Fuel-cell developers open door to commercialization

Fuel-cell developers open door to commercialization: Total industry revenues grow 20% to US$243-million

National Post's Financial Post & FP Investing, 29 September 2004 -

A wave of consolidation that hit the fuel cell industry last year is expected to continue as companies try to cut costs, a study by PricewaterhouseCoopers says.

"What we have seen is that there is a real desire for companies to rationalize their research and development and to acquire expertise they may not have," said Alastair Nimmons, a co-author of the report, which looked at the global fuel cell industry.

In 2003, for the first time since PricewaterhouseCoopers started keeping track three years ago, revenues for companies involved in the sector exceeded the amount they spent on research and development.

Mr. Nimmons said that milestone is a sign the industry is getting closer to commercialization.

Last year, the companies reported total revenues of US$243-million, up 20% from 2002.

While Ballard Power Systems Inc. accounted for the lion's share of that number -- it had sales of US$120-million -- other players also delivered dramatically improved sales. For instance, revenue at Fuel Cell Technologies Corp., a stationary fuel cell developer based in Kingston, Ont., jumped 157% to US$1.8-million. Hydrogenics Corp., of Toronto, saw its sales nearly double to US$26.7-million.

The study looked at the results of the world's 18 publicly traded fuel cell developers, none of which is profitable.

"We don't expect to see profitability in the majority of these companies in the short to medium term," said the report, called 2004 Fuel Cell Industry Survey.

Fuel cells, which are just starting to reach the commercial market, use hydrogen and oxygen to generate electricity.

In the wake of the collapse of the technology bubble, the sector has faced increasing scrutiny, with critics questioning ambitious plans of companies such as Ballard that hope to wean the global auto industry off of the internal combustion engine and onto hydrogen fuel cells.

Many of the most promising companies are involved in the development of fuel cells as power supplies for applications like laptop computers and cellphones.

"Commercialization will most likely first appear in portable applications," the report said, noting that this is the area where consumer demand is strongest and where the technology is closest to meeting a market need. "That's where the excitement is," said Mr. Nimmons, a senior manager at PricewaterhouseCoopers.

One of the problems with laptops and other personal high-tech devices is that they use considerable amounts of power, more than conventional batteries can supply for any length of time.

Micro-fuel cell technology is looking increasingly like it might be the answer.

The outlook for automotive fuel cell players like Ballard is gloomier, according to the study.

Despite a groundswell of early acceptance that has continued even after the collapse of the tech sector, these companies face a slew of challenges -- such as the high cost of their technology and the lack of hydrogen infrastructure. Those hurdles must be overcome before they can hope to turn a profit.

In 2003, the market value of the companies in the survey surged 50% to US$3.6-billion.

However, the trend has reversed itself in 2004, Mr. Nimmons said, calling it a worrying development for companies hoping to tap the public markets. "Financing continues to be an issue," he said.

Of the 18 fuel cell companies covered by the report, half are based in Canada, with the rest in the United States.

There is also activity in Europe and Asia, he said.

But the work there is typically carried out by subsidiaries of large corporations that prefer to keep what they're doing under wraps and out of sight of potential competitors.