AFC Energy (Aim:AFC) is getting closer to commercialising its hydrogen fuel cell technology for power generation. The company is coming towards the end of the three year programme CEO Adam Bond put in place at the end of 2014 to develop a commercial product and build a pipeline of potential customers.
By the end of this year the industrial version of its second generation fuel cell will be up and running at AFC’s German reference site. Meanwhile, engineering studies are underway to install a 1 Mw fuel cell at Covestro (formerly Bayer Material Science) near Hamburg using hydrogen produced onsite. Assuming the cost studies and performance of the reference cell are satisfactory, then we should have a decision on this next year. Covestro has thirty sites around the world, so this could be a significant relationship over coming years.
Reliability and longevity
Although the basic technology behind the alkaline fuel cell has been around since the mid-19th Century; high costs and an abundance of cheap fossil fuels have historically held back development. The concept almost feels too good to be true: hydrogen is passed through a catalyst, reacting with oxygen to generate electricity with potable water as the by-product. The key to success is an affordable design which is reliable and has a long life. AFC’s intellectual property, which has been developed over a decade and more, lies in the design of the cartridge and especially the electrode material.
A key partnership was struck last year with De Nora of Italy, who are leaders in manufacturing electrodes for the chlor-alkali industry. Their know-how in producing long-life electrodes will underpin the economics of fuel cell power generation. The more durable the electrode, the cheaper the cost of electricity generated.
AFC’s business model is to build, own and operate power plants, rather than sell kit. So commercial discussions and studies with the likes of Covestro and potential customers in South Korea and the Middle East are designed to reach power supply agreements. Each project can then be individually financed.
AFC has also strengthened its management in recent months with the appointment of a new Chairman, CFO and COO, all of whom have big company experience. They bring credibility, as do the relationships with De Nora and Covestro. However the shares are trading at the 10p level of March’s £8 million fundraise, which is well down from their highs. The market isn’t very interested in pre-commercial stocks at the moment and might have become bored with the wait. It might still be a little early to buy, but we should have some material commercial news on a year’s view if all goes well. Broker Cantor has a 68p target price based on a discounted cash flow model.