ANALYSIS: Canada's Fuel Cell Sector Hungry For Help
Date: 01-Jun-09
Country: CANADA
Author: Susan Taylor
OTTAWA - Just as substantial sales growth seems on the horizon for their long-suffering industry, Canada's hydrogen and fuel cell developers fear missing the wave because of lack of government support.
Companies say government policies and incentives are inadequate to cement Canada's technology lead in a sector that researchers at US-based Freedonia Group see growing to worldwide sales of $2.5 billion in 2011, and $8.5 billion in 2016.
Global sales in 2006 were C$416 million ($382 million) in 2006, according to the Canadian Hydrogen and Fuel Cell Association, of which sales for Canadian companies accounted for C$133 million.
Canadian executives, who will meet with their foreign counterparts at a Vancouver hydrogen and fuel cell conference June 1-3, are lobbying politicians to provide better backing for what they say is an industry providing a clean energy source, and one in which Canada has a strong position.
"Since so many fuel cell companies are Canadian-based, it would make sense to me to regard this as a future strategic investment for Canada, in much the way South Korea supported the development and manufacture of LCD screens," said Argus Research analyst Christian Eddleman.
"If it is so regarded, then it would make sense to me to support this part of Canada's industry in tough times. The potential payoff remains large, and as long as the people of Canada received something for their timely rescue of the industry it would seem a wise move."
The government of Canada failed to renew a five-year, C$215 million investment fund for hydrogen and fuel cells that ended in 2008 despite a surge in spending in the United States and Japan, said John Tak, president of the Canadian Hydrogen and Fuel Cell Association.
Most fuel cells, which produce electricity through an electrochemical reaction rather than combustion, are hydrogen-based.
Tak estimates Canada invested about C$30 million to support the industry last year, a drop in the bucket compared with US funding of C$640 million and C$380 million in Japan.
"It is going to be an increasing struggle to raise capital and expand the sector without more substantial policy and funding support," Tak said.
Because government spending signals a vote of confidence, it helps attract private investment, he said. Private capital of C$1 billion made up more than 80 percent of the sector's research and development spending in Canada between 2002 and 2007, he said.
"For us, it's a no-brainer that government should strongly support clean tech," said Ballard Power Chief Executive John Sheridan in an interview. "We are not a sector where financial support is a big ticket item."
HOW BIG A PIECE OF THE PIE?
"We're still among the leaders, but we're at a turning point. The next five years will determine how big a piece of that pie we enjoy," Tak said.
A handful of executives joined Tak in Ottawa early this year to ask politicians to double R&D funding, introduce purchase incentives such as investment tax credits, and establish government stimulus purchase plans.
The sector is no longer a "science project", they said, and early markets for fuel cell powered forklifts, power backup, and cogeneration to heat homes are edging companies closer to profitability.
Ballard, a world leader, could be the poster child for a sector keen to show that it's all grown up.
"Worldwide, Ballard is up near the very top of that pyramid," said BMO Capital Markets analyst Brian Piccioni. "If not for the economy, I would imagine that 2009 would have been a very interesting year for Ballard."
In recent years, Ballard abandoned the fuel cell Holy Grail of hydrogen-powered vehicles to focus on more marketable products. It also secured a $34 million financing deal before markets collapsed.
Smaller companies, typically, are not so lucky. Their survival hinges on regular investments from funds that are largely frozen.
The fuel cell industry is highly dependent on government funding, Indian industry research firm RNCOS said in a 2008 report. "To remain competitive with conventional sources, huge R&D is required for development purposes," it said.
Sheridan said inadequate government support raises risks that small Canadian companies fail or become takeover targets.
"At the end of the day there's two things that work in our favour, three if you add US government support. No. 1 is we've got a value proposition that provides productivity and cost savings for customers -- they need that in this environment more than ever," he said.
"Two, despite the gloom and doom and despite the situation that oil prices are temporarily lower ... people still care about clean energy. We think that's a big impetus for us."
(US$1=$1.09 Canadian)
(Reporting by Susan Taylor; editing by Peter Galloway)
