Companies: CWR    ITM   

AIM's fuel cell sub-sector will see its profile rise yet further this month with the arrival of mobile power source supplier Voller Energy. Elliott Davis delves into a flourishing technology niche.

Advised by Arden Partners and hoping to raise around £10 million on arrival, Voller is set to become the junior market's third specialist fuel cell group and – unusually for a sub-sector dominated by research-based organisations – the company already has a product on the market.

Efficiency is king

Although fuel cells come in many guises, their basic function is to produce energy in a manner that is far more efficient than through traditional methods such as internal combustion. Voller's objective is to design and develop portable cells for use as mobile generators and battery re-chargers, and the company's VE100 product, launched in September 2003, is effectively a self-contained power source targeted at a variety of markets, including power tool hire. Significantly, Voller boasts strong links with fully listed plant hire group Speedy Hire, which is the largest single purchaser of commercial generators in the UK. Speedy Hire's chief executive John Brown, who now chairs Voller, underpins this relationship.

Power footsteps

Voller follows in the footsteps of Imperial College spinout Ceres Power, which raked in £16 million (with the aid of Numis) when it launched in late November. Despite their similarities, however, the two firms target different sectors because, while Voller specialises in portable power systems, Ceres' focus is on stationary applications.

The benefits of using self-contained fuel cells to meet household energy requirements, for example, are greater fuel efficiency and fewer emissions.

ITM unique

While both firms are worth monitoring in their own right, the third and final fuel cell group – ITM Power – has the greatest potential of all, a fact reflected in its hefty £70 million market valuation.

What sets ITM apart from the others is that, although both Voller's and Ceres' systems produce energy in a highly effective manner, its technology is the only one to offer a genuinely 'clean' power alternative.

The cells designed by Ceres, Voller and virtually every other fuel cell group still rely on hydrocarbons (whether that be LPG, methane or whatever else) being burnt or broken down in order to produce energy. This is because, as Voller's chief executive Stephen Voller explains, 'fuel cells require hydrogen to operate and at present there is no other cost-effective source available' other than the cracking of hydrocarbons.

Where ITM differs is that it has developed a cost-effective way of splitting water molecules into pure hydrogen and oxygen, via electrolysis. The hydrogen produced can then be passed into a fuel cell to produce energy, with water being the sole waste product. As ITM's electrolyser could eventually be powered by a solar cell, the implications and potential market for its technologies are immense. It is conceivable that ITM could even emerge as a supplier of electrolysers to the likes of Ceres and Voller, who would use its technology to generate hydrogen for their own cells.

So which one to back?

Well, while ITM's technology seems to possess the greatest potential, the risks of backing any of these ventures remains extremely high at present. In fact, as ITM's chief executive Jim Heathcote freely admits, 'people tend to get very excited by this technology. It's a really feelgood story and so we always urge investors to be careful.'

For the time being therefore – and despite each company's individual merits – AIM's fuel cell stocks remain highly speculative investments. But those blessed with both an abundance of money, patience and a penchant for high risks could eventually reap rich rewards.