Friday, 11 March 2011

Macro Level Trends – Clean Tech Transportation – The Return of the 'Alternatives' Band Wagon

As seen recently, the greater any surge in oil price the more vocal the alternative energy crowd. None more so than clean tech companies who seize their opportunity for yet another 'moment in the sun'.

It is only to be expected of course, that those whose businesses are built upon a the CO2 reduction remit, and who typically critically suffer from the the cost differential between old and new technologies - should seek to take advantage of the general disgruntle created by what theorists would see as a sentiment-ruled market inefficiency.

Clean tech has an undeniable role to play in the future of power generation and personal & mass transportation. Yet before major leaps of faith are made, the true cost-benefit rationale for specific technical solutions married to specific uses must be made. A rationale made watertight at both macro and micro levels, and one which avoids proffering scenarios based upon an over-blown, fear-led basis.

This is the only way that both paradigm-evolving and paradigm-breaking clean tech solutions will be broadly adopted over time and ultimately make the 'big-picture' difference.

Historically, clean tech answers – especially in the automotive field, but elsewhere also – result from times of national or international recession. Why? Because such times are usually accompanied by volatile oil prices generated from geo-political unrest and the concomitant speculative markets' rush. In addition, the slow rebound of economic activity itself adds input cost pressures along the supply-chain so creating an inflation effect which loops back to oil price expectations, futures contracts and once again to speculative interest.

Within Europe, observers may try to simplistically parallel today's conditions to the 1956 Suez Crisis and 1973 O(A)PEC Embargo, but the context presently appears very different, given that UK military intervention in looks unlikely, which may create a general non-intervention template for NATO, using only UN mandates to affect remote influence.

Yet, even though concerns about oil-supply threats are realistically presently very remote - given that OPEC has quelled worries – recent events have once again driven sentiment to question the topic of imported oil and so re-highlight the level and efficacy of oil-use.

As many know, in response to that 1956 UK petroleum supply threat and pump-price concerns, Leonard Lord (then Chairman of Austin-Morris) briefed management to set about the task of creating a radically reformatted, but essential conventionally engineered, petrol-sipping small car. The Issigonis Mini was part of an economy (and economic) drive that was ostensibly similar in vein to the re-manufactured 1946 Beetle, the 1948 2CV and the 1955 600, and was itself partly born from this European competitive threat. These largely mechanically conventional yet evolved cars, then created a new age of more affordable, lower polluting, more enjoyable and safer motoring when compared to their pre-war counterparts: whether the heavy big-engined 'dinosaurs' or indeed the previous examples of small-cars, from the cycle-cars to the Austin 7 to the Ford Model-Y.

These auto-solutions which in turn helped generate national wealth were developers of the contemporary technical & economic paradigm, not breakers of that paradigm.

Yet also at that time more adventurous R&D efforts were at work in the UK, US and Europe, the former two bedazzled by the promise of EV's from the mid-1950s to the early 1970s. Whilst Germany forever sought to seize its technical lead in the manufacture of various gases – hydrogen of course a central theme. Rover Cars even explored jet inspired 'turbine technology' as part of Wilson's 'White Heat' rhetoric. But not unsurprisingly that future-tech programme developed little beyond exploratory prototyping, the economics of its business plan derisory compared to the ever greater capex and piece-cost efficiencies of ICE and its increasing performance proficiency.

In short, the business models devised by many future-tech ventures across most scientific energy realms did not stack-up, even when provided a commercial push-start by government or private capital.

Perhaps all the tormenting in the UK since its electrified city tram systems (born from the success of London Underground) had been joined by similar pantograph-fed trolley buses and a proliferation of (route-based) electric delivery vehicles – primarily the milk float. These notionally zero-emissions vehicles were themselves replaced by ICE-based successors when refurbishment costs of both vehicle fleets and aligned infrastructure proved too high – the milk float the only lasting representative given its very basic construction, its depot-based recharging base and its limited range non-varying delivery demands.

Industrial historians will cite that such national efforts and the more radical private ventures were born from a mixture of national 'new-age' optimism. Having seen massive progress in the early part of the 20th century and the need to physically and ideologically re-build after WW2, civil servants working with Keynesian mindsets had an effectual remit to spend the (often borrowed) public monies available. This optimism boosted by the 'tomorrow's world' stories presented by scientists, technical developers and inventors hoping to “change the world”.

Unfortunately, the transition from the essentially unrealistic protected public funding sphere into the commercial world proved impossible for many, even with the support of newly established innovation commercialisation agencies such as – here in the UK – the Industrial and Commercial Finance Corporation – which itself latterly developed into 3i. Failures typically arising from an inability to fully appreciate the true dynamics of B2C or B2B markets, as a result of 'blind new tech' insistence itself boosted by overtly optimistic marketing research and business plans.

Interestingly, placed between these 2 groups were (and are) mid-termist investors who saw an opportunity for what is effectively commercial arbitrage.

Their remit, to ride the wave of the new-tech dream so as to exploit the technical advances (or appearance thereof) made via the public purse, create a convincingly structures business from which to subtly 'threaten' the sector incumbent old-tech manufacturers. Thus positioning themselves as the archetype 'technology disruptor'.

Yet, given the primary interest in the investment story (ie maximum IRR over shortest period) such an investor takes one of 3 routes to exit his position:

1. grown to a point where seen to be credible as an IPO vehicle with a 'scale-up' story, and selling majority stakes.
2. ripened for 'trade-sale' to the old-guard industry itself, thus eliminating the new-tech competition.
3. achieve the IPO and continuing to evolve the business whilst publicly-listed so that any take-over – friendly or hostile - ultimately costs yet more and delivers greater investment returns.

Each party involved then plays a specific role in the process, respectively presenting: (long-term) 'environmental context' from government, (at-hand) 'technical opportunity' espoused by the pioneer, and (medium term) 'investment opportunity' by private equity.

This of course is not always the case, but the apparent strategic intent of developing and commercialisng innovation can be problematic as a consequence of the possible non-alignment of differing parties ultimate agendas.

Automotive manufacturers found themselves facing such a situation throughout the latter part of the last decade, having to attune to what appeared a real threat from the EV brigade, itself supported by eco-conscious international governments. Hence the push for in-house development of EVs along with primary focus on Hybrids, aswell as the purchasing of stakes in new EV ventures, such as Tesla by Daimler or Global Electric Motors by Chrysler.

[NB The fact that both EV companies simply adapted off-the-shelf vehicles as their base (sportscar and golf-buggy) as opposed to fully developing in-house vehicles, could be argued as a relatively low-cost the short-cut to creating a 'disruptive technology' business].

Yet given that VM's businesses are actually ICE focused, so they must primarily attend to their 'bread & butter' technology. A recent example being Daimler's JV intention with Rolls-Royce plc to take majority control of Tognum AG, German manufacturer of large engines generator sets across many sectors.

The acquisition presumably designed to maximise exposure to the expected truck-sector sales uplift, to broaden Daimler's sectoral reach, to leverage multi-party manufacturing synergies, to give greater global cross-marketing reach, to target rural-based, motorway-linked truck-fleet operators that often require independent in-situ power generation (esp in EM regions), and also add R&D prowess when tendering for military vehicle, specialist vehicle and marine propulsion projects.

Critically, by also gaining a foothold in the 'in-situ generator set' power market also places Daimler itself at the forefront of eco-tech regulatory demands and so learning. Learning which for Daimler assists its diesel (& general ICE) R&D development in emissions and noise - along with its usual eco-efforts in light structures, aerodynamics & mechanical parasitic loss in drive-train and chassis systems. Thus to an extent seemingly mimicking Honda's learning from its generator division, and as such should theoretically gain greater appreciation for power generation, delivery and use at a 'systems-level'.

Daimler then reflects the multi-aspect approach which most large long-lived VMs have had to take when periodically faced with assertions of technology-disruption possibilities, which in turn has driven greater innovations in their conventional technologies and provided them to explore self-involvement in broader industrial sector possibilities. It was seen in the US during 1930s-50s when GM, Ford and International Harvester expanded into household equipment for remote farms and more recently by PSA's efforts to create a rental-based consumer 'mobility package' via 'Mu'.

Of course not all clean tech ideals end in 'broken dreams', if anything the major improvements in CO2 reduction & fuel efficiency over the last 4 decades have been complimentary solutions which work with sympathetically with the PESTEL context; as opposed to the more visible attempts of 'paradigm-shift'.

Hence the success of programmes such as Brazil's previous conversion to bio-ethanols derived from agro-policy, the proliferation of CNG/LPG in Pakistan, Argentina, Iran and Brazil aswell as India's conversion of the aging Bombay taxi fleet to run on CNG. Though it should be noted that such CO2 reduction 'progress' is often politically motivated relative to the evident pollution problem (as seen with Los Angeles) or more typically the energy policy of any nation-state, itself dependent upon domestic natural resources and/or the (in)ability to properly secure the import of oil or petroleum.

This is precisely why Germany's automakers have always maintained an R&D capability focused on gas powered vehicles, ranging from CNG seven series (able to swallow the large gas cylinder) to hydrogen powered buses (able to package the fuel cell). But maintaining that kind of R&D capability for the 'last resort' good of the nation does not mean that ability naturally aligns – let alone lead – the major focus of BMW's, Daimler's or VW's commercially-based technology strategy which must pander to convention and the 'way of the world'.

Big picture changes are typically only achievable when driven by a governmental will that has both direct control of energy generation and transport issues aswell as sizable public funds to pay for the switch; this exemplified by the transportational electrification of Europe, the UK and US in the early 20th century. Yet even given this near omnipotent power for change, it seems that ultimately that maintenance of such an imposed 'alternative' system proves costly, and thus latter replacement programmes will favour 'normative' technologies that prove affordable, especially so during times of economic stress.

Hence progressive eco-change has greater chance of success if aligned – and so less disruptive - to both vested interests and end-users.

However, in direct contrast to Germany's broader energy & auto technology palette, those notionally other 'advanced' countries without a domestic auto-industry such as the UK, Spain, Norway, Switzerland and now (increasingly) Sweden, face an alternative dilemma.

They have a self-interest in promoting new and alternative technologies which at worst can serve as a national crisis back-stop (as seen by Germany) and at best can create a technology bridge into the future, by which other nations can be led.

Yet whilst a worthy cause, such progressive efforts are in reality partially-handicapped by not only the power of 'normative' conditions – such as the typically affordable oil-based global economy – but by a domestic industrial policy which seeks to attract a broad-base of FDI, some of which aligns to cutting edge eco-tech, others not.

[NB. Here in the UK we see government court the likes of leading- edge Toyota, Honda & BMW whilst also seeking to have China's SAIC re-instate the MG production which itself is based upon decades-old engineering, itself adapted to lesser Chinese tech-maturation demands by a UK engineering team].

But beyond the micro-level, perfect storms at the macro-level storms create seismic shifts – these apparent in 'normal' cyclical recessions. Yet massively exacerbated by the 2008-9 financial crisis.

Thus, unsurprisingly given the type and influence of external forces, an (historically prescribed) optimum technology path is to follow 'the middle way' – less Confucianism more necessary neo-conservatism. A viewpoint well articulated by Lord Brown here in the UK recently when assessing how the future of diminished government R&D funds should be utilised: the conclusion - better aligned to the realities of the short & mid-term than the sci-fi dreams of the long-term.

Prior to the financial crisis, the headway being made by clean tech companies appeared impressive. The consequence of a bough-wave of western governments' eco-ideology underpinned by massive (often leveraged) levels of liquidity seeking plausible homes, and birth of the carbon-credits exchange. This mix imbued even the most marginal of clean tech stories with a plausibility if set along a new-age chronology time-line. With governments broadly agreeing the intent of CO2 reduction rates to be achieved by 2030 or 2050, the general edict was that if mankind left his 'good works' to later rather than sooner, the more radical the technological solutions would need to be to contain the world's 'parts per billion' pollution rate.

Thus, the memory Al Gore's memorable 'stratospheric' CO2 chart still lingers today, even if the soundness of the science has been doubted given revelation of UEA massaged data.

However, our ability to re-act to that arguably over-blown eco-crisis has undeniably been tempered by the financial-crisis. Its consequences have now created a period when even the US $ and Euro have had the very foundations of their innate 'value' massively disrupted. Each currency's notional value arguably differing dependent upon the 'holding viewpoint': whether in domestic government hands, private enterprise hands, investment hands or in foreign hands.

This new era then demands far greater critical assessment of the viability of new eco-tech ventures, and even deeper due diligence of any company seeking such funds. This all the harder to do when the 2 foremost 'world reserve' currencies have become as fragile as the environment.

The necessary attitude of neo-conservatism toward the funding and R&D direction of eco-tech has unfortunately been undermined by the large schism between US and EU monetary policy approaches.

Contrasting QE philosophies demonstrate that whilst Europe stays candidly cautious, the US acts with immense hubris. This innate difference between monetary policy approaches will have sizable impact upon eco-investment rationale domestically, regionally and internationally.

In short, and in very general terms, the advent of European 'tight-money' and its need to co-ordinate strategic direction en mass means that it (predominately Germany & France) take greater time to assess and plot the courses of corporate and national eco-tech.

Contrarily, the US is now able to essentially throw money at self-developed and bought-in solutions, presumably then latterly applying an industrial-policy funnel to identify those solutions most appropriate for longer term refinement – ie those that fit into the contextual paradigm.

The following then expands upon this observation, itself relative to the previous web-log post 'Liquidity & Linkages”:

The US's massive QE actions beyond re-capitalising the banks and assisted select companies (GM & Chrysler) also appear intended to re-build the 'animal spirits' of Wall Street. This 'cheap money' as we see seeking-out various typically macro-theme-related opportunities, ranging from event-driven speculation regards specific commodities to taking additional equity stakes in those US companies with good EM exposures and sector relevancies.

Yet, given the need to create a renewed eco-centric US manufacturing base, such monies will be unquestionably directed at clean-tech. Beyond the prime expectation of a US shopping spree across the world to pick-up well-formed eco-tech, the question arises as to whether such monies spent within the US itself will be backed by truly meaningful business case expectations, or will liquidity be directed across the board, from the deserving good, to the questionably bad?

In contrast, here in Europe, the far more contained QE stance undertaken – directed by the Deutsche Bundesbank and Bank of England – means that liquidity whilst available is still relatively expensive, a consequence of banks having to charge high lending rates (over say LIBOR) to rebuild their own balance sheets. With the ECB seeking to raise rates and growing pressure inside the BoE to do likewise, the innate business case for any clean tech investment denominated in either Euros or Pounds must be truly convincing so as to combat the endemic cost of capital.

This very basic US vs Europe picture then appears to create very different, ideologically competing, investment agendas, and so competing behaviors between what are ostensibly competing parties seeking their individual eco-tech futures.

Unfortunately however, such macro-issues complicate what is already an increasingly fuzzy the commercial picture regards the investor purchase rationale and development routes for eco-tech.

Two examples, Modec and ITM Power are illustrated to highlight the current state of play.

Only up until very recently Modec, the electric van manufacturer, lauded as representing the new vehicular age. And as such was courted by US truck firm Navistar and struck a JV arrangement. As the FT reports, the firm had a business plan of selling 2000 e-vans per year, each costing £55,000. [As to what the split between adapted VM vans and own-design N2 vans and there exact pricing differential is unknown]. But only 400 were sold to the likes of UPS and FedEx, of which only 150 in the UK, 250 throughout Europe.

Untenable liabilities were discovered and it has now entered administration – in the hands of Zolfo Cooper advisory & restructuring – since auditors stated that it could not meet its £40m debt obligations (primarily to Federated Investments, itself owned by Lord Borwick, the founder of Modec).

As a result its capability to 'quietly change the world' has (momentarily at least) ceased. PE and 'trade' companies will undoubtedly be hovering over the company to gauge just how much money it will take to re-charge its commercial batteries. First in line would be Tanfield Group seeking to possibly replenish the operational capability and gain new products for its UK Smiths Electric Vehicles division, since it was acquired by its US sister company. Equally, Zolfi Cooper will also doubtless be reviewing the break-up value of Modec's core-competencies - whether in terms of any new prototypes, its technical demonstrators, any unsold/cancelled inventory, its production-line equipment, its engineering development hardware & software, its proprietry IPR and indeed the usefulness of its supposedly (or arguably not) 'EV knowledgeable' management and staff.

This unfortunate 'on the ground' occurance that reflects the 'tight procurement purse strings' era which stands in stark contrast to the present 'blue-sky' rousing of alternative-energy firms. They in turn undoubtedly argue that the time is right to invest into the next upswing of the eco-tech cycle, now that the trough has arrived. This reasoning no doubt the impetus for many 'tempus fugit' investment groups, as seen by the 'early trough' PE acquisition of Modec's battery supplier Axeon, and by the re-organisation of Tanfield Group's international divisions.

One such 'blue-sky' rouser enterprise is the Sheffield-based ITM Power, a young company that heralds the revolutionary capabilities of hydrogen in clean energy generation, as part of an ideal for a broader 'hydrogen economy'. It claims itself “a leading business in hydrogen systems for both niche and mass market applications”, its strategic reach is to try and gain footholds in both industrial and domestic energy use & generation, at both large and small-scale levels; offering:

A. 3 variants of (hydrogen producing) electrolysers (small, medium, large scales)
B. a hydrogen-vehicle refueller.
C. a hydrogen-based 'HHO' flame/torch fabrication unit that replicates conventional gas-bottle soft-metals brazing fabrication (ie excludes steel welding) but produces a pure flame for hi-quality work.

And thus far ITM has enjoyed R&D grants from UK government, regional & internationally for 6 projects from 6 bodies:

1. The Carbon Trust: (£108k of £241K lasting 5 months)
a new hydrocarbon ion exchange material with primary focus on automotive fuel cell applications,
2. Technology Strategy Board (CREO): (£247k of £3.8m lasting 36 months)
the adaption of ICE vehicles to Hydrogen fuel with primary focus on recaptured hydrogen emissions particulates (project includes VM & small company & university partners)
3. Technical Strategy Board (HydroGEN): (£239k of £2.3m lasting 30 months)
a solid polymer alkaline electrolyser, with primary focus on improved production of the ion exchange membrane (the heart of H20 to hydrogen conversion) (project included partners)
4. Technology Strategy Board: (£337k of £843k lasting 13 months).
A transportable high pressure fueling system for hydrogen ICE (HICE) vehicles. (includes partners)
5. Yorkshire-Forward: (£195k of £559k lasting 12 months)
development of a large electrolyser stack module
6. NextEnergy (Michigan state): ($81k of $129k lasting 10 months).
a small home-refuelling device for a hydrogen-powered car,

From this basic understanding, it appears that ITM's strategic business intent is to cast as broad a net as possible, presumably to demonstrate the feasibility of the 'hydrogen economy hypothesis' and increase potential client interest, potential investor interest and also to maximise its ability to secure government grant R&D funding. Thus its commercial and R&D activities appear to be plotted across a 'maturation time horizon'.

The 2 which appear to have closest relevance to the auto-sector are 'CREO' for adapted internal combustion engines, and 'HPRU' the development of a mobile 'hydro-car' re-fueling unit.

The CREO project is directed at ICE Emissions Optimisation with specific interests in re-capturing post combustion particles for re-circulation (ie akin to present ICE EGR & catalyst re-circ.), co-development partners being: Ford, Jaguar Land-Rover & Johnson Matthey [catalytic converters], and the university's of Liverpool, Bradford & Birmingham. The project provides for the build of 3 modified vehicles with on-board hydrogen generating fuel-stack, an adapted internal combustion engine and emissions capture equipment that recirculates exhaust pollutants.

The advantage then to demonstrate the use of Hydrogen relative to the conventional ICE motor - as opposed to powering an EV – to gain greater corporate & public credibility, the 'emissions recapture' aspect a high profile regulatory issue in petrol/diesel engine use, thus able to presumably convince government of its applicability. The advantages of much reduced CO2 output is of course countered by economic & vehicle mass disadvantages caused by the cost and weight of the hi-tech ancillary equipment. [NB the vehicle requires a draw-water-tank (water:1000kg/m3 whilst petrol: 737kg/m3), the weight of the fuel stack and the weight of the gas cylinder used to store the hydrogen. Thus aswell as adding cost, the functional downside is reduced GVW available for passengers / load given the additional weight the vehicle innately bears.

Such efforts then appear follow in the footsteps of advances made by Honda's FCX Clarity , which has come in prototype & continually evolved limited-series forms [200 units leased across US, Japan & Europe]. Yet critically the FCX functions as a clean-sheet designed hydrogen hybrid, unlike HICE which is an amalgam of technologies and party capabilities. Furthermore general estimates believe that the individual FCX vehicle build cost has been reduced from $1m in 2006 to $130,000 in 2010 having amortised the vehicle and critical component part costs over 200 production units, and more in-house development vehicles.

Thus whilst ITM and its collaborators are expected to make apparent strides in this area, the reality is that the UK & US are far beyond the Japanese who took this on as a dedicated, board-backed internal project since the mid 1990s, using substantial (supposedly nation-backed) resources to come this far.

In contrast the CREO project is a multi-interest format, so ITM's own reputational success depending upon the efforts / vagaries of others, these being: Ford UK and the laboratory resources of 3 universities. Whilst CREO then accords to the UK policy need to inter-connect big-business, entrepreneurship and academia, it leaves ITM as a hostage to the fortunes of the universities and the strategic intent of Ford. So, CREO's basic organisation and funding-well stands in direct contrast to the long-term efforts made by Honda, which even itself admits the very niche part hydrogen has to play. (Itself believed to be a Japanese equivalent to the German fuel-provison backstop, yet with greater potential for eventual independent use on Japan's peripheral islands).

Created in 2004, ITM was no doubt inspired by the likes of the publicly quoted Ballard Power Systems (on Toronto & NASDAQ exchanges). Yet Ballard took 12 years to list, then took another 14 years to decide that automotive fuel-cell technology had little chance of success, divesting of its dedicated division to Daimler & Ford, then concentrating upon fork-lifts and stationary gen-sets.

ITM Power's originators have structured company activities so as to appeal as being “multi-dimensional hydrogen”. In turn allowing them present a flow of periodic 'good news' stories from differing market sectors (generation, storage, auto & fabrication) so as to inch up its share-price as the achievements are relayed, even if expenditure and income levels between 2011 – 2013 depart from forecast. It is also assumed that the varying arms of the business will be ultimately hived-off to various other buyer types who wish to add to their own conventional R&D efforts, or wish to be seen as leading-edge within their own sphere, typically commercial interests in EM countries.

However, the major headwind facing the company is the populist understanding that it takes more electrical energy to split the H2O molecules in order to produce hydrogen, than the energy actually harnessed within combustible hydrogen. This contrasts to petroleum's large combustible energy index.

Similarly, eco-pioneering consumers reviewing fuel-cell devices for even low-end uses such as laptop and mobile phone recharging have come up against the cost wall, with the company HorizonFuelCell offering devices that give 20 hours of charge for the cost of $20 replacement canisters which themselves have a 30 day lifespan before required replacement used or not.
That $1 per hour cost is high by domestic standards against which it is measured even if arguably unfairly so given its standalone capability.

The obvious 'elephant in the room' for the automobile is the lack of current or indeed planned hydrogen fueling infrastructure in the UK or indeed across the world. There has been a miniscule effort thus far in Southern California and in Japan, the 'chicken and egg' commercialisation concerns prevail. With this ever-present headwind, the usual 'ramp-up' of scale idea has been followed by ITM, which is to have a specific user type adopt the trialling of hydrogen vehicles. That user-type operates a self-contained 'mobility sphere' with a close-proximity 'return-to-base' range. In this case ITM has attracted Stansted Airport and DHL for limited trials.

However, even if successful in attracting other small stepping-stone clients, the reality is that here in the UK (as within much of the West) the potential to properly commercialise the offering by attracting large state-owned vehicle fleets of is diminishing.

Those large and expansive 'public good' services that use such van & truck fleets such as Postal Services, National Health Services etc continue to be 'unbundled' into ever smaller, more efficient, business divisions resulting from of full/part privatisation. Reduced operational scale necessitates restricted procurement choice focused on the P&L as opposed to a broader social good, which then demands lower cost, well-supported, transport solutions. Even the already private large scale firms were forced to drop their eco-van initiatives in favour of the conventional, as seen with Modec's experience of UPS and FedEx; and when they return to zero-emissions vehicles, they will pick-up from where they left-off with EV's which can be charged from base with minimal infrastructure adaption.

Hence we witness ongoing structural changes that reduce ability to amortise the technology adoption costs over large scale vehicle fleets. Furthermore, exacerbating the structural problem from a regulatory standpoint, the ambition by governments to surcharge fossil fuel use via carbon credits and/or emissions caps has stumbled for fear of destabalising economic recovery, so maintaining the large price-gap between clean fuels and dirty fuels.

So whilst the 'small power/high cost' argument is incrementally being overcome by fuel-cell promoters, we still appear far from the day when better aligned market and regulatory contexts encourage consumers and commerce to pay either a small premium or a direct no-cost choice for being eco-saintly.

As cynics have stated over the years, “the hydrogen investment story is a good one”...”but the energy therein is inevitably 'potential' not 'kinetic' “.

Thus even with the assistance of syndicate partner Revolve Ltd (derived from Rousche Tech and with previous good Ford links) – any idea of playing the 'technology disruption' game using HICE looks presently far fetched. In the meantime the comparative shrinkage of UK & European vehicles relative to global TIV will mean that the voice of Ford UK and Ford Europe will grow ever weaker in Detroit. And even if EU CO2 regulations are some dramatically brought back onto the table it would appear that any serious attempt by FMC to develop hydrogen in Europe would be masterminded from its HQ in Cologne with German industrial backing (ie say via Linde Gases) and the other German automotive giants.

Thus investors will need to decide whether ITM truly represents a 'commercial arbitrage' entry & exit opportunity, yet to make that happen the company may have to look farther afield than originally planned.

Until recently within the green-tech community, there was a 'chalk & cheese' comparison between Modec and ITM.

From their similar 2004 births, although prescribed clean-tech, each represented 2 very different beasts, their capabilities & assets divergently different , and unsurprisingly attained 2 very different levels of achievement.

Modec, spun from Manganese Bronze's eMercury EV project was effectively a self-contained, ready to run enterprise, with inherited market appreciation for a more focused client-product offering. Apparently able to examine its closer market connections to take a more confident growth stance pertaining to cashflow and re-investment projections. As such it stood as a more 'crystillised' entity reflecting a conventional niche vehicle business. Even so, the consequences of the financial crisis had a devastating effect upon the business, leading to its demise.

The administrators no doubt working closely to the Borwick Group (holding 40%) and Navistar (holding 25%). No doubt conjoining forces to provide a new platform from which to grow a reborn EV company that can span Europe and NAFTA. Though it will find itself in a competitive field with the crop of current EV manufacturers joined by start-ups expected in the EU's 'PIIGS' periphery countries. Possibly seeing FIAT-Chrysler bring GEM into greater play, perhaps seeing SEAT add EVs as an income stream, or perhaps Piaggio's expansion; such efforts government assisted to reduce dire unemployment figures, such assistive fiscal policy measures then used to leverage e-vehicle pricing. Jamie Borwick guesses that there will be an EU TIV of 25k unit pa by 2020, yet even if the case early-phase profitability could be scarce if manufacturers are forced to once again seek volume to try and secure themselves, as was the story with Modec. Hence, the automotive industry's earliest days are still being re-lived in EVs and operational balance with deep funding resources will be necessary to maintain brand presence and momentum.

ITM Power plc by contrast is a very different animal to Modec, far more ethereal and seems to have felt its way forward, accumulating skills and capabilities over time. Yet done so at what seems a relatively slow rate, thus prompting questions about its formation and originators expectations. Its AIM listing (ticker ITM) appears to have given enough credence for latter-day government support. [NB. Ideally, given its exposure to capital markets and its substantial cash cushion, there is an innate paradox, which would ideally see the R&D grants repaid once the business has reached a certain level of income]. Thus even at 7 years old it still mimics the character of a very well funded 2nd stage start-up given its lack of income and EBIT & PBT losses expected into 2013 and possibly beyond, organic growth expectations denying EPS until seemingly well after. 2012 income of £0.6m, then trebling in 2013 seem to look to be optimistic expectations, whilst the volatility of its share price in the preceding 18 moths or so rise from 15p to peak at 78p in mid February 2011, now sitting at 55p, thus only 5p above its launch price in 2004, and well under the 320p price given at the additional share subscription in 2006.

ITM then has set about representing itself to market, an impressive website for the company size and slick financial reporting graphics, plus a good web-based operational reporting to the City – though to be frank, the CEO's 'persona of professionalism' in the all important video presentation could be much improved. All in all, beyond rhetoric of “moving from IPR to technology to products” and even trial partners appearing to “prove the commercialisation” of its auto-fuel offering, the company must be far more convincing in its ability to successfully operate within its niche given the macro and micro headwinds previously mentioned.

Recent years and ongoing conditions has made the art of valuing clean tech companies immensely fuzzy, the roller-coaster rides many have experienced resulting from over-blown tail-winds running up to 2008, and latter-day concerns about the loss of macro-economic support systems that were due to well be in place by now.

However, with an absence of priced-in 'expectation' and 'sentiment' it means that eco-tech companies can be better valued by their respective achievements to date and their place in the somewhat dour scheme of things relative to their place in the very broad clean-tech sector. Thus valuations can and should be better aligned to the usual metrics of market share, top-line revenues, cost-base rationalisation, margins, profitability ratios, cash-cushions and the very basic aspects of their prime assets versus liabilities.

This then should be the common-sense ideal, yet as described the US's ability to exploit its 'liquidity & linkages' means a possible distortion of purist valuation methods..

Admittedly this is set to re-invigorate the clean tech sector – which is no bad thing - but it is the level of distortion that is concerning. Investments should be made on sound business principles, when in fact the danger is that a new round of investment could simply replay the eco-tech expectations game. In which case little regard is given to the proven ability of clean tech to make itself felt in the real world, instead valuations built upon the schisms of the Wall Street shuffle between vying corporations to buy into clean tech to tell interesting strategy stories and buoy their own valuation levels.

If hefty enterprise valuations are achieved, only be met with trickle-stream incomes and ambitious scale-ups not achieved, then and such failed expectations would greater strain on the overall clean tech sector, thus highlighting the difference between inflated valuations and earnings reality and pulling the rug from under the sector once again.

Importantly, there is a danger that intrinsically good enterprises become unjustly similarly treated to the innately bad, and the broad-brush clean tech label sees 'the baby are thrown out with the bathwater'.

investment-auto-motives dearly hopes this will not be the case, and that greater focus is dirceted to those 'paradigm-aligned' innovators making small incremental but all-important evolutionary steps of conventional technologies. Supposed 'paradigm-shifters' often appear enticing and glamourous especially with high visibility on AIM, NASDAQ and dedicated GreenTech indices. Yet more attention should be drawn to those under the obvious investment radar.