financing the industrial development of hydrogen

FINANCING THE INDUSTRIAL DEVELOPMENT
OF
HYDROGEN
A Venture Capitalist’s Perspective
16TH WORLD HYDROGEN ENERGY CONFERENCE
June 16, 2006
Dr. Robert W. Shaw, Jr.
President
Aretê Corporation
DISCUSSION TOPICS

Challenges of investing in hydrogen
technologies

Transitioning to large markets

Enabling the Solar Option
-1-
ARETÊ HAS BEEN INVESTING
IN HYDROGEN TECHNOLOGY
FOR A LONG TIME
Company
Technology
Ballard Power
PEM FC
Proton Energy Systems
PEM electrolyzer, URFC
Hydrogenics
PEM FC, electrolyzers
H2Gen Innovations
SMR, PSA
Angstrom Power
Micro-FC
CTP Hydrogen
MEIC membrane
-2-
INVESTMENTS IN HYDROGEN TECHNOLOGIES
ARE ENORMOUSLY CHALLENGING

Getting to a commercial product always
– Takes longer, and
– Costs more
than investors expect

Investors must have deep pockets and be
very patient
-3-
HYDROGEN INVESTMENTS ARE
CHALLENGING…

The mass markets for hydrogen -particularly in transportation -- always seem
to be sometime in the future
» Most opportunities today are demonstrations
» It’s hard to build a business doing
demonstrations
-4-
HYDROGEN INVESTMENTS ARE
CHALLENGING…

Our strategy in selecting investments has always
been to look for companies that have near term
market opportunities that can generate revenue
today, i.e.
» Distributed hydrogen generation as an option to traditional
merchant hydrogen
» Special niche applications, such as
– Back-up power
– Generator cooling
– Laboratory hydrogen
– Portable power: military, consumer

While positioning them for large future markets
-5-
TRANSITIONING TO LARGE MARKETS

Successful hydrogen companies in our
portfolio have found market niches
where they can play in the near term

Three examples will illustrate:
» Proton Energy: Generator cooling
» H2Gen Innovations: Metal annealing
» CTP Hydrogen: Military portable power
-6-
Example:
PROTON ENERGY SYSTEMS
Generator Cooling
Hydrogen-Cooled Generator
• Continuous flow of H2
to the generator
Existing H2 Vent
• Saves utilities
$1,000/MW/year
• Near term market
opportunity is $3-5B
StableFlow
HCS Unit
HOGEN Hydrogen Generator
-7-
Example:
H2GEN INNOVATIONS
Metal Annealing
• Hydrogen is used to cool
annealed coils uniformly
and scavenge oxygen
• H2Gen’s HGM 2000 SMR
unit offers
- on site production of high
purity hydrogen
- automated operation
- safe, reliable, efficient
performance
• Payback of 2 years
HGM-2000
-8-
Example:
CTP HYDROGEN
Portable Power
H2O, CO2,
SO2
O=
CxHy Sz
H2
• Novel reforming method
enables low-cost production of
H2 from dirty fuels
2eH2O
• Resulting reformer technology
enables a portable military
generator with:
MEIC membrane
- 2,000 WHr/kg (10X energy
density of batteries!)
- 3 day run time @1 kW on one
tank of fuel
- Near-zero noise signature
Portable Power Unit
-9-
TRANSITIONING TO LARGE
MARKETS…

Summary Point 1:
» To succeed and make money for investors
» H2 companies must find profitable near
term markets to address
» To gain experience, refine their technology
base, and --» Position for the enormous long term
markets
-10-
TRANSITIONING TO LARGE
MARKETS…

What are the most exciting long term
market opportunities?
» Transportation is clearly one -- and it gets
most of the attention
» Enabling the Solar Option is less
discussed -- but perhaps even larger
-11-
FILLING THE
CARBON-FREE ENERGY GAP

The slide shown at this point in the presentation was prepared
by Argonne National Laboratory, based on data presented in a
U.S. National Academy Report:
“Energy and Transportation: Challenges for the Chemical
Sciences in the 21st Century”; The National Academies Press,
2003

The data presented are being updated and Argonne has asked
that the slide not be reproduced

The critical points from the perspective of this presentation are
» The World “Carbon-Free Energy Gap” is 17 TW by 2050
» Solar Energy offers 600 TW of practically available resource
world-wide to fill this gap
-12-
H2 ENABLING THE SOLAR OPTION

At today’s prices ($6-8/watt installed), solar
photovoltaics is not an economically viable option to
fill the “energy gap”

But, at $1-2/watt installed, solar PV would be the
most attractive option

Getting to $1-2/watt requires scale in manufacturing
-- fully integrated plants producing >1GW/year of PV
modules and systems

Even at that scale, the challenge is immense
-13-
H2 ENABLING THE SOLAR OPTION

17 TW (17,000,000,000,000 watts) by 2050 means
» 1GW (a very large 1000 MW power plant) of new solar
power must be installed per day from now to 2050
» Today, the production of solar PV is about 1 GW per year
worldwide -- so this growth rate is a huge challenge
But …
 The U.S. produces >15 million cars per year, each
with a 50kW power plant
» This is 750 GW of new power plants/year
» Or, about 2 GW per day
» So, an industry 1/2 the size of the US auto industry can
meet the world’s needs for solar to fill the “energy gap”
-14-
H2 ENABLING THE SOLAR
OPTION…

Solar photovoltaics alone cannot fill the 17 TW
“Energy Gap”
» 10 TW at least must include some form of storage
» Using solar to produce H2 is perhaps the most
logical option
– H2 easily replaces carbon-based fuels in the established
energy system
– And can readily be used to generate electricity at times
when there is no sunlight
-15-
H2 ENABLING THE SOLAR
OPTION…

The market opportunity for H2 generators to
enable 10 TW of solar by 2050 is
~ $15 - 20 trillion

Or greater than the transportation market
opportunity of about $10 trillion in that same
time frame
-16-
H2 ENABLING THE SOLAR
OPTION…

Summary Point 2:
» H2 has an enormous role to play in containing the
“Great Warming”
» The long term market opportunity for H2 systems in
enabling solar PV is immense
» The H2 community needs to build bridges to the
Solar community -- quickly!!
-17-
IN SUMMARY

There will be numerous opportunities to
make -- and lose -- money by investing in
hydrogen technology companies in the
years ahead

Investors should recognize that most of
these investments will take a great deal of
capital and a long time to reach profitability
-18-
IN SUMMARY…

Companies most likely to be successful will
be those that
» Have identified attractive market niches where
they can make money in the short term
» Have a clear vision and pathway to the long
term market they hope to address
-19-