Bay St Week Ahead:Canada warms to alternative energy cos
Sunday October 19, 10:48 am ET
By Rachelle Younglai
TORONTO, Oct 19 (Reuters) - Hopes of fulfilling the dream of cheap and clean alternative energy sources have given Canada's fuel cell and hydrogen-related companies a lift this year, thanks to government cash, fears about existing oil supplies and a U.S. drive for cleaner power.
The sector, still below peaks seen during the tech boom, has been helped by a C$215 million ($163 million) Canadian investment to promote the use of hydrogen and fuel cells and by U.S. President George W. Bush's plan to bolster cleaner sources of energy.
And the August blackout, the biggest in North American history, increased the lure of fuel-cell generators, boosting investor optimism that alternative energy companies may be closer to delivering on their promises.
"People are starting to think that maybe fuel cells will become a reality, said David Smith, an analyst with Smith Barney Citigroup.
Even OPEC's decision to cut back on production in a bid to prop up oil prices has acted as a catalyst, the analysts said.
"We certainly saw a positive shift in government spending. We could see this sector hit the limelight again," said Chris Kwan, an analyst with TD Newcrest International.
In the past year, Ballard Power Systems Inc. (Toronto:BLD.TO - News) stock has risen 30 percent, Hydrogenics Corp. (Toronto:HYG.TO - News) has climbed 73 percent, Stuart Energy (Toronto:HHO.TO - News) has increased 78 percent, and Global Thermoelectric Inc. (GLE.T0) has soared 219 percent, driven partly by a takeover bid.
Government support, coupled with general malaise over aging power systems and fluctuating oil prices, has helped rekindle the alternative energy flame of the 1990s when heady investors poured millions of dollars on the dream of a hydrogen economy.
That optimism soured in 2001 as progress seemed to stall despite years of research. Investors, weary from the tech bust, pulled out of any company with a whiff of unfamiliar technology.
Vancouver, British Columbia-based Ballard, once the darling of fuel-cell companies, led the decline, plummeting from its 2000 highs of around C$200 to less than C$20.
Stuart Energy and Global Thermoelectric also took huge hits, sinking 80 percent to 90 percent.
The dramatic sell-off forced the industry to reposition itself.
Over the past year, some companies started putting dates on when they would break even or become profitable.
Ballard says earnings before interest, tax, depreciation and amortization could break even by 2007, Hydrogenics expects the same before the end of this year, and Westport Innovations (Toronto:WPT.TO - News) expects to be profitable by 2006.
"There's a perception that that translates into commercialization," said MacMurray Whale, an analyst with National Bank Financial.
The fuel-cell companies are strengthening ties with the auto industry and forming strategic partnerships, and analysts say the extra investment shows there is a future for hydrogen and fuel cells. "Why else would GM and DaimlerChrysler invest millions?" Kwan said.
But problems continue to plague the sector, not least of which is how to make the products commercially viable and how to store and distribute hydrogen.
Peter Wressell, head of research and development for Stuart Energy acknowledges the concerns but says the challenge is "an adoptive issue, not a tech issue."
"People always associate hydrogen with infrastructure problems," he said. "But if you think about it, the infrastructure is there. Wherever there is water and electricity you can have hydrogen."
Analysts say the technological risk is a lot lower than it used to be.
"All these companies have made progress," Whale said. "Now the issues are less about cost and more about durability."
($1=$1.32 Canadian) |
