Alternative Energy a key topic in Wall Street Transcript Canadian Technology Issue
Thursday June 2, 10:20 am ET
67 WALL STREET, New York--June 1, 2005--The Wall Street Transcript has just published its CANADIAN TECHNOLOGY issue, a report offering a timely review of the sector to serious investors and industry executives. This 85-page feature contains a roundtable forum of leading analysts covering the major topics, expert interviews on individual sectors with 3 additional analysts, an investors perspective from a leading money manager, and in-depth interviews with top management from 10 firms. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
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Topics include: Spending on R&D Software for online gaming, Impact of US dollar, Availability of programming talent in Canada, Customer demand, Impact of Sarbanes-Oxley, Business intelligence companies, Enterprise content, Semiconductor Sector, Software Sector, IT Services Sector, Alternative Energy Sector, Wireless software companies, Investor interest, Valuation discounts, Foreign ownership of Canadian companies, M&A activity, Stock recommendations, Stocks to avoid, Private software companies. Analysts include: Mike Abramsky of RBC Capital Markets; David Shore of Desjardins Securities, Todd Coupland of CIBC World Markets, Paul Bradley of Fraser Mackenzie Ltd., and Jonathan Hykawy of Fraser Mackenzie Ltd.
Companies mentioned include: Cognos (COGN), Hyperion Solutions (HYSL), Business Objects (BOBJ), Open Text (OTEX), Geac Computer (GEAC), Research in Motion (RIMM), CryptoLogic (CRYP), Workbrain (WB:TSX), Mobile Data Solutions (MDSI), GEAC (GEAC), Merge Technologies (MRGE), Nokia (NOK), Apple Computer (AAPL), Bioscrypt (BYT:TSX), Chartwell Technology (CWH:TSX), Digital Dispatch Systems (DD:TSX), AirIQ (IQ:TSX), 724 Solutions (SVNX), Descartes Systems Group (DSGX), DataMirror (DMCX), Hummingbird (HUMC), Ericsson (ERICY), Nortel Networks (NT), Flextronics International (FLEX), Jabil Circuit (JBL), Sanmina-SCI (SANM), Celestica (CLS), Plexis (PLXS), Solectron (SLR), Merix (MERX), Leitch Technology (LVIDF), DALSA (DSA:TSX), Gennum (GND:TSX), MOSAID Technologies (MSD:TSX), Tundra Semiconductor (TUN:TSX), Creo (CREO), Rambus (RMBS), March Networks (MN:TSX), Reuters (RTRSY), Thomson (TOC), CGI Group (GIB), MacDonald, Dettwiler and Assoc. (MDA:TSX), Dell (DELL), Intel (INTC), Microsoft (MSFT), STMicroelectronics (STM), Broadcom (BRCM), Zarlink (ZL), Given Imaging (GIVN), Ballard (BLDP), Hydrogenics (HYGS), Fuel Cell Technologies (FCT:TSX.V), VRB Power Systems (VRB:TSX.V).
In this brief excerpt, Jonathan Hykawy discusses the outlook for Alternative Energy companies in Canada.
TWST: Let's touch on your alternate energy space. What's going on there?
Mr. Hykawy: Obviously we in Canada have some very interesting names when it comes to the fuel cell space - Ballard (BLDP) and Hydrogenics (HYGS) and others. I'm not a big fan, unfortunately, of either Ballard or Hydrogenics. I'm not a huge fan of the core technology that they use. Both of them build what are known as proton exchange membrane or PEM fuel cells.
PEM fuel cells require very pure hydrogen to operate, which is hard to come by and expensive when you can find it. They require platinum as a catalytic material. Platinum obviously is not inexpensive, and if we suddenly start using it in large quantities to build fuel cells, it would become even more expensive. They also require a proprietary material to act as a membrane within the fuel cell. Essentially that material acts as an electrolyte and separates the two electrodes without electrically short circuiting them, and is called Nafion. Nafion is very expensive at present.
I have a difficult time as far as Ballard is concerned in believing that ultimately a fuel cell is going to replace a $50 per kilowatt internal combustion engine. I think in the near term and perhaps well into the longer term, we're going to see gas/electric hybrids as a method of improving fuel economy long before we see fuel cells.
As far as the hydrogen goes and the requirement for the hydrogen, the infrastructure to move hydrogen around is far too expensive for a lot of reasons, not the least of which is the fact that hydrogen is a lousy fuel because it's very difficult to liquefy and, therefore, very difficult to transport in any meaningful quantity. You can't really put it through a pipeline for much the same reason that it can't be trucked easily. It doesn't like liquefying, and it doesn't like to compress down to any extent. So it's difficult to economically move it along through a pipeline.
Frankly, although the concerns over safety have been overblown, if you'll pardon the pun, the whole idea of the amount of money that it would take to convert filling stations, not just to produce the hydrogen but just to be able to put a gaseous fill in a tank - well, it's difficult to see who's going to foot that bill.
So you've got sort of a chicken and egg problem, probably a step worse than a chicken and egg. Even if the fuel cells got inexpensive enough to put in an automobile, who would put them in an automobile, given that there is nowhere to refuel them? Why would you build the refueling infrastructure if no one has fuel cells in a car? There's no real way out of that other than legislative. The only good legislative reason to require it is if this were a wonderfully green and inexpensive technology.
It's certainly not inexpensive, and as for being green, the primary method for producing hydrogen is steam reformation of natural gas that produces huge quantities of greenhouse gases. The other methodology for doing it is electrolysis of water. People tend to point at that and say, "Aha! You're starting with water, and you're going to produce water out of the tailpipe; this is a no-brainer." Unfortunately, there's a 40%-60% wastage of electrical power because water is a difficult molecule to break apart. It's very strongly bonded. That's why there's so much water around.
So when you can't break it apart easily and you're wasting a lot of electricity doing it, you kind of question what you'd rather be doing with all of that electricity.
TWST: So hydrogen is a dead horse as it were.
Mr. Hykawy: There are some names that we follow, smaller names for the most part, but we believe there's some good potential in those names. A Canadian company by the name of Fuel Cell Technologies (FCT
Obviously you have to be very careful with ceramic that's heated up to 1,000 degrees. It doesn't like to be bounced around, and it certainly doesn't like to have cold air squirted down inside of it or it will shatter. But these are stationary fuel cells. They're extremely efficient. Because of the operating temperature, they can run on a variety of fuels. They don't need hydrogen. They'll run on hydrogen, but they can also run on natural gas, on diesel, on alcohol, on pretty much anything that you'd like to feed them as long as it's metered in at the correct rate and vaporized properly. The waste heat that comes off of these units comes off as very high quality waste heat because of the temperature, so you can use the heat in an industrial process or you can use it to heat water and air for a home.
As I said, the cells are very efficient in terms of their fuel use. They're about 40% electrically efficient, which is higher than any other fuel cell. They are partners with Siemens
They also have a development agreement with TOTO Advanced Ceramics out of Japan. TOTO is helping FCT build a 2 kW system that will likely be used in residences in Europe and in Japan. The market for these things in terms of a unit that sits in the home, whether it's 5 kW system or a 2 kW system, is not particularly strong in North America. There are certain regions where there is enough of a disparity between the per kW hour price of natural gas and the per kW hour cost of electricity off the grid that it's justified. I'm thinking in particular of California right now. In Europe and in Asia, it's a no-brainer. Natural gas is relatively expensive compared to what we pay in Canada, for instance, but electricity is off the chart.
FCT's technology is also going to be leveraged, my impression is, by Siemens for use in larger systems. So if they start building 500 kW units or 2 MW systems that substitute for turbines or coal-fired plants somewhere, there's no problem with that. FCT will gladly collect a royalty on what they do, which is controlling those stacks and making sure they survive for extended periods. So that one I find very compelling.
The other name that I think we're watching with interest is a company called VRB Power Systems (VRB:TSX.V). VRB actually stands for a multi-syllable title, vanadium redox battery. This is a technology that essentially allows you to store very large amounts of electrical energy. The battery systems that VRB builds basically can store up to 10 MW power levels and meter that power out over the course of four or eight hours. The smaller systems they build probably go down to about the 5 kilowatt level for, say, four or eight hour intervals. They're designed to replace the large lead acid battery stacks that would go into backing up a cellphone tower.
Their larger systems could do anything from sit next to a wind turbine and allow the wind turbine to store power that's generated off peak and provision it out to the grid on peak, right up to one of their existing installations which is used by PacifiCorp in Utah. It basically sits at the end of a transmission line. Demand at the end of the transmission line becomes at peak such that the transmission line would have to be upgraded, which is an expensive process.
What they did instead was put essentially one of these large batteries at the end of that line, charge it overnight and use the excess power during the day to cut off the peak. As a result, it was a much cheaper way for PacifiCorp to continue to provide the right level of power to their customers but basically save themselves money in the long term. It's a very interesting technology.
The Wall Street Transcript is a unique service for investors and industry researchers-providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 85 page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
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