Ener-Core, Dresser-Rand Sign Manufacturing, Sales Agreement
By Jack Burke30 June 2016
Ener-Core Inc. has signed an agreement with the Dresser-Rand that grants the Dresser-Rand business the exclusive right to manufacture Ener-Core’s power oxidizers within the 1 to 4 MW power capacity range and to sell them directly to industrial customers.
The Commercial and Manufacturing License Agreement (CMLA) will be effective upon the successful completion of the Full-Scale Acceptance Test of the 2 MW system, which is expected to reach completion in July, Ener-Core said. Dresser-Rand is part of the Siemens Power and Gas Division.
The agreement will replace the existing November 2014 Commercial License Agreement (CLA), which did not allow for the manufacture of the power oxidizer system; upon the effectiveness of the CMLA, the existing Commercial License Agreement (CLA) between the Dresser-Rand business and Ener-Core will expire.
As this new CMLA will allow the Dresser-Rand business to manufacture Ener-Core’s power oxidation systems, it will enable Ener-Core to reduce its manufacturing infrastructure and lower its operating costs, thereby allowing Irving, Calif.-based Ener-Core to focus on its core business of developing and deploying additional applications for its groundbreaking technology, the company said.
Ener-Core will collect a license fee payment for each unit that the Dresser-Rand business sells, with the precise fee payable based on a percentage of the total value of each system sold. Ener-Core expects to collect license fees between $370,000 and $600,000 per unit. The units will be integrated with the 2 MW KG2 turbine manufactured by the Dresser-Rand business.
The Dresser-Rand business expects manufacturing of Ener-Core’s power oxidizer units to begin by the end of 2016 with initial sales occurring within calendar year 2016. The Dresser-Rand business has additionally agreed to minimum sales thresholds, beginning in 2017, to sustain the terms of exclusivity. Ener-Core expects that these minimum payments, combined with Ener-Core’s reduced operating expenses, will enable Ener-Core to be cash flow positive within 12 to 18 months.
Ener-Core said the new agreement represents the third portion of a two-year strategic evolution of its business model. In 2014, Ener-Core launched its 250 kW power-stations, manufacturing in-house and selling the systems directly to industrial customers. Ener-Core then scaled up the capacity of these systems by a factor of eight times (to 2 MW) and contemporaneously signed a Commercial Licensing agreement whereby the Dresser-Rand business secured the license to sell Ener-Core’s technology coupled with the Dresser-Rand business’ KG2 turbines. This new agreement allows the Dresser-Rand business to also manufacture the Ener-Core power oxidizers that are sold to industrial customers.
“With the signing of the CMLA, Ener-Core continues its transformation to a low-cost, high-margin license fee business for our technology,” said Alain Castro, CEO of Ener-Core. “We believe that by leveraging the economies of scale and supply chain efficiencies of large multinational companies as Siemens and the Dresser-Rand business, we can accelerate the adoption of our technology and shorten our pathway to profitability.
“Furthermore, given the advanced commercial pipeline of opportunities that has been developed over the last 18 months through the collaborative efforts between Ener-Core and the Dresser-Rand business’ sales teams, we believe the Dresser-Rand business will be able to start closing additional commercial sales in 2016 and rapidly ramp up to exceed the minimum threshold of annual sales beginning in 2017. Those minimum annual sales thresholds are aligned with Ener-Core’s pathway to profitability mandate. Lastly, through this shift in our business model, we can substantially reduce our costs as we will no longer have a need to maintain our current levels of manufacturing infrastructure. We are very enthusiastic about this new era for Ener-Core and are looking forward to a prosperous collaboration with our colleagues at the Dresser-Rand business. ”
Paulo Ruiz, vice president of Commercialization for the Dresser-Rand business, said the agreement marks a new phase of cooperation between the two companies.
“Our engineering teams have been working closely with the Ener-Core team over the last 18 months, while our commercial teams have been actively developing a strong commercial pipeline of opportunities for this breakthrough technology, Ruiz said. “We look forward to working with Ener-Core as we ramp up our manufacturing and sales activities of power oxidizers for the benefit of a potentially wide range of industrial customers.”