Saturday, June 15, 2024

Alevo’s dreams dashed as promises proved unattainable

Industrial-scale storage batteries such as Alevo’s GridBanks are promising new technology, able to power 1,300 homes for an hour or more during peak demand periods, outages or when renewable sources aren’t available.

By Edward Martin

Outside, the summer heat in Cabarrus County jolts Norwegian Jostein Eikeland, but in a building the size of three shopping malls, polished concrete floors and vast open spaces are cool. The technology investor gestures expansively as he shows off his surroundings. The plant has been empty since it was shut down six years earlier by Philip Morris USA, which made billions of cigarettes here.

Engineers in blue hard hats position machinery to build electricity storage batteries called GridBanks. To be made by his Alevo USA Inc., each will be the size of an 18-wheeler’s trailer and power 1,300 houses for an hour before recharging by conventional power plants or renewable sources such as sun and wind.

It’s June 2015, and until now, Eikeland’s patented technology has been super-secret. Though little noticed by the public, giant storage batteries are a hot ticket for world utilities and the core of an estimated $20 billion global market led by companies such as Palo Alto, Calif.-based Tesla Inc. and Japan’s Toshiba Corp. They could dramatically alter how electricity is delivered, from impoverished villages in developing nations to brownout-prone big cities.

Pacing in a tieless white shirt, Eikeland, 46, shows off progress at his plant. He’s raised more than $1 billion mostly from European investors, he says, and he’s spending about $350 million refitting the cigarette company’s former home 20 miles north of Charlotte. More than 2,500 people will be employed at an average annual salary of $57,000.

Among those in Eikeland’s audience that day was Randy Wheeless, communications manager for Duke Energy Corp. The Charlotte-based utility had been testing competitors’ batteries. “We wanted one of theirs,” he says. “We wanted to put it through its paces.”

Just over two years later, a few miles from the Alevo plant in August 2017, Concord Mayor Scott Padgett is at his desk when a call comes in. An Alevo executive tells him the company has declared bankruptcy and is shutting down. Its 290 employees were fired. Chief Executive Officer Eikeland had boldly predicted Alevo would be selling 16,000 GridBank units a year by 2020, but it made and sold just one for an undisclosed price, probably less than $2 million. Just months earlier, Concord and Cabarrus County had promised Eikeland as much as $10 million in tax breaks for an expansion. The state would kick in another $2.6 million.

By the time Padgett picked up the phone, Eikeland was long gone, brushed aside by a Russian billionaire along with a Norwegian investor who’d been accused in a Dutch court of international drug smuggling.

The billionaire, Dmitry Rybolovlev, practically cornered the global market for potash, a fertilizer, before selling controlling interest in Russia’s Uralkali for $6.5 billion in 2011. He had pumped $126 million into Alevo in mid-2016, relegated Eikeland to a nonexecutive role and replaced the company’s senior management team.

Ola Toftegaard Hox, a lawyer at Alevo, testified in a lawsuit protesting his ouster that Rybolovlev’s takeover was “creepy,” according to Norwegian court documents. A better translation is “sneaky,” says Goren Skaalmo, an investigative reporter with Oslo’s Dagens Naeringsliv business newspaper.

“He purchased shares at different times via different entities not openly connected to him,” Skaalmo says. Efforts to contact Eikeland and Rybolovlev were unsuccessful. Likewise, attempts to reach current executives of Alevo also failed. Incorporation records in Florida show Eikeland chartered a company there in December 2016, about six months after Rybolovlev took over Alevo. Eikeland is now listed as chairman of EWL Technologies Inc. in Boca Raton. Another former Alevo executive, Scott Schotter, is secretary.

Back in North Carolina, Alevo is now staffed by a skeleton crew of executives, a different environment from October 2014, when former Gov. Pat McCrory hugged Eikeland and gushed, “This is going to be the greatest job announcement ever in North Carolina.”

Alevo is being dismantled by bankruptcy creditors who say it owes them $127.1 million. The company told the U.S. Middle District Bankruptcy Court in Greensboro it has $92.5 million in assets. Given the technology’s apparent promise and its owner’s deep pockets, the filing puzzles outsiders.

“The numbers make no sense,” says Tony Plath, clinical professor of finance at UNC Charlotte. Startups often incur debt while anticipating initial losses, often for several years. “You’ve got a billionaire who rides around in a tricked-out jetliner and has access to the Russian government.”

That’s only part of the mystery that surrounds the failure of Alevo.

Does its downfall trace to international intrigue and shady deals by sinister characters with friends in high places, who duped local and state officials? Or, is its collapse the result of miscalculations of the difficulty of manufacturing an untested product and competing globally?

“In the end,” says a former top Alevo manager in Concord, “the sand ran out of the hourglass before we got across the finish line.”

Padgett, McCrory and others could hardly restrain themselves in 2014 when the Alevo plan was announced, five years after Eikeland made his first clandestine visit to Concord. Gov. Roy Cooper later joined the chorus. Interviews with and records from the N.C. Department of Commerce, Concord and Cabarrus County economic developers, and other sources show they had reason to be happy.

In a flat, almost pastoral setting delineated by farm-like wooden fences, the former site of the 2,500-employee cigarette plant south of Concord was a white elephant after Altria, the Richmond, Va.-based parent of Philip Morris, closed it in 2009. It was a gut punch to the area given the 27-year-old plant’s annual property tax bill of $7 million, or 10% of Concord’s base, and average annual salaries topping $60,000 for its union workers. Repeatedly, leads fizzled as the recession unfolded.

“The economy wasn’t our friend,” Padgett says. “All of a sudden, nothing was happening. It was hard to get any new manufacturing jobs.” The 2,100-acre site and its 3.5-million-square-foot building, though sweet with amenities such as rail service and nearby airport access, was overwhelming. “Not many manufacturers need that much land or space.”

Eikeland offered hope, graced with continental flair and glibness. In 1997, he created a cloud-computing company then bailed out five years later when the dot-com boom withered. He segued into other ventures, buying control of Swedish car-parts manufacturer TMG International and investing in computer software and electricity storage.

Eikeland condensed the first and last names of 18th-century electricity pioneer Alessandro Volta, who’d invented batteries, and formed The Alevo Group S.A. in Switzerland in 2009. Battery storage was already more than just a gleam in the eyes of utility companies.

Alevo’s technology uses a graphite and lithium-ion phosphate in its patented inorganic electrolyte. In addition to being noncombustible, the batteries can be recharged almost endlessly. That differs from conventional lithium-ion batteries used in laptops, hoverboards and other devices whose flammable electrolyte is under pressure and can explode or catch fire.

“Our batteries didn’t explode,” says a former Alevo salesman, who asked to remain anonymous. “Theirs did.” He was echoing a sales pitch used in Indonesia, China and Africa, “places that had had problems with rolling blackouts and brownouts.”

Padgett and a Duke Energy economic developer met with Eikeland on his first visit to Concord shortly after starting Alevo. “Some of our battery experts left to go to Alevo, so we had some personal relationships there,” Wheeless says. “We were going to be a customer.”

The most easily understood use of grid-scale batteries is for storing wind and solar energy during calm, cloudy days. But a greater benefit, say utility experts, is in “smoothing” delivery, protecting against surges, blackouts and brownouts, and possibly replacing natural-gas power plants that start and stop more quickly than coal or nuclear plants but are vastly more expensive than storage.

Duke is testing about a half-dozen battery units from Alevo competitors at a Mount Holly site and operates a 36-megawatt battery storage unit connected to a wind farm in Texas and a 4-megawatt battery center in Ohio. It is spending $30 million at two sites in western North Carolina to install 13 megawatts total of battery storage, while postponing construction of a gas-turbine peak-load plant.

All use lithium-ion batteries, not the Alevo technology that Eikeland promised would reduce risk and expense because GridBanks could capture surplus power when demand wasn’t peaking. “Over 10 or 20 years, you’d basically have fuel-free energy,” says a former Alevo manager.

Eikeland speculated that Alevo would eventually employ as many as 6,000 people, rivaling Tesla’s $5 billion battery factory in Nevada. “The market’s at a point there’s a lot of interest in modernizing the grid,” says a Tesla spokeswoman. “The nation’s infrastructure is very, very old.”

Eikeland’s arguments were persuasive, including an initial promise that he wouldn’t seek public incentives. Only in early 2017, when Alevo promised to hire 200 more employees and sought $2.6 million in state incentives, did questions about its finances arise.

The state followed its “standard, rigorous process” in reviewing and approving the company’s application, says N.C. Commerce Department spokesman David Rhoades. Internal Commerce documents show officials asked about the company’s losses. The approval came despite failures of some of Eikeland’s European companies, including TMG International. European sources say Eikeland had lost one of his luxurious homes for financial reasons and been accused by Norwegian authorities of evading taxes. Records in Oslo show he was cleared. Alevo never received incentives because it didn’t keep its job promises.

“They had this aggressive growth plan they were never able to obtain,” says Bob Carney, who became director of Cabarrus County Economic Development Corp. in mid-2016. “It was a startup. Well-funded, but still a startup. It had game-changing technology, but when you’re dealing at that level, those companies fail too.”

At the sprawling site 4 miles north of Charlotte Motor Speedway, all appeared to be going well for a while. By spring 2016, scores of contractors were pouring work into Alevo’s Concord plant. In addition to GridBanks, a second division would offer energy-storage consulting services.

Crews from Matthews-based Century Contractors Inc. and others were revamping the former cigarette plant, including installing massive stainless-steel tanks to hold and pump the company’s proprietary electrolyte. Behind the scenes, Eikeland was facing pressure from his investors, says Skaalmo, the Oslo journalist, and two former Alevo executives in Concord who decline to be identified. Among the antsy partners were Rybolovlev and Gjermund Cappelen, a Norwegian who was facing charges of illegal drug dealing in the Netherlands.

Rybolovlev had sunk $126 million in Alevo Group, the Concord subsidiary’s European parent, and in March 2016, Eikeland was gone. His replacement as CEO was Vladislav Baumgertner, a former chief executive of Uralkali who’d been arrested and charged with corruption in Russia and Belarus, charges that were ultimately dropped.

With Rybolovlev’s takeover and new executives in Concord, city dealings with Alevo seemed to chill. “They were not as forthcoming with information,” says Padgett.

Though assembly lines were still being hammered into place, the Alevo sales staff was on a roll. “We’re sold out into 2017,” a sales director told the Concord Independent Tribune in 2015.

It didn’t quite turn out that way. One unit — the only one ever sold — would be shipped to the city of Hagerstown, Md. The cost is unclear, but it’s functioning today as hoped, says utilities director Mike Spiker. His Alevo relationships were businesslike, he says.

In March 2017, Alevo boasted it was going to install a 250-megawatt unit at Duke Energy’s Mount Holly test site. “We were waiting and it just never came,” says Duke’s Wheeless. “Probably not going to.”

Despite Alevo’s optimistic front, selling the new technology was easier than making it. Alevo had promised to deliver its first units to China and Turkey in mid-2015, less than a month after Eikeland’s construction tour.

“That came and went, without anything going out the door, so it was obvious then we were not on plan,” says a laid-off executive. Though the battery technology was sound, the only test of the manufacturing process occurred at a bankrupt German company that Alevo had acquired in 2014.

In Concord, assembly-line workers, trained at Rowan-Cabarrus Community College at a cost of more than $150,000, would be expected to cram 14,000 stainless-steel energy cells into each GridBank at a furious pace, assisted by robots. Some steps required complicated welding, all to perfection. But parts didn’t fit, and pieces didn’t align.

“There was no one thing in particular,” says a manager who helped oversee Alevo’s production efforts. “It was like death by a thousand paper cuts. We’d had a small production line in Germany building test units, but then taking that same basic process at a much bigger and faster scale, there were just gremlins that came up everywhere. Sure, there were mix-ups on the part of our teams. But there was a lot of nonperformance on the part of the vendors and contractors.”

Another former employee thinks the bankruptcy’s real cause is one more universal to startups: Cold feet. “People expected it to be hard. You think it’s going to happen in 12 months, and it’s still not happening. In 24 months, it’s still not happening. People started saying, ‘OK, this is beyond the worst case.’” Alevo, he says, kept telling contractors the check was in the mail.

In early 2017, about a half dozen vendors filed liens in Cabarrus County courts. One was Century Contractors, on the hook for more than $4 million. Its officials reached a temporary accord with Alevo, but the company says it is still owed more than $2.2 million, the largest creditor in the bankruptcy filing. Second is a Chinese company that supplied copper, nickel and other materials. It is owed $2.1 million.

While employees struggled to make production lines work, Alevo maintained a rosy façade. Last January, the company named Peter Heintzelman chief financial officer. With extensive experience in oil and gas exploration in Africa and the Middle East, but lacking manufacturing experience, he called Alevo “a successful and expanding business.” The next month, the company announced the 200-job expansion and another $251 million in investment. In addition to the $2.6 million in state incentives, Concord would grant $4.3 million in tax breaks, the county, $6.5 million.

In April 2017, Schotter, then marketing and sustainability officer, said Alevo was “on track to meet or exceed job-creation requirements” for the state grants.

Four months later, it declared bankruptcy. “They brought in new leadership that saw what kind of odds they were up against, and that prompted them to declare bankruptcy,” says Carney, the economic developer.

Heintzelman was named interim chief executive officer in October, replacing Baumgertner. He did not respond to requests for interviews. “There was absolutely no warning” of a bankruptcy, says Jack Raisner, an attorney with the New York law firm Outten & Golden LLP. He filed a lawsuit on behalf of about 20 company employees who reported to work on a Friday morning, only to find Alevo shutting down. North Carolina law requires 90 days’ notice of mass closings.

“They caught us off guard,” grouses the wife of a former employee. “No severance pay, no nothing. Really disappointing.”

In federal court in Greensboro, the Alevo case is filed under Chapter 11 of the U.S. Bankruptcy Code, which shields the company from 160-plus creditors amid a reorganization. Heintzelman, who signed the documents, insists the company is being dismantled and sold. The venture proved Alevo’s technology was good, but the company had not been able to conquer “production challenges,” Heintzelman said in a statement. More telling, he added, the company “actively sought new funding sources” but struck out.

The Chapter 11 filing will give Alevo leverage to sell its intellectual property — its patented electrolyte-based battery technology — to the highest bidder, says Terri Gardner, a partner in Nelson Mullins Riley & Scarborough LLP in Raleigh, who represents the business. “Companies in financial trouble can achieve better value for their assets if current management with knowledge of the assets and the industry remain in control of the sales process.”

For some former Alevo executives though, convinced that the company’s bright idea can still shine for utilities, the dream still has a glimmer of hope.

“I know some of the things happening there now, and to characterize it as a liquidation, I can say that’s not correct at the moment,” says an executive in touch with Alevo’s shutdown staff. “That might end up as the outcome, but it’s certainly not their intent now. A lot of dominoes have to fall in the right direction, but there’s hope.”

In December, Gardner said the company was seeking an investment banker to market both the Swiss and U.S. assets, “to achieve a sale of the entire package.”

Until then, some who bet on Alevo still have faith. “The technology is fantastic and the market is hot,” says one. Others have scaled down their expectations.

“All I can say,” sighs Padgett, the mayor, “is they paid their utility bill.”

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