Fuel cells: the Holy Grail for green energy?
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Associate Editor
David Stevenson Mar 19, 2010
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The 'Holy Grail' of the energy world, says InvestmentU's Dave Fessler, is a resource that is clean, has no emissions and is cheap. But does such a resource exist?
The 'clean' and 'no emissions' parts are relatively simple: it's the cheap part that's elusive, he says. The trouble is, that's "the most important", too, with higher oil prices and more interest in alternative energy due to global warming. Solve the price conundrum and you can "kiss dirty coal and lofty oil prices goodbye".
Among green energy sources, solar and wind power have their supporters, while geothermal energy – extracting power from heat stored within the earth – could prove to be a major winner. But for the future Daddy of power production, you need to look elsewhere – at fuel cells.
These are electrochemical cells that convert a source fuel such as hydrogen into an electrical current. The idea is not exactly new – the principle was discovered by a German scientist and the first fuel cell demonstrated by Welsh scientist and barrister Sir William Robert Grove in 1839.
Update: French Connection
On 22 February we tipped bombed-out UK retailer French Connection (LSE: FCCN) at 31p as a high-value recovery stock. This week the company reported the sale of the Nicole Farhi brand and closure of its loss-making operations. So a return to profitability should happen quickly.
Although the shares have jumped to 47p on this welcome news, the long-term case for French Connection still looks sound, even taking account of disposal costs. The market cap is less than 25% of sales, while the net asset value (NAV) tots up to 74p per share. There's no debt: indeed almost half of the NAV is cash in the bank. So long-term investors should stay put. Short-term traders should take the 50% profit within two months off the table now.
Fuel cells are the classic clean energy source. You can run a car on one and the only emission would be pure water. So why haven't they taken off? In short, because of cost. Fuel-cell-makers must ensure they generate heat and power at least as efficiently as other conventional methods and at no greater expense. But a lack of technical know-how has hampered commercial applications – until now.
"Fuel cells have been too unreliable... and expensive to compete with conventional energy generation," says Tom Bulford in Red Hot Penny Shares. "The key to the advance of fuel cells is design and materials technology. Hydrogen fuel cells have been touted as the successor to the petrol engine. But the need for a network of hydrogen filling stations to match that of petrol stations has been a hurdle."
Yet progress is being made. Privately-owned Californian company Bloom Energy has developed the Bloom Box. Former Nasa scientist and chief executive KR Sridhar calls this as an "energy game-changer" and a "power plant in a box". Sridhar says one cell can power a light bulb, while 64 cells could light up a coffee shop. And "compared to the US national grid, this is about twice as efficient", he says. "If you use a renewable fuel, you're carbon neutral."
Although you can't get hold of shares in Bloom – for the moment, anyway – we look at below one of the sector's stocks that you can buy.
The best bet in the sector
Aim-quoted AFC Energy (LSE: AFC) makes alkaline-based fuel cells. And this Surrey–based business has "finally cracked it", says Bulford. "It's capitalised on global demand for clean coal by developing a low-cost, high-profit process. And it's close to making big money – potentially supplying some of the world's biggest industries."
AFC has applied its fuel-cell technology to the Underground Coal Gasification (UCG) gas removal process operated by Australian firm Linc Energy. This involves supplying its fuel cell systems and also receiving royalty payments from Linc from the sale of the electricity generated. AFC has also been working with Dutch chemical giant Akzo Nobel and Alter NRG Westinghouse, the world's largest producer of plasma torches, on other energy-generating technologies.
There are two snags. First, the market has cottoned onto AFC's potential, so the shares have risen from 15p to 23p in the last month alone. Second, this is a high-risk investment. The stock's market cap is just £35m and profitability could be some years away. But if you're prepared to take the plunge, the rewards could be massive. Allenby Research values AFC at some 33p a share, while – based on its UCG work – Bulford has pencilled in a 50p target price.
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