By Gary Simon
The fuel cell sector has been underperforming on investors expectations for some time. The basic picture is this: In the last ten years, 32 public fuel companies in North America and Europe have raised $4.2 billion in equity, lost all but $840 million of it, sold about $1 billion worth of fuel cells, and spent about $3 billion received in government grants and contracts. So far not a single fuel cell company has shown profits.
Given this history, the question is whether there is anything which will brighten this picture. It may be good news/bad news story. The initial wave of fuel cell investment went into a technology called proton exchange membrane or PEM fuel cells. That technology is not looking so good today. While it is lightweight, inexpensive to build, and compact, it requires pure hydrogen to work. The hydrogen economy is simply not showing any signs of life. This is a serious setback for the PEM companies, since no one is making hydrogen easily available or inexpensive enough for the PEM fuel cells to have much of a market. That’s the bad news. Will that change? The big signposts to watch are the fortunes of Ballard (BLDP) and Plug Power (PLUG) as the leaders of this pack. In fact their stock prices have plunged over 90% from their peaks, so “leader” is a term used advisedly. But together they have about $66 million in annual revenue. There also may be a substantial market for PEM fuel cells in portable power applications. MCEL and MKTY are bellwethers in this space.
The main competitor to the PEM is the solid oxide fuel cell or sometimes called a ceramic fuel cell. It does not need hydrogen, but can run directly on a variety of conventional light fuels such as natural gas and propane. While it had been dismissed as a technology for the far future, several companies have made advances faster than expected. That’s the good news. Ceres Power (CWR.L) and Ceramic Fuel Cells Ltd. (CFU.L) are the bellwethers so far in this race.
Standing alone with an entirely different approach to all others is Fuel Cell Energy (FCEL) with its molten carbonate system. It so far has been the leader in annual losses, with $70 million lost in the last 12 months. It needs volume to get to breakeven, and 2008 through 2010 will be very telling years for progress on profitability as FCEL has gotten more orders than ever before.
But as much as one can find about the 32 public fuel cell companies, it only begins to paint the complete picture of what is happening in this industry. There is at least an equal number of small private fuel cell companies churning away, hoping one day to make it to the public market. It would not come as a complete shock if one of these upstarts overtakes the current leaders and sets the new standard for market performance. Several of these went the IPO route in the last two years (Protonex PTX.L, Smart Fuel Cells F3C.F, Neah Power NPWS.OB, IdaTech IDA.L). None have yet shown any breakout performance, so the question is whether they hurt or help those remaining private companies with public market ambitions.
The fuel cell industry is not for the faint of heart, and there is no way to say that a general turnaround is in sight. More than likely, the good news will be coming from some small innovative companies that have not yet gotten much recognition.
Gary Simon is a venture partner with Velocity Venture Capital in Folsom, CA (http://www.velocityvc.com) . He is the CEO of Acumentrics and a board member of Jadoo Power. Both companies are deeply involved in commercializing fuel cells. Gary is also an advisor to Camino Energy.