ESS CEO Eric Dresselhuys Announces His Resignation

We take a dispassionate look at several notable mentions in the announcement before speaking with company management.

On Friday, February 14 during market hours, ESS Tech, Inc. (GWH) released an announcement that Eric Dresselhuys was stepping down from both his CEO and director roles at the company, effective immediately. ESS’s VP of Legal, Kelly Goodman, took the role of interim CEO, supported by Tony Rabb, ESS’s CFO, and Ben Heng, Executive VP of Engineering. The stock fell heavily—over 25 percent—during the trading day.

I haven’t yet been able to speak with the company, but I will post another update to CTVR subscribers and patrons after my conversation with the firm later this week.

This note supplements the CTVR Venture Review for ESS and covers a reference in the February 14 announcement about ESS switching focus to 12-24-hour LDES installations as well as a summary of Ms. Goodman’s background.

ESS is switching focus to longer duration energy storage

The announcement reads, “ESS is now actively bidding on projects for daily cycling applications in the 12 to 24 hour long duration storage market…to serve emerging AI/data center driven load needs and to firm baseload renewable production.” These installations will start in 2027 according to the release.

ESS sells two products, smaller, behind-the-meter Energy Warehouses (EWs) and bespoke, utility-grade, front-of-the-meter Energy Containers (ECs). EWs provide 75kW of power for around five hours. ECs are configurable to the needs of the utility or independent power producer buying them, and Dresselhuys told me a few months ago that ESS’s target duration was “up to 12 hours.”

Monday, February 17, I reviewed a press release from another battery-related company announcing a lithium-ion battery storage project with a surprising 10-hour duration. I believe the reason that ESS announced that it was changing strategic focus to manufacture longer duration storage solutions may be because lithium-ion batteries’ performance capabilities are starting to encroach on what ESS had considered its competitive “turf,” with storage durations in the seven- to 12-hour range.

This is one of the dynamics I mentioned in the Battery Technology Pathway section of our ESS Venture Review: “[Lithium-ion b]attery management systems are lowering battery installations’ self-discharge rates, allowing for longer storage duration.” As I mentioned in that section, there are many smart engineers backed by many billions of dollars’ worth of corporate balance sheets with a vested interest in figuring out how to make lithium-ion batteries better. If such a large advance in duration has been facilitated—either by an innovation in battery design or, more likely, an innovation in battery management software—it could change the competitive dynamics of the market, making ESS’s EW product obsolete while threatening one of its EC product’s comparative advantages.

I will discuss this with the company when I speak with them.

The other eye-catching phrase from the release refers to “AI/data center driven loads.” I could be reading too much into this, but I suspect that ESS’s strategy change may involve a shift to different target customers, from utilities to Big Tech firms.

Utilities and IPPs were the main customers for ESS’s EC line, and ESS delivered six EC units to a Florida utility in December of last year. However, selling to utilities and IPPs can be tricky and time-consuming. Utilities are naturally conservative, which leads to long sales cycles. IPPs (such as solar farms) must get approval to connect to local grids, and waiting times for those “interconnect queues” are measured in years.

Rather than waiting for a utility to adopt a nascent storage technology that would fundamentally alter the operating characteristics of its local grid or an IPP’s turn to come up in a multi-year interconnect queue, I believe ESS may be selling storage capacity straight to the Microsofts, Amazons, and Googles of the world to accompany intermittent renewable generation facilities.

While Big Tech has been accused of kowtowing to the anti-Woke ethos of the Trump administration, it continues to focus on securing low-carbon energy sources to run increasingly power-hungry data centers (such as the Three Mile Island nuclear power plant, soon to be recommissioned to power Microsoft’s AI operations).

I will discuss this topic with ESS later this week.

Kelly Goodman’s background

Upon reading that Ms. Goodman, ESS’s corporate counsel, would be taking the interim CEO position, I feared the worst for the future of ESS, thinking the company was preparing for a bankruptcy filing. However, after delving into her background, I believe there may be reason for a more optimistic interpretation.

Ms. Goodman’s longest professional tenure was with a now-defunct project developer named Summit Power Group. Summit Power Group was developing a large, complex carbon capture and storage project in the Permian Basin town of Odessa, Texas (see our series on CCS). It wrangled more than $100 million from the Department of Energy but was unable to find matching funding from private sources required to secure continued DOE support. The DOE discontinued funding for Summit in late 2016 and the company dissolved a few years later.

Ms. Goodman was Summit’s General Counsel until January 2016, when she was elevated to Summit’s board of directors until January 2017, according to her LinkedIn profile.

This timeline suggests that Ms. Goodman was brought in to negotiate private funding for Summit so that it could continue to receive DOE support. Her participation in this unsuccessful effort might be reason for concern, but the economics of a coal plant paired with CCS at a time when natural gas prices were very low made the Texas project an almost impossible sell.

I interpret Ms. Goodman’s role at Summit as working for a developer to negotiate funding for a specific expensive project, which would serve ESS well if the strategic intent is to sell storage projects to a few large corporate buyers.

There are many uncertainties regarding the decision to elevate Ms. Goodman to the role of CEO, so her professional background and fit with ESS’s current strategic plan will be my third line of questioning when I speak with the company.

The Long and Short of It

No rational investor would be happy with news of a CEO leaving a company after a large strategic shift, complete with a lawyer as interim CEO and mention of engaging “…advisors to evaluate potential commercial or financial transactions…” That said, I am not sure that the news is bad enough to warrant a 27% fall in the stock price.

In the last conference call, Dresselhuys spoke of an increasing number of EC deliveries in 1Q25 to supplement an initial trickle in 4Q24 as well as a promise of a robust sales pipeline for the rest of FY25. My fourth line of questioning is how the announced change in strategy will affect near-term deliveries and the current sales pipeline and how a liquidity infusion from the Export-Import Bank loan facility may affect the timeline of a possible fundraising event in the next year.

I still think ESS’s technology is interesting enough to warrant a position in a clean tech portfolio, but the uncertainty surrounding the company and the attendant risk of owning the stock is higher today than it was this time last week.