It is lonely at the top and that is just where Hydrogen sits - at the top of the periodic table. It holds that position with the atomic number one. Unlike glamour elements like gold or silver, Hydrogen rarely gets noticed. It is colorless, odorless, and tasteless. The thing is, Hydrogen is also the lightest element, a gas in its normal state. That makes it highly flammable and dangerous.
Nonetheless, Hydrogen is also the most abundant element in the universe. It is also the friendliest, forming compounds with most of the other elements. There it is in the water we drink - H2O.
Since there is so much of it, Hydrogen cannot be ignored by in the quest for solutions to our looming energy problems. What promise does Hydrogen hold? Quite a few developers think the answer is considerable. There are twenty-five companies with listed securities in our Renewable Energy Index that are pursuing one element or another of Hydrogen as fuel. Most likely there are twice or three times that many private companies in the field. We picked three out of the crowd that either have market-ready products, customers and/or revenue.
The first two are working with Direct Fuel Cell technologies and have found success with “reforming,” i.e. using a fuel processor to convert hydrocarbon fuels into a gas mixture of Hydrogen and other gases. Medis Technologies Ltd. (OTC:MDTL) is a bit circumspect on its fuel source, indicating simply that it is a patented proprietary fuel. FuelCell Energy, Inc. (NASDAQ:FCEL) uses plain-old pipeline natural gas to set up the Hydrogen/oxygen reaction inside the cell. In contrast, Ballard Power Systems, Inc. (NASDAQ:BLDP) produces fuel cells that use Hydrogen as a raw fuel.
Medis Technologies is targeting its Medis 24/7 Power Pack at the market for handheld devices, such as smart phone multimedia devices and power tools. The Medis 24/7 Power Pack is a disposable charger or auxiliary power built on patented direct fuel cell technology. One unit is expected to give up to 30 hours talk time for a cell phone or up to 80 hours listening time on an iPod. It produces no discernible heat output and is environmentally friendly. Medis has managed to get the expected cost down to affordable levels for consumers with a suggested retail price $19.99 to $24.99.
The key to the price level is production. Medis is installing a production line in Israel that could produce up to 1.5 million units per month when fully operational in 2007. A big hurdle for market introduction is certification by Underwriter Laboratories, a process Medis started last fall.
Recently Medis signed a memorandum of understanding with two Russian groups, which will help Medis get its Power Packs certified for sale in Russia. The Russian partners have pledged to buy initial units produced in Israel, but will later set up production facilities in Russia.
As exciting as all these events might seem, investors are presented with a dear stock price ($24.46, 10/27/06) given that Medis is still several months away from production and sales. There are two published estimates for MDTL with apparently widely divergent views on the next year. According to First Call, one analyst expects a profit of $0.50 per share in 2007 on over $100 million in sales and the other expects a loss of $0.59 per share on $65 million in sales.
Ballard Power Systems has remained loyal to using Hydrogen as a raw fuel in its Nexa product, partly because of the limitations presented by the “reforming” step. The fuel processors used by FuelCell Energy are dependent upon a strong distribution system for the fuel source. Natural gas, for example, is available only for stationary applications, limiting FuelCell Energy to its target market of power generation. Methanol is easier to convert into Hydrogen but methanol is in limited supply. Medis is able to target portable applications because its fuel source is “on board,” that is already in the product.
A readily available fuel source is a key for Ballard, since it has set its sights on the electric vehicle market. It has allies in DaimlerChrysler and Ford Motor Company, which along with Honda, have introduced fleet demonstration vehicles to customers. Ballard also formed a partnership, Chrysalix Energy, with Shell Hydrogen to fund development of transportation infrastructure and support services. In fact, Shell Hydrogen signed an agreement last week with Proton Energy Systems, a subsidiary of Distributed Energy Systems Corp. (NYSEARCA:DESC), to install a Hydrogen fueling system in the New York City area to demonstrate Hydrogen generation technology for vehicle fueling. Air Product, Inc. (NYSE:APD) is also a partner in the project.
Ballard’s first commercial fuel cell product, the Nexa power module, has been around about five years now. This product, along with materials, has helped build Ballard’s sales to $62 million in the twelve months ending June 2006.
Ballard is burning cash at the rate of about $10 million per quarter on operations. With $213 million in the bank at the end of June 2006, Ballard appears to have the resources for several more years to develop its technology. The nine analysts who have published estimates for Ballard are not looking for profitability any time soon. The First Call consensus estimate is a loss of $0.55 per share on 2007 sales of $79.0 million, representing only a small improvement over the consensus estimated loss per share of $0.66 on $62 million in sales.
Unlike Ballard, FuelCell Energy is targeting stationary applications, rendering the fuel sourcing and transportation non-issues. Using Direct Fuel-Cell technologies, FuelCell Energy has developed fuel cell power plants ranging in size form 250 kilowatts to 2 megawatts. Light industry, hospitals, schools and server farms that need back-up power sources are ideal customers. One of its most recent sales was to a buyer in the hospitality industry in California, which will use the 750 watt power plant to supply base load power for hotel operations. The heat byproduct from the power plant will be used to heat water for guest rooms.
FuelCell Energy not only has a broader analyst following than Medis, they also appear to be in agreement on next year’s prospects. The First Call consensus estimate is for a loss of $1.37 per share on $40.0 million in sales.
Beyond fuel cell technology, another important question is whether there are alternative energy sources, such as biofuels or lithium ion batteries that will ultimately gain wider acceptance. For example, EarthBioFuels, Inc. (EBOF.OB) is trying to put biodiesel fuel branded as “BioWillie” into gas stations around the country and Altair Nanotechnologies, Inc. (NASDAQ:ALTI) has been demonstrating its advanced lithium ion batteries in an all-electric fleet truck and an SUV.
We believe the market for energy sources is diverse and multiple applications are needed, leaving room for numerous players and technologies. The winner, if there is to be one, will not be apparent for some time to come. In the meantime, investors can look to small capitalization companies to apply their usual pluck and skill to harnessing Hydrogen.
Disclosure: Neither the author nor any persons associated with Crystal Equity Research holds a beneficial interest in any of the securities mentioned in this article.