February 22nd, 2008 EPOD International “reorganized” and began doing business as EPOD Solar Inc. (“EPOD Solar”), a company incorporated under the laws of British Columbia.  Following the Reorganization, EPOD Solar became a widely held private company and the shares in EPOD International were de-listed from the Pink Sheets.  ( www.epodinc.com )

Millennium Cell Inc. (Nasdaq:MCEL) was pursuing a PEM based “better battery” strategy but apparently succumbed to losses prior to gaining market traction.  

On May 12, 2008 the Company announced today that its Board of Directors has terminated the employment of all executive officers and employees of the Company effective as of the close of business on Friday, May 9, and has ceased operations. The press release also noted that the Executive Committee of the Board of Directors and certain members of senior management who are serving on a voluntary basis are engaged in discussions with a corporation that has expressed interest in entering into a reverse merger transaction with the Company, which would provide short term liquidity to the Company pending completion. That transaction will require, among other things, that the Company’s common stock remain listed on the NASDAQ and that the Company restructure its existing convertible debentures in a principal amount of approximately $4.1 million after recent conversions. 

On May 27th NASDAQ delisted the Company.      

Three months ago, I offered some thoughts on this industry as an insider.  Let’s look at how those observations held up.

1.  The fuel cell sector has been underperforming on investors’ expectations for some time.    This trend continues.  A new threshold was passed as Ballard Power became the first fuel cell company to report an aggregate total loss since inception of over $1 billion.  The top four in sales (FCEL, BLDP, HYGS and PLUG) are also the top four in annual losses.  These three account for the majority of all fuel cell revenue, a total of $191 million in the last twelve months—a figure which is still growing.  The total fuel cell sales per year are up to about $300 million including private and public companies, a new record. Yet, there is still no profitable public fuel cell company.  These four leaders spent about $448 million to sell that $191 million.

2.  There may be a substantial market for PEM fuel cells in portable power applications.  MCEL and MKTY are bellwethers in this space.  The past quarter was not kind to these two and most others like them.  MCEL terminated all officers and employees on May 12, indicating it had run out of cash.  NASDAQ suspended trading in its stock May 27, seeking more information on the company’s plans.  MCEL has not filed for bankruptcy yet, but may. 

MKTY did an 8-for-1 consolidation of its shares (a “reverse split”) to boost its price back above the $1 minimum price required for a NASDAQ listing, but has less than one year’s cash on hand at the current burn rate.  Their auditors gave them a negative opinion on whether the business could remain a “going concern”.  They clearly need to do something to raise cash or cut back their cash use. 

A similar portable power company in the UK, Voller Energy on the London market (VLR.L), is also in the throes of a possible sale or liquidation with a share price below 6 pence.

Medis Technologies (MDTL) has yet to show any significant sales of its 2 watt power pack for one-time cellphone and laptop recharging.  It has a mass production line ready to meet a huge demand, but so far meaningful demand has not materialized.  The unit faces serious competition from a simple and cheap emergency recharger that uses AA batteries.  The company showed losses of $48 million in the last twelve months, and $19 million cash on hand.  Its share price recently hit a new 52-week low.

On a more positive note, portable fuel cell maker Protonex (PTX.L) has a nice pile of cash (about $30 million) that it is using slowly. 

So the score at this point is four in trouble, one doing reasonably well in the portable space.

3.  The main competitor to the PEM is the solid oxide or ceramic fuel cell.  Several companies have made advances faster than expected. Ceres Power (CWR.L) and Ceramic Fuel Cells Ltd. (CFU.L) are the bellwethers so far in this race. Both have seen a significant drop in their share prices.  CFU.L dropped 26% from 27 pence on the London market to 20 pence.  CWR.L dropped 32% from 220 pence to 150 pence.  Both bounced back a bit.  However, most of the solid oxide fuel cell companies are still private and their performance is yet to be seen.

4.  FCEL stands out with its large fuel cells and needs volume to get to breakeven, with 2008-2010  a very telling period.  FCEL is the leader in backlog for fuel cells, with now $134.7 million on the books.  However, its selling price per unit is still 40% below its costs, so volume only deepens its losses.  The hope is that with volume costs will decline.  The company has about 4 quarters of cash on hand, and it is likely it will need to raise more in order to make it to profitability.  That creates a race to get more cash before it is all gone.  It has already lost $482 million getting this far. 

5.  There is at least an equal number of small private fuel cell companies [to the 23 public companies] churning away, hoping one day to make it to the public market [and become the market leaders].  Still true and the ray of hope in this industry.  Expect to see at least two IPOs of fuel cell companies in 2009.

Gary Simon is a venture partner with Velocity Venture Capital in Folsom, CA (www.velocityvc.com) .   He  is the CEO of Acumentrics and a board member of Jadoo Power.   Both companies are deeply involved in commercializing fuel cells.   Gary is also an advisor to Camino Energy.

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Two key insights…..
 
Since the beginning of the year I have been working to identify other strategies that are developing.  Two key themes keep recurring.  First, the sustainable energy business is primarily about the renewable generation of electricity - inside the meter in the case of Solar, and outside the meter for Renewable Electricity.  Second, improved utilization of electricity is a major, but fragmented trend that has now given rise to our newest strategy, LED and Lighting.

Get used to lumens .. 
  
In the “old” days I used to measure light in watts, after all, almost all residential lighting was incandescent and of equal, if dismal (about 2%), efficiency.   Now we measure lighting efficiency as lumens/watt.  Flourescent tubes have long been used because of their efficiency (7 - 15%)  but the incandescent bulb hung on in many applications.  Compact florescence lights (CFLs) have such a big increase in efficiency, from about 16 lumens/watt for incandecents to between 45 and 70 lumens/watt, that they have really started to penetrate the market.   This happened despite their initially crummy color spectrum and form factor.   While CFL makers have been improving both of these items they are still fragile and they still have mercury in them. 

Enter LEDs…

You can now get a standard LED with a reasonable 54 lumens/watt from Cree and there are research products in the 115 - 150 lumen/watt range.  LEDs have a number of other advantages over CFLs including ruggedness, spectrum, dimming, and longevity.  Unfortunately they cost a LOT more.  Even so, LEDs are becoming a significant factor in streetlights, flashlights, autos, and architectural lighting.   Given some time I expect the research efficiencies to reach the market and costs to drop thereby opening up a bigger markets for LEDs. 
 
In fact LEDs and other efficient lighting have succeeded enough to where we now have 9 companies that pass all our index screens with a market cap of USD 10 billion.   This is bigger than Camino’s Biofuel index and the largest of the electricity utilization activities.  I now feel the strategy is of sufficient importance to cover.  Hence the LED & Lighting index which Camino has computed since March 31. 

Changes to the site..
 
The Camino company research database and return computations continue to be available to users for free.  It’s a great way to browse the business using some key company attributes.     
 
The research tools and index tracking on Camino have allowed me to take profitable positions in 16 Renewable Electricity companies since October 2007.  The tools also allow me to write my “Week in Sustainable Energy” review.   Because of the growing investment in these tools, and my desire to increase this investment, Camino now makes its core index tracking and risk analytics available for a small fee.  Check out a sample of our new index report for the LED index, or test the site with a free trial. 
 

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For the last two months I have been providing commentary on sustainable energy stocks for Neil Dikeman’s cleantechblog.com  This is a great site and provides insightful commentary on topics I’m interested in.  

My commentary has been getting picked up and republished at some other well know sites.