Ballard Power Makes Progress in Japanese Cogen Market (BLDP)

| About: Ballard Power (BLDP)

From American Technology Research analyst David Edwards' December 8th note to clients:

On November 30th, one of Ballard's partners in Japan, Nippon Oil Corporation, announced that it would make its residential kerosene-based fuel cell system commercially available on March 20, 2006. Developed by Ebara Ballard, the 1kW cogen system generates electricity and heat for residential settings. Nippon Oil expects to install 100 units by the end of CQ1 2006. We believe this is encouraging since we are expecting sales in the 500-1000 unit range in 2006 for Ebara Ballard as a whole.

Driven by the high spark spread in Japan, the Japanese government has created an incentive program through the Ministry of Economy, Trade & Industry (OTC:METI) to help stimulate sales of home fuel cell co-generation systems. The program is currently in its "large scale monitoring program" phase which lasts through 2007. During this phase, the program is providing subsidies to gas and oil companies and has a target of installing 5000 systems. Starting in 2008, the program will enter the "market penetration" phase and subsidies will start at half of the difference between fuel cell system prices and incumbent technologies. The goal is to reduce subsidies gradually and eliminate them entirely by 2012.

We think it is illustrative to look at the history of solar subsidies in Japan over the past 10 years. Over this time frame, government subsidies helped the industry scale to a $2B+ market and drop prices to a level where subsidies are no longer required. While it is difficult to be certain today, we do not see any reason why the Japanese fuel cell subsidy program will not have the same effect on the residential fuel cell industry. In fact, based on the vested interest of the gas companies, we think the fuel cell program may be even more successful in driving the industry to self-sustaining commercialization over a shorter timeframe.


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