First published in Cleantech magazine Sept/Oct 2009. Copyright Cleantech Investor 2009
By Andrew Hore
Share price: 11p
Market Cap: £14m
12 month high/low: 13.25p/1.38p
AFC Energy has been one of the best performing cleantech companies on AIM over the past year. Shares in the alkali fuel cells developer are over 150% higher than one year ago and more than seven times the March 2009 all time low.
AFC aims to be a low cost producer of fuel cells and has reduced the number of working parts in the system in order to achieve cost reductions. It has developed a fuel cell system that uses the excess hydrogen produced by chlorine manufacturers, businesses that consume a great deal of electricity. The technology has other potential uses, but the chlorine sector provides the best short-term prospects for the company to establish itself.
AFC promised too much in its early days as a quoted company and failed to deliver. Since then a new management team has come in. AFC finally delivered a 3.5kW fuel system to AkzoNobel at Bitterfi eld in Germany in April 2009. In June the system produced its first electricity. This system was originally scheduled for delivery in August 2008.
Although there was a shortfall against the targets for electrical output and durability, these problems were resolved. However, just as important as the system’s final delivery is the fact that AkzoNobel remained supportive of AFC throughout these problems, suggesting that AkzoNobel always felt that the technology would benefi t its business.
There are a number of fi nancial models that can be used to generate revenues from AFC’s systems, ranging from outright sale to taking a share of electricity generating revenues. AFC has decided to focus primarily on the energy supply company (ESCO) model for its fuel cells, meaning that customers will supply hydrogen to AFC, which the company will convert into electricity and sell back to the customer or the grid.
AFC has signed a letter of intent with INEOS ChlorVinyls to develop a hydrogen fuel cell project for its site in Runcorn, Cheshire. The fuel cell system will use waste hydrogen from chlorine manufacturing – as in the Bitterfield system. Other chlorine producers will doubtless consider AFC’s technology now that one system is up and running.
Waste2Tricity (W2T) has another use for AFC’s technology which, if successful, could be a highly lucrative revenue generator for the company. W2T intends to use AFC’s fuel cells for its system converting municipal waste to syngas which is, in turn, converted into hydrogen and used by the fuel cells to generate electricity.
A £1 million licence payment to AFC is conditional upon W2T raising the cash for its own pilot plant, which will have capacity of 50,000 tonnes and is scheduled to be operational in 2012. The fuel cells will be powered by hydrogen produced in the process. Once the fuel cells are integrated into the gasification system AFC will receive royalties.
AFC is loaning up to £150,000 to W2T, repayable in December 2010, and also has an option to buy 25% of W2T. AFC directors Tim Yeo and Terry Walsh are also directors of W2T, and Howard White is a shareholder in both companies.
W2T has signed a joint venture agreement with Thornton New Energy (TNE). They plan to use W2T’s technology to convert coal into electricity through a combination of AFC fuel cells and underground coal gasifi cation (UCG). TNE has the first UK licence to carry out UCG and develop deep, previously unmineable coal reserves under the Firth of Forth, Scotland. AFC fuel cells will ensure a higher efficiency conversion of the coal to energy.
As at the end of April 2009, there was £2.55 million in cash on the AFC balance sheet, down from £3.61 million at the end of October 2008. The £4.4 million gross raised at 11p a share in May 2008 has helped AFC to maintain a strong balance sheet. The company’s share price is currently heading back towards that placing price, having been as low as 1.375p at one point. However, the share price is still well below the April 2007 flotation price of 23p a share.
If W2T raises its funding there will be another £1 million to boost the cash reserve – but that can’t be counted on given the tough financial markets. Luckily, AFC has enough cash for its medium-term needs and increasing revenues will help to reduce the cash outflow.
There is still some way to go before AFC moves into profit, but the share price rise indicates there is acceptance that the company is moving in the right direction. News of additional firm revenues will provide a further boost.