsh environments. When someone says, "Well, look, how do you operate in the heat?" we can show them the data there, and that's really important. From a global manufacturing base, we continue to support the U.K. through Bathgate and Motherwell. FlexBase project will continue to support those two factories. We'll come onto cap and floor in a moment and how that potentially could change that or otherwise. The U.S., as you've seen from where those projects are, do require U.S. content, and that's one of the reasons why we will have a factory up and running by the end of this year. That will be really important in servicing those markets.
Well spread across, making sure that we use China from a low-cost perspective to deliver the heavy industry inputs. That's the steel container, that's the tanks. Elsewhere we can put the balance of system, we can put the electrolyte and of course stacks manufactured locally. Finally, I briefly mentioned about cost before, and this isn't the first time I've mentioned it. We recently went back and just had a look, actually, about how much cost we took out of that VS3 product during its journey from when we first deployed a system to site, which was really around the Scottish Water days, to the last system that we sent out, which was December 2024. Actually, we took about 60% of the product cost out on that VS3 journey.
Now, remember, that was with some effort on cost down, but not a significant effort on cost down, because a lot of the R&D work was going towards Mistral or now Endurium. That came from developments of supply chain and from scale that went through that. But in a product which really was tough to iterate for cost, because you did have that six batteries within a container and everything that went with that. To be able to do that 60% with quite a hard product to try and take cost out of, you can see how Endurium, which is designed specifically to take cost out of, that we can go much faster and much further. That sharp line there, where you see that 66% cost reduction, we are going to be in that position for all the product we are shipping in early 2027.
It looks like that cost reduction curve levels off, and that's only because of the steepness of that graph. We are still potentially looking at taking out a further 50% from that point through to 2030. The trajectory to get there opens up a very significant number of opportunities. When we talk about those price points, we get a really interesting reaction, because most customers are very unaware that the vanadium flow battery industry is heading in this way. A couple of anecdotes for you, and particularly one with Equans. Equans is our delivery partner on the FlexBase project. We have hired them to do the EPC work, but they were very keen to make sure that what they were getting involved with was robust in terms of the technology and the partner. They actually have some exposure to one of our projects in Europe already.
The head of business development said to me, "Look, we did the due diligence, and the feedback we got back was that yours is the Rolls-Royce of vanadium flow batteries." By that, he meant two things. He meant the quality of the product, and also he meant the price in terms of where we were, i.e., too expensive. That, for me, was fantastic feedback, because he was talking about the quality of where we were with that VS3 product, but also the cost point, which he wasn't aware we'd taken that significant cost out of.
Talking through where we are actually going to, his comment was, "Look, we need to have a much wider and deeper conversation with you." Also, maybe six months before that, someone who was in charge of power solutions for a data center business said about vanadium flow batteries in general, the best storage technology there is, the most expensive. Again, at that point in time, he wasn't wrong. A lot of market commentators will say the same thing. They are not aware of where our price points are heading from the work that particularly Matt are leading. I think when we get there, and we start delivering that product, and people are able to order that in size, I think we will have a very different position commercially than we're heading into at the moment.
A really, really exciting place to be because of that work we're doing on cost and on performance. With that, I will hand over to Adam to talk through our numbers.
Good afternoon. Starting off with the key financial highlights for the first half period. Customer orders that we've signed there are up 3x year-on-year, to just over 30 MWh . Really important in terms of scale and what you'll start to see flowing through some of the financials that we go through later on. Order book as it stands today looking forward is just under 80 MW h in size. Obviously, that's excluding the FlexBase contract and through the process of working through the final design and prototyping for 2028, 2029 deliveries. Gross loss down 60% year-on-year. I'll go through in a bit of detail in a second as to what's driving that. We ended the first half period with GBP 10 million cash, plus GBP 40 million inventory and deliver on those increased orders for the second half. Profit and loss statement.
A little bit more detail here. We increased our project and grant income to GBP 1.7 million, compared to GBP 0.8 million in the first half period last year. Clearly, it is a second half weighted set of numbers, but delivering against signed orders there that we have taken in the first half. Within that, you will see in the commissioning of four projects, it is all delivery and then the final completion of Copwood, our project in the U.K., which will be the largest flow battery project in Europe. What you are seeing is the last 500,000 recognized against that grant income there. In terms of the net loss, we are another GBP 1.5 million reduction year- on- year to GBP 12 million. Really within that, are two factors, is the increased R&D headcount spend that we have announced there to drive our product cost down.
Jonathan has run through where we are against plan on that, and that is a result of that investment. Secondly, we have now completed the joint development agreement with Gamesa. There is less recoveries year on year netted off against that R&D number. There are the two factors there driving the bottom line and supporting our product cost journey. Next slide, please. A bit more detail here on the margins. There are two concepts to explain here. First, the product costs refer to our direct costs, so it is excluding overhead and warranty. Second, this is trailing 12 months. Looking over the last 12 months we have announced for each of those periods. What you are seeing there is a pickup in that gross margin over time, and also delivering on increasing product margins.
Really that is because as we have got more volume going through the factory, we are absorbing more of those factory overheads, and we are seeing that pattern pick up. The other factor is then our first Endurium shipments, so as a composition of our sale moves from VS3 into Endurium. We have really delivered on our last VS3 sale now. We are seeing a pickup in those margins. Those are two key points. The last one just to mention there is we have got a fairly significant reduction in our warranty costs year- on- year, down from GBP 0.9 million to GBP 0.2 million. That is really driven by two things. First, improvement in component performance, and then also reduced product costs, which is feeding through to the lower provision there. They are the key drivers of what is happening on the gross margin line. Next slide, please.
Going into the balance sheet, here are obviously two factors that impact cash from the cash we report on the balance sheet. Second, the inventory, which is unwinding the delivery against those second half orders. As I say, finishing the year there with a cash position of inventory of GBP 40 million, and then the cash addition to that of GBP 10 million, and to get us in a solid cash position to support our ongoing concern. Two other key points within here. We talked about inventory. You are seeing there a capitalization of some of our product costs with the completion of the joint development agreement with Gamesa. We are then capitalizing that, some of that work that is going into Austro. You are seeing that there within on the balance sheet. Next point, please . I will hand across to Matt on the core customer segments.
Great. Thanks so much, and great to be here with you this afternoon. Look, now that we've got cost to the right place, and we're getting increasingly proof from our customers that we're delivering against their expectations, we're sharpening our focus on where exactly our products deliver the greatest value. One of the biggest initiatives that we've gone through over the last three months has been a deep dive, combining work by our internal team with some external consultants to understand unequivocally where we are the best storage solution so that we can focus our commercial efforts in that area. The three questions that we've gone out and asked ourselves and asked our customers and asked the market is what operational problems are our customers working to solve? What financial benefit do they derive from applying storage to those problems?
Where does Invinity's solutions solve those problems better than anything else that's available in the market? The clear answer comes back that there are three segments where we dramatically outperform other solutions. Standalone co-located LDES projects, commercial and industrial sites, especially where there's already cogeneration involved, and in more emerging markets, the need for buffering and bolstering AI infrastructure. We'll go to the next slide. The AI one is particularly exciting to us. In front of meter LDES case and the C&I case, we've been working on those extensively over the last couple of years. AI is new, and one of the things that we had to spend a lot of time understanding is what exactly the load profile looks like for these data centers and how we would fit into those.
I think what we've been learning is that there's kind of these two different sets of AI infrastructure facilities and therefore electrical loads onto the facilities. One is where you've got inference data centers. These are the data centers that are doing relatively repeatable tasks. Things like, people are asking, "What are the football scores from yesterday?" The AI is pulling those together and presenting them in a very understandable, easily understood format. Separate from that are training workloads, and these are the sort of the much more complex questions like, for example, if you were to ask an AI agent to develop a model to predict tomorrow's football scores, which is something that involves learning, that involves iteration, that involves the coordination of every one of the processor units that are built on each one of these individual sites.
Those training sites have a far more stochastic electric load going into them. The graph you see on this slide is showing 15 minutes worth of electricity flow onto one of those sites. You see those electric loads fluctuating from near zero to near 100% over and over. That's a load profile that is extremely difficult to integrate onto the electric grid. It's something that utilities around the world are struggling with to integrate effectively onto their existing systems. But in both cases, because of going back to Jonathan's point around flexibility, because we have the ability to discharge our battery over and over again on limited cycles, without shortening their life, it means that we can address those training workloads very capably. Even going back to those inference workloads, whereas a lot of those sites are being built out with on-site generation, whether that's solar or wind.
On average, you are looking at very high cycle counts to be able to support those loads, most effectively with batteries. That means as you compare our batteries with what a lithium-ion cell would be able to do by comparison, the fact that we have very long lifetime without the kind of augmentation you would see, through a lithium array means that we have some significant advantages. What do those advantages mean in terms of the numbers? This is important. This is a massive opportunity, GBP 45 billion around the world. When we look at the benefit that we have over incumbents, on the inference side, we have about a 15% advantage on the total cost of delivering electricity to these sites. About a 12% advantage on the training side.
In both cases, clear evidence where we are materially better than the incumbents in a market segment that is experiencing massive and sustained growth. Fortunately, we have within our product portfolio, one of the most exciting projects is exactly related to that AI data center development. Many of you have heard us talk extensively over the last few months about our project with FlexBase. It is really hard to underscore the scale of this project. 1.5 GWh is a big number. When you get on-site and you see the magnitude of this facility that is being built, it is staggering to understand really the depth and impact that this battery is going to have. Because these numbers are just numbers, worth putting some reference point around them. The average electricity load into the city of Zurich is about 0.4 GW.
This is 1.5 x that load. This is a massive piece of infrastructure that will be a critical asset on the Swiss grid. There is the degree to which we are able to deliver this battery, deliver that energy into the data center reliably and make sure that this can be an asset that the Swiss grid uses to continually optimize its operation rather than having a challenge to integrate that data center load is really the reason that our technology has been proven to be that buffer between the data center's needs and what the grid can provide over the course of many decades. We are going through the engineering phase of this project right now.
We are really happy that we have continued to meet a lot of the milestones, the stage gates that are part of that development process, and looking forward to the final steps toward the fulfillment phase, which we understand is going to begin through the middle of next year. Adam, back to you on commercial pipeline.
Yeah. A little bit more detail here on the pipeline and to inform the numbers. We split the pipeline into three sections. First being our order book, so those are signed and conditional orders. Second being framework. Essentially this is master service agreements or MOUs signed with customers. They are going through final financing and contracting milestones and the development pipelines. This is really projects that have bid into a scheme with Invinity's technology, or submitted for a license with Invinity's technology. It does give a sense of that, essentially on an under risk basis, that is just under 13 GW h across our pipeline at the moment, and we are not including there the qualified pipeline that has not gone through some of those milestones. How does that sit in terms of an outlook base?
Well, over the next three years of 2026- 2028, you can see the bulk of that sitting across North America. That is really driven by the incentives in that market at the moment. So the 30% investment tax credit, the 10% production tax credit, the $45 per kWh . There are a lot of incentives that boil up to about a 50% tax incentive for local manufacturing in that market. You have seen us talk to setting up our local plant next year to deliver on that. Then by sector on the right-hand side there, it is really split across two main areas of focus. One being renewable developers and utilities. So predominantly there are larger schemes like the cap and floor that are being pushed out in North America at the moment, and the data center space. We talked a little bit early on to the use case there.
So what does that translate to in terms of numbers? We have given a bit more color there. This is now on a risk basis for sales. So essentially we are risking our order book there at 90%, the frameworks at P50, and then everything within development pipeline there at P10. This gives you a sense of how the pipeline looks on an outlook basis, but kind of across those three factors. That all boils down into a 5x increase in share there to just under 5% of the flow battery market. We based that on independent analysis by Benchmark Mineral Intelligence there, who are the industry leading forecaster in this market.
To give you a sense of what that actually means in terms of the whole flow battery market today on the numbers we are putting out there, which are relatively heavily risked in order for us to give some confidence behind the way we are putting out there.
Thank you. At the risk of going into Q&A early, the P50, P10?
Yes. Essentially, P50, 50% risk weighting, P10 at 10% risk weighting. We just, within the order book there, we get there is some slippage there given timing of revenue recognition within the frameworks. That is ultimately a function of when these customers are delivering that financing on their projects. With the final bucket there you have some development risk as they close out the last milestones on their project slide. You get a little bit more visibility there in terms of how we are putting together the pipeline.
Thank you. Okay, so last slide and then we will jump into Q&A. We can justifiably say that we are a leader as a technology business in this space from the track record we have got and the commercial validation. What is important is that we scale this, we scale it rapidly to become commercially very successful, and the whole team here is focused on that. We are a technology business, but actually we really want to be a high-value, commercially scaled business, and that is where we are all driving to, but with extremely strong foundations of good technology with a product at the right cost. That cost competitiveness is really what is driving those bigger opportunities.
If you look across that map of projects deployed or being deployed, if you exclude that FlexBase project, almost all of the projects sat within our pipeline are at bigger scales than you see across that entire map. That is just evidence of the ability for us to move into those bigger projects. It comes from the work we have done on cost and will continue to do on cost, and continue to iterate on that to make sure that we do remain competitive in that area. The market is also moving hugely in our favor. That requirement for flexibility is not something that we necessarily talked about a couple of years ago, or if we did, it was not nearly spoken to as regularly to us. Now when we talk to those who are commissioning systems, flexibility is really valued by them.
There are a limited number of assets that can offer that. That commercial momentum we are beginning to see, I think, does validate our strategy, recognizing there is a lot more to do to transition that pipeline into firm orders and make sure that as we look at our revenue forecast in the year to come, we start the year as we are beginning to see now with a significant amount of that future revenue already backed into commercial orders.
That is great. Thank you very much for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions by using the Q&A tab situated on the right-hand corner of your screen. While the company take a few moments to review those questions submitted today, I would like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via our investor dashboard. As you can see, we have received a number of questions throughout today's presentation. Joe, if I could just hand back to you to chair the Q&A with the team, and I will pick up from you at the end.
Brilliant. Thanks, Lily. Delighted to see we have a lot of questions coming through. I am going to start, there are a few here, I think, relating to the financials which, Adam, I will probably start with you on. I think it is sort of between inventory, cash, and customer receipts. Can you give a bit more detail on how we are going to manage cash over the next 12 months?
Yeah. As we mentioned earlier on, we will be looking at cash runway as a function of both cash on the balance sheet and then the inventory, which is work we have completed in the first half for delivery against our order book. Approximately half of that unwinding in the second half for our deliveries there and the remainder early next year for our deliveries into 2027. That is really what is sitting behind there for the 12-month going concern there within the interim statements, in order to manage our cash runway.
Thanks. There are a couple of questions here on pipeline that I am just seeing there. Can you give a little bit more, Matt, I might come to you on this. When we talked about the 11-GWh frameworks, what sort of customers are we talking about here? Are we talking about people at which end of the spectrum of buying batteries are we talking about here?
I mean,
So within our 11, the question here says, within the 11 GW h of the pipeline, can you give a bit more insight to what actually sits within that? So what are those frameworks that people have signed?
Yeah, look, we've still got a healthy part of the business that's related to the farm development that has always been the core of our business. I think the big change over the most recent period is on the data center side. Obviously, getting the second phase of FlexBase into that part of our pipeline has been a big uptick. I think you can appreciate, given the amount of interest in the data center segment globally, we've now got a lot of inventory interest in what we can do for those data center operators, builders, constructors, and so there are a large and growing number of other data center opportunities that are also part of that 12 gigs or 11 gigs.
Great. There's actually another question here asking about FlexBase. Do we see it as a one-off or is it a-
No, look, we're laser focused on getting that project right for that customer. We're going through the development details to make sure that as we enter this new market, that we're doing the right things for what those data center operators are going to need. Our intention is that we will be able to turn that, or at least portions of that, into more of a repeated offering, that we're able to offer to further sites down the road, really duplicate what we've learned and make sure that we can replicate it for other customers in other regions.
But I think just to follow on from that, the number one focus is that project in itself is extremely valuable to us, and the focus is entirely on getting that delivered. That is a delivery cycle 2, 29/2030.
Correct.
The installation phase certainly starts in about a year or so's time. The design and finalization of the integration work is the work being done now. At some point in time, we can look to replicate that elsewhere. But for the moment, we are absolutely focusing on that. That just opens up opportunities elsewhere as well. Back on that pipeline question as well. If you look at what sits within this, we had a review relatively recently of some of the parts of the pipeline that don't necessarily percolate up. I was really reassured by just the number and breadth of deals that sits across that AI data center space. It's enormous, particularly in the U.S. front. It's quite staggering to see what comes from it.
Okay. We've got basically the same question asked twice in the same way from two people that wouldn't admit it were each other. Can you just talk about, we've talked about the rest of world's element in the geography. What does that actually mean? Where are we seeing the demand outside of North America and Europe and the U.K.? Where is that? Is it China? Is it India? Where is that?
Well, look, this is a global marketplace, and whilst 180 may seem like a lot when you strip out those working on product development as well, it is a large market to cover with a relatively small commercial team that needs to cover not just front-end sales, but the sales engineering that sits beneath that. So we need to focus on core markets where we've got the expertise and the bandwidth. What's really interesting about China particularly is China has deployed more vanadium flow batteries than anywhere else in the world. The price points that we are at, or will be at shortly next year, we think are probably below where the Chinese are selling their vanadium flow batteries.
And we also know from the tenders we've been involved in, such as FlexBase and other anecdotal evidence, that we think our batteries perform better than a lot of that Chinese technology, if not all of it. So there is a potential for some really interesting opportunities within China. However, we need to make sure that we do approach that in a sensible way for all the reasons that I'm sure I don't need to go into to make sure that corporately we're positioned correctly there. India is an interesting market. India is very cost-conscious, and rightly so, we are pushed on margins. This is a business where we have to make returns for our shareholders.
Typically, within India, a lot of businesses do chase very low, if not negative margin business to build market share and then hope they will be able to generate a profit in years to come. That is not a business model that we have really ever adopted or intend to adopt and do not need to adopt. Within India, we will look to cherry pick opportunities where we do not have to do that, and I am sure shareholders would support us in that. There are European projects which sit alongside the FlexBase well in terms of scale and breadth of opportunities. There is a lot of opportunities there that we are only scratching the surface of as well. At some point in time, we will look a little bit broader towards Africa and elsewhere. But I think for the moment, we are concentrating on those core markets.
Okay. There is a few questions on FlexBase. I think we have answered most of them, but there is one here about asking for a bit more specificity around the engineering. You have said the engineering process is on track. Can you give any more detail on what that really means in terms of progress towards a signed award?
Yeah, sure. What I would say is that we were awarded that project on the basis of our track record and on the basis of the concept that we were able to deliver against the requirements that the customer had put forward in their RFP. Within the next year, what we are going to be going through is a series of stage gates where we will have to deliver a sequentially more evolved version of what that engineering design looks like. Not only proving the concept works, not only proving that the commercial model works, but building out the actual set of orders, the actual set of components that are going to be installed into the basement of this data center. It is worth noting that that is materially different from how we have delivered a lot of our products in the past.
Rather than a container that ships out of our factory, we are going to be shipping individual components out of our factory so that they can be fully integrated at site. Getting that done in a way that is supportive of the product itself, while maintaining the performance, not only technical but also commercial, that we intend to achieve is something that our customer needs to make sure that we are doing properly.
Okay. Thank you. The next point, and we had a lot of questions on this, I think people came armed to the call around cap and floor. There's a number of questions here saying that they've seen articles in the press, in The Sunday Times, essentially saying that the market had some high expectations of the number of awards. Really asking, what's our view on what happened, and our view on the chance of anything changing or not?
Excuse me. No, thank you, Joe. I was hoping to come onto this soon.
Okay.
Look, there's an awful lot we can talk about here, and there are differing views I've seen on how to approach this. What is really interesting, and you saw The Sunday Times articles both this Sunday and a couple of Sundays ago. To note, we don't write the headlines. I think if you get past the headline a couple of weeks ago and actually look at all of what was in the article two weeks ago and last week, we've had some extremely positive feedback from, frankly, all stakeholders. I think everybody who's looked at this has said a number of things. It's interesting. I'll come into this a bit, why doesn't the government sort this out? Also strong support that we are actually making this an issue that people need to be aware of and need to look at.
Now, I said government like this, because actually when you look within it, we are speaking to a significant number of stakeholders within the wider organization that is government. What you realize within that is that it's just not one body, it's many different bodies trying to work together. I think what we have seen is an incredible amount of support for our case that Invinity technology, and more broadly, U.K. technology should have had a better run at that program. That's one of the reasons why I think The Sunday Times journalist picked it up. She is running with this because she thinks it's a really interesting story. We can create a significant number of jobs, and we can create a significant amount of investment that simply won't come here.
When you look across what the U.S. does, the U.S. offers a 30% refund on CapEx expenditure and a refund to the U.S. manufacturers for putting manufacturing there. That is why we are moving there. The EU is looking to do something similar in the next couple of years. Japan does the same thing, and the U.K. is unique in almost not doing that. There was a 5% benefit for U.K. content, when actually they have had up to 20% in other cases. We are asking the question, why was that done in this scenario. Then when you look across the projects that were consented, if you look at the pumped hydro projects, very specifically, one of the developers there has announced that they have some significant challenges in relation to costs, and that project will only go ahead if it beats IRR thresholds. So certainly a warning that will not happen.
Then, some of the other developers have got some rather unique lithium projects, which again, have never been done before. There is a strong argument that a broad breadth of technologies across just those two narrow verticals would make sense for all the other reasons we can talk about. My view is I would prefer. Our share price was doing very well up until that announcement, and it is highly disappointing. We were very disappointed with the result, and I think it is only right that we push that scenario through. Should we do that in private. Yes, we are significantly. I think us highlighting to others to gather support has been really well received.
We are hearing some very positive vibes that come back. Will that ultimately result in a change. I do not know and I cannot forecast that. But I tell you what, I would far prefer to fly the flag of Invinity and do our best to get some change than hide away and not do that and just say, "Oh, it would have been nice if it had changed." I think we have done everything we can do, and we are definitely being listened to at very high levels. Will the machines of the wider government enable something to change at this stage. As I say, I do not know. What is really interesting is if you look at what this means for our technology versus others, typically our technology scored at the same price point, same financials as other technologies.
So this was not anything to do with either quality of technology or quality of price. I think our projects were marked quite harshly. They were inundated with the number of projects that went into cap and floor, and I think they took some pretty generic assumptions and again, looked at reports on other technologies which were a couple of years old and drew some very unfair, unhelpful, shall we say, comparisons on those. So that is why our customers have gone back and said, "Look, that is not right. You have used incorrect data." So I think there are a whole bunch of reasons as to why what came out was not fair. Also a lot of the projects have said, look, the scoring system was not made clear, that it was only really announced and even then quite opaque at the end of it.
A lot has been done in this process that, not just us, but others think should and could have been done better. Therefore, it is only right that we push this. There is talk of there being another round shortly to follow. For us, we are very much concentrated on this round. This is an issue that needs to be dealt with sooner rather than later. I want to create those 1,000 jobs up in Scotland. I want to bring investment here. As I think the article said, proud, British, I want it to work here. There is no reason why it cannot with a little bit of movement and sense that comes with it.
Okay, thanks. I think this follows naturally on. There is a question here around U.K. manufacturing and do we have the scale to deliver projects like FlexBase, but also other large-scale projects presumably refer to-
It takes about a six-month lead time for us to scale, and that is typically the lead time on the stack manufacturing. We have got that stack line on order for the U.S. that will be delivered shortly and will be capable of being commissioned and brought up to speed quite quickly. We do not at the moment, but that is the whole point. If we did at the moment, we would be putting a lot more unabsorbed overheads through the P&L, which would be impacting profitability, but we can scale quickly. We are able to bring in and repurpose people from the oil and gas industry, people who are midway through their careers, but also graduates and apprenticeships. We really can tap into the labor market that is available now. These are not highly skilled people. These are people with training who can be retrained in other areas.
That is the lead time that we can move to. Otherwise, whenever we bring people up to Motherwell, Bathgate, those who have been up before on any of the open days will see that what we really need is a dry, enclosed area. Yes, it is useful to have a crane that can carry 30 tons, but actually we can do that with a forklift. Ultimately, we need a stable floor. It does not need to be temperature controlled. It is in Scotland. It does need a little bit of heat, of course. But ultimately, we can find space pretty quickly, and with substantial cap and floor orders, we can quite quickly move to bring that investment in and get that up and running.
Okay. Speaking of, there are questions around U.S. manufacturing. I think Jonathan promised we were going to talk about, and we have duly been asked a couple of questions around it in terms of when are we going to hear more? What are the plans?
Yeah, look, as Jonathan touched on, there are tremendous advantages to manufacturing in the U.S. for the U.S. market, both in terms of tax credits on the production side and tax refunds on the customer side. We are, I would say, most of the way through selecting, a site. We are in negotiation on contracts for leasing the space that we are going to build this facility out in. We have validated that we have got an initial team that is going to be able to go and help us get that set up so we are not starting fresh with new personnel. We have got a team ready to step in, and I think we will be announcing that final location once those contractual details are locked in.
Brilliant. Okay. If we briefly go back to the numbers, there is a question here, asking around the uplift in admin overheads. Adam, perhaps you could just cover that off and give a bit more color.
Yeah. Good question. The GBP 1.5 million movement in the bottom line there is well explained in note 4 of the accounts. Essentially, there are two factors driving that. Half of it is a comparator effect. Now that we have completed Endurium and the joint development agreement, those recoveries are no longer there from Gamesa, given the joint product is pushed out to market. The other half of it is an increase in staff costs. The increase in staff costs is the investment we are making to deliver that 60% cost reduction. I think it is really important we make that investment. It is also what you are seeing driving the improvement in gross margins and growth profit line. The improvement in component costs, the improvement in component performance is what is driving those improved gross margins.
It is investment we are making now to deliver on the numbers we have, and the outlook we have out there. I acknowledge the point. We are managing our admin budget judiciously, in order to manage against that. The investment you are seeing in those R&D staff costs is reflecting that as well.
Thanks. I will stick with you, Adam. There is a slight technical question asking around how it works in terms of the sales and the cash coming through. Is selling a battery a one-off or on a maintenance contract? How does that flow through as we deliver projects?
Yes. The bulk of the revenue recognition, so 95%+ is on delivery of the battery at the moment. There is an ongoing piece there, in terms of the long-term service agreement that we recognize and reoccur revenues over time. For our bigger projects, so the likes of FlexBase, what would make more sense for those sort of projects is a percentage completion basis. That is what the industry tends to use. But certainly, for our main deliveries, the bulk is upon delivery of the end-to-end product.
Okay. Thank you. This is a question that always comes up, it is because it is something that I think our shareholders are always keeping an eye on. Competition, where are we seeing the main competition and how, in what format, in what markets? Do you want to take that?
Sure. Yeah. Look, the number one commercial competition that we usually see is always lithium. It's 98% of the world's market. That's from a competitive perspective the thing that's most challenging for us. I think the question, though, is what other flow battery companies are out there. We certainly do come up against some of them. The FlexB ase project, for example, they invited multiple bids. They got everyone of interest in the industry globally bidding into it. What I would say is that competition out of some of the lower cost regions, China and India, for example, was present in those bids but was deemed to not have the kind of track record that we were able to bring to the table. So, yes, there are other players out there. No one has been able to credibly burst market in the way that we have, at least as yet.
Okay. Moving on to a different area, into more corporate. There's three different questions asking the same thing here about, is the idea of moving to the U.S. or a U.S. listing something that's on the cards, given the clear focus on the commercial side. Jonathan, maybe-
Okay. We can maybe rephrase the question of there's move to the U.S. or look to include the U.S. capital markets in our thinking, and I think the second part of that is absolutely true at the right point in time. I was at a conference in the U.S. with one of our brokers a few months ago and spoke to quite a number of potential shareholders there. In fact, quite a few of them, following those discussions, bought shares. They fully understand that market in the U.S. When you look at where the bulk of our projects are and the bulk of our pipeline is, it would make absolute sense to try and tap in a liquid investor base there that really understands what we are doing and why we are doing it. However, again, we are still committed to the U.K.
We have the National Wealth Fund as a major shareholder of ours, and maintaining liquidity and a listing in London will absolutely be at the forefront of our attention. So move to U.S., no. At the right point in time when we are the right size to be able to potentially tap that liquidity, yes, that is a possibility. Are we about to announce that in the near future? I would say no.
Okay. Question about cost down. Matt, I will probably come to you. Obviously good progress on the cost down. Are you worried about customers delaying until products become cheaper? So the idea that someone might just hang on for six months and just order it later. Is that something that we are seeing or something we are worried about?
Look, it is something to be concerned about. We have not seen that actually happen within our pipeline. Usually, by the time our customers approach us, especially to that segmentation we went through earlier, most of them are either commercial and industrial customers who are looking to save money on their electricity bills starting tomorrow, or AI data centers where they absolutely are not able to connect to the grid and install that data center until they have got a power solution in place. Both those things mean it has to be installed as soon as humanly possible, and therefore waiting is not an option.
Fair enough. Let us go, I can see a question here just asking around bankability. Clearly, it is something that we have been focusing on. Track record, 11 MW h, all part of that. It is a reference to the previous one of these, I think, where we talked about we were having some positive conversations with banks and others around project financing. Are those discussions still ongoing, Adam?
Yeah. The really important point is we stepped up from delivering smaller scale units to large commercial units backed by project finance debt. You are starting to see that now in the first few projects we are doing at commercial scale, typically beyond 20- 30 MWh We have had a number of discussions around that. One of the key parts of that is them being able to put an insurance wrap around the product in order to get the project finance lenders comfortable there in terms of risk return. We have progressed those discussions materially, and looking to close that out, as we said, over the next few months. In order to get to a place where, for cap and floor, as they are engaging with their project finance lenders, they can put non-recourse debt behind the product. So really important workstream. Also, the benefit of Copwood is really important here.
Being able to take both the insurance providers, we are working with two in particular, and also the lenders, we are working mainly with two, including our house bank. Being able to take those entities out to a project site in the U.K. to see an operating project of that scale on the grid is really important in terms of driving those discussions. Seeing positive momentums on that this year, Joe.
Perfect. You mentioned Copwood. There is a couple of questions here asking, what is going on with Copwood? When are we going to see that going live? I know we briefly talked about it, but can you give a little bit more about what is between us and that project being switched on and making revenue, Matt, Jonathan?
Look, we had a conversation with a journalist earlier who asked us the same question, and the response was met with a shrug and a nod. We are in no different a position than a lot of developers. If in case you are wondering why projects slip, it is normally things outside of the developer or the technology provider's control, of which we are both on this front. We were hoping that this asset, and we certainly engaged with the DNO to try and make sure that this asset would be connected in the first half of this year. We certainly did all the work we could do our end and paid all the monies across. We had to actually advance to make sure equipment could be ordered. Notwithstanding that, the slow progress has been seen by us as others.
I think they have done all the work in the road. They have done the connections up. We are now sitting Saturday towards the end of September. They are just doing the final work. Adam, what are we saying when we are anticipating switch on?
Yeah, so the project fully delivered. As I say, waiting on the substation. By the end of the year, we will have that project fully commissioned. We are expecting to get the go to do his first commissioning test by the end of November and then obviously complete that process.
Yeah. Frustratingly slow, entirely outside of our control despite our best efforts. As I say, yeah, this is seen across the industry and one of the things the industry needs to work on to get these projects connected quicker.
Obviously very much looking forward to inviting those on the call when we do get it connected.
Absolutely.
Moving on, there is a question here on vanadium, around what our approach is to that and our view on it as a future, maybe as part of cost down, but also in terms of security of supply. Matt, do you want to speak a little bit about vanadium?
Yeah, sure. Look, we continue to scour the world for the best, highest quality, lowest cost sources of that material. I think what we've found over the last year is there are some emerging sources, particularly in the secondary product realm, which is very encouraging. Secondary product meaning that we're not digging big holes in the ground. This material is coming out of either the petrochemical industry or the steel industry as a waste stream. What we're finding is more and more that there are new production capabilities coming online on the basis of some sort of advanced manufacturing and advanced purification processes. So, we've greatly enjoyed where the prices are in the current market. What we see is the current market prices being reinforced more and more by new entrants.
Market prices are likely to stay closer to where they are now than where they've been over the last decade. In the background, we're continuing to work very closely with some of those existing and emerging producers to make sure that we can get continued low-cost offtake of exactly the product that we're going to need.
Brilliant. Okay. There is a number of people that have referenced recent items. I think someone referenced the monthly newsletter we put out, with a picture of the trade commissioner for Europe at FlexBase. How are we feeling the engagements going with U.K., Canadian, and governments in general? There seems to be a lot of meetings, but do we feel that those are actually bearing fruit and building relationships? Jonathan, do you want to-
Yeah. Look, maybe a shout-out first of all for our local MP in Bathgate, Kirsteen Sullivan. She could not have been more helpful towards us or more supportive. But also we've seen that across a number of other MPs and ministers in this space. They are very, very helpful and supportive and understanding, and want us to do well. The trick is enabling them to have the evidence to bring that forward to affect change. I think that's just in general the way government works. Not this government, but government in general works. That's one of the challenges I think we face in the U.K., maybe more so than elsewhere. But at a level where we are dealing with people, we get a very, very positive response. I think, yeah, we are making progress. Let's look, we've had a lot of funding from the U.K. government.
The disappointment is what happened with Cap and Floor, and I think that really was quite a unique government department, going off on its own and doing one thing and probably delivering an outcome that no one quite expected. That is separate from how our sort of level of engagement works elsewhere. Maybe from a Canadian perspective, Matt.
Yeah, look, I would say Canada obviously very interested in infrastructure projects of national interest right now. One of the big conversations is around, they call it pan-Canadian electrification. So basically strengthening the electric grid, not only within any individual provinces within the country, but looking at the interconnection of all of those provinces together. That is an investment program expected to stretch into the tens of billions of dollars over the next five years. S torage is one of the items on the docket as being a critical part of that infrastructure. So, no deals to announce yet. But certainly individual portions of that strategy are likely to be storage and as one of the preeminent Canadian storage suppliers, we think we're likely to be able to take a good piece of that.
Lovely. I think we've managed to get through most of the Q&A there, so I'll pass back to Lily.
That is great. Thank you for answering those questions from investors. The company can review all questions submitted today, and we will publish those responses on the Investor Meet Company platform. Just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, Jonathan, could I please just ask you for a few closing comments?
Yeah, of course, Lily. Thank you. Just finishing on from what Matt was saying there. When I look at the business, that government engagement also crosses the U.S. as well.
We have the California Energy Commission. California is the fourth largest economy in the world. We have the government organization there, that is the Energy Commission, hugely supportive of us and pushing projects our way.
When I look across Europe, we are building or designing with a very clear route to building effectively a system that will deliver more power than the two nuclear power stations next door to it.
We've got a technology that's robust with data and heading towards the right price point. We are in a good position as the market is also looking for our type of product. We've done a lot of the hard work here. There will be ups and downs along the way, but I'm confident the trajectory is in the right direction. I'm really excited to see what the future can bring.
That's great.
Thank you.
Thank you for updating investors today. Could I please ask investors not to close this session, as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete and I'm sure will be greatly valued by the company. On behalf of the management team, we'd like to thank you for attending today's presentation and good afternoon to you all.