B.C. clean technology companies are capitalizing on "extraordinary times."
It’s well into Sunday afternoon by the time Jonathan Rhone finally gets a spare minute to take a media call. These are hectic days for the president and CEO of Vancouver-based Nexterra Energy Corp. – a “clean-tech” firm (as environmental-technology companies are often called) whose unique gasification technology could soon heat universities across the U.S. while also converting beetle-kill wood waste into clean-burning gas to fuel power plants throughout Northern B.C. Cutting greenhouse gases with its low-cost, waste-derived biofuel gas, Nexterra sells its multimillion-dollar systems in part through strategic alliances with companies such as Johnson Controls Inc. However, Rhone offers an additional reason for Nexterra’s success. “We live in extraordinary times,” he says, ticking off factors such as high oil prices, B.C.’s new carbon tax and pressure on natural-gas reserves. “It’s a great time to be a clean-energy technology company. We’re moving from an economy that has been dominated by fossil fuels into a mix of other types of energy sources and technologies – it’s a very fast-moving and dynamic market right now.”
Clean tech in B.C.
Times are particularly good for local alternative-energy companies. Last year, when Deloitte & Touche LLP released its inaugural “Technology Green 15” – a list of Canada’s 15 most promising environmental-technology firms – seven of the 15 were based here in B.C. And recognition extends beyond the border: in their book, The Clean Tech Revolution, U.S. authors Clint Wilder and Ron Pernick describe Vancouver as one of the world’s “top 10 new Silicon Valleys” for clean technologies. Local university research has played a big part in Vancouver’s emergence as a clean-energy hub, as has the pioneering work of fuel-cell manufacturer Ballard Power Systems Inc. and the availability of local venture capital. Add to that the upcoming carbon-credit trading market in Vancouver, the B.C. government’s $25-million Innovative Clean Energy Fund and the various initiatives that comprise the new Greenhouse Gas Reduction Targets Act, and B.C. would appear to have an early edge in the fast-growing clean-tech sector. Speaking from a Toronto airport “limousine lineup,” Ron Dizy, CEO of North Vancouver-based Sempa Power Systems Ltd. (another Deloitte Green 15 winner), is also on the move. “Things are really happening right now,” says Dizy, citing business growth of “about 100 per cent a year” and sales stretching across the country. Like Nexterra, Sempa is a young, privately held company riding the shift away from fossil fuels. West Vancouver engineer Malcolm Metcalfe founded Sempa in 2003 as an energy-audit firm, then changed its direction by developing the Sempa Hybrid Heating System, a computerized system that monitors fluctuating fuel prices to switch between sources at optimal times. Although Sempa plans to grow the market by adapting its system for smaller buildings, Dizy says that Sempa has “a very strong pipeline” of large buildings at present; with a promised payback time of three or four years, sales of the heating systems are taking off (though Dizy won’t disclose specific financials). Commercial viability was definitely one of the criteria that won Sempa a place in the Green 15, along with B.C.’s other winners (all publicly listed companies): Plutonic Power Corp., QuestAir Technologies Inc., SmartCool Systems Inc., VRB Power Systems Inc., Westport Innovations Inc. and Xantrex Technology Inc. But these are early days for most of B.C.’s hot clean-techs, and while Nexterra and Sempa may have the wind at their backs, many green entrepreneurs struggle for years before the market finally catches up with their products. A good case in point is Vancouver-based Westport Innovations Inc., which has built a niche as a world leader in gaseous fuel-engine technologies. By converting diesel engines to burn cleaner fuels, such as natural gas and biofuels, it began racking up truck and bus conversion orders from China to California. It’s even producing what few B.C. clean-tech firms can yet boast of: profits. But it’s been a long haul. Back in the late 1980s, UBC professor Philip Hill and colleagues started working on Westport’s technology to reduce air pollution. The company incorporated in 1994, yet it wasn’t until 2007 that Westport would report its first quarterly profit ($7.4 million in Q4). “As a small Vancouver company, we couldn’t have chosen two worse enemies to take on than the incumbent technology of engines and the oil sector,” says Westport’s vice-president for corporate development, Jonathan Burke. He laughs. “I’m just glad we had enough money in the bank to stick it out!” [pagebreak] Westport’s technology led to strategic partnerships with manufacturers such as Cummins Manufacturing Inc. and Kenmore, and those partnerships finally cracked the market. Burke credits European investors with helping the company through the lean years. “This can be a very cyclical business,” he warns. “You have to have some staying power.” In 2006 Westport topped Deloitte’s list of the 50 fastest-growing Canadian technology companies; last year the company moved into a new $3-million assembly plant. Westport is the only B.C. clean-tech that gets the nod from Victoria-based financial adviser Frank Arnold of Raymond James Ltd. “We have quite a few shares because they’ve moved beyond the development stage and are now selling products,” he says. With 300 local employees, most of them scientists and engineers, Westport will have to add staff to handle the growing orders; it already has nine staff in Beijing, with Westport Asia, to handle sales in China. Booming sales aside, Burke is committed to Westport’s costly R&D program. “If we slowed down, somebody would come from behind and catch up with us.”
Staying on the cutting edge is expensive and time-consuming – and nobody knows that better than Donald McInnes, founder and CEO of Vancouver-based Plutonic Power Corp. Plans by his run-of-river hydro-power company to build a “green power corridor” through B.C.’s mid-south coast – 100 kilometres north of Powell River – ended up getting bogged down in paperwork and public consultations. All told, it took three years of wildlife surveys, seven public meetings and a 700-page application to win approval. Even then, says McInnes, the go-ahead for the East Toba River and Montrose Creek hydroelectric project came with 77 sometimes-onerous conditions. McInnes had worked in mining before his wife encouraged him to try renewable energy. Overall, he seems happy with Plutonic’s progress: half a billion dollars in financing from GE Energy Financial Services, First Nations partnerships, eventual project green lights and the participation of former BC Hydro staff (including Plutonic’s president and COO, Bruce Ripley). But McInnes wasn’t fully prepared for the opposition his project would generate. He says it’s frustrating to hear critics call run-of-river hydro environmentally “devastating” and the “theft of the century,” considering the small footprint his plant will leave. “We’re building in the middle of nowhere,” says McInnes. “The odd person, who can afford helicopters at $1,500 an hour, might go there for a hike, but not many people do that.” Nonetheless, he says, “there are 18 different federal, provincial, regional and local government agencies you must engage with.” Some run-of-river projects die even after getting approved, he adds. “People don’t realize that. You can have so many conditions attached that it doesn’t go ahead.” He’s confident, however, that Plutonic will jump through all the hoops. “I wouldn’t be doing this if I didn’t care about doing it right,” he says. While few of B.C.’s young clean-techs are making profits yet, the revenue trend for several publicly listed companies suggests 2008 could yield some breakthroughs. Indeed, if not for our soaring loonie, several export-driven companies might already be in the black. Victoria-based Carmanah Technologies Corp. – a significant global supplier of solar-powered LED lighting with more than 250,000 installations worldwide – is one such example. Though relatively small with a market capitalization under $40 million, Carmanah has been profitable in the past and expects to regain that status in the near future. Last year it became one of three B.C. companies selected as Canada’s top 10 clean-techs by Corporate Knights magazine (joining Westport and Xantrex), and was named B.C.’s 2007 “Exporter of the Year” at the BC Export Awards.
Staying strong in defiant times
CEO Ted Lattimore, part of Carmanah’s new executive team, agrees that the rise of Canada’s dollar “hurt us significantly last year,” but adds, “that’s behind us now.” Last year, he says, Carmanah narrowed its niche. “We stopped two parts of the business. One of those we sold – home solar power. But we do have two strategic areas: solar-powered LED lighting and solar-powered systems.” The former telecommunications executive expects that by focusing on its strengths, Carmanah will maintain more than 20 per cent growth annually. “We consider ourselves a niche player in the solar environment,” says Lattimore, “and we don’t require a subsidy while almost everybody in solar does. Our products are stand-alone, and we ship them all over the world. They don’t require anything from the grid.” Mossadiq Umedaly, chair of Xantrex Technology Inc., is equally defiant when describing his company’s tight market niche. Xantrex, established in 1983, develops and manufactures electronic products for the renewable, mobile and programmable power markets and has garnered good consumer reviews for its innovative PowerHub, which lets users collect energy from multiple sources such as solar, wind, generator or the grid to convert and store as household power. Umedaly doesn’t want to be lumped in with companies still deep in development. “We have real products,” he says, “serving real markets.” With a market cap now approaching $200 million, Xantrex – recently ranked by the Vancouver Sun as one of B.C.’s Top 50 Fastest and Top 50 Strongest firms – has become one of B.C.’s biggest clean-techs. The company is expected to generate more than $280 million in revenue in 2008 and, according to Umedaly, earn a profit. Xantrex gets a thumbs-up from Tom Konrad, an online analyst with AltEnergyStocks.com, which covers renewable energy and other clean-tech companies. “They are a way to invest in the booming wind and solar industries without having to make a bet on one solar technology or manufacturing process. . . . There aren’t any established wind manufacturers, for instance, available on North American stock exchanges.” [pagebreak]
Clean tech in the market
Stock market returns aren’t the only measure of success, but the very presence of local clean-tech firms on national and international exchanges – and the fact that analysts are even covering them – is surely a good sign. Consider the following:
- Vancouver’s NaiKun Wind Development Inc. is entering B.C. Hydro’s 2008 Clean Energy Call with a proposal for the world’s biggest offshore wind farm off the Queen Charlotte Islands (in partnership with the Haida Nation, which owns a number of NaiKun shares). Despite local debate over environmental impacts, shares have shot from $0.25 to $3.00 over the past year.
- Richmond’s VRB Power Systems Inc. (named for its vanadium redox batteries) develops and manufactures energy-storage products such as the patented VRB system. Its battery technology stores and supplies power and is particularly suitable for renewable energy sources, remote-area power supply and utilities. Technology stock analyst Jon Hykawy of Research Capital Corp. calls VRB “my top 2008 pick for the clean-tech sector overall,” adding that VRB is “discussing major orders with major customers, with potential markets in the billions of dollars.” According to AltEnergyStocks.com’s Konrad, it has “great application to off-grid locations and as a peak-shaving power backup hybrid.”
- Burnaby’s QuestAir Technologies Inc. made Deloitte’s 2007 Canadian Technology Fast 50 list last year as one of Canada’s fastest-growing tech firms, with a five-year revenue growth rate of 762 per cent. While it has the smallest market capitalization of these B.C. companies, QuestAir is using its methane purification systems to tap Europe’s biogas market and lists on the London Stock Exchange as well as the TSX.
- Vancouver’s SmartCool Systems Inc. is starting to pull in global sales with energy- and cost-reduction technologies for commercial and retail businesses. SmartCool’s key product is based on Australian research: the System 4000 Energy Saving Module, which cuts electricity consumption and maximum demand for air-conditioning and refrigeration compressors. SmartCool is still in the red, but per-share earnings more or less head in the right direction, with share prices relatively stable for this sector given the state of the stock market over the past year.
Clean tech market potential
While the price-earnings ratios of clean-techs can run high, Raymond James’s Frank Arnold says this reflects the market view of their potential. Arnold considers the long-term outlook positive for this sector but notes the risk involved with B.C.’s “speculative” clean-techs. Tom Konrad points out that high price-earnings ratios can also represent too much money picking through too few good companies – which can quickly set off a stock-price “bubble.” “These companies are very volatile,” Konrad says of clean-tech companies in general. “While the long-term trend of the sector is most decidedly up, investors need to be prepared for a roller-coaster ride on the way there.” In that roller-coaster category is, of course, Ballard. More than a quarter-century has passed since Ballard put B.C. on the clean-tech map with a fuel-cell program that sparked a wave of local startups. With a market capitalization over $500 million, Ballard might be viewed as the closest that B.C.’s clean-tech sector has to a blue chip – if it only made money. When a company’s share price slides from more than $200 to $4, investors get justifiably cynical. Despite Ballard’s management changes and the recent sell-off of its money-losing automotive fuel-cell division, industry analysts like Jon Hykawy aren’t holding their breath. Of the three fuel-cell niches Ballard is continuing with (backup power, heat and power systems, and powering forklifts) Hykawy is only positive about one: backup power, a market in which Ballard has started to build strong alliances. But Hykawy is unconvinced of Ballard’s new management team. They have “a bucket of cash to use for good business opportunities,” he notes, “but I wouldn’t put my money into Ballard right now.” Though Ballard set the stage with fuel cells, B.C.’s new clean-techs are just as likely to be in energy efficiency and energy storage as in renewable energies. Yet even though nearly one-fifth of the world’s energy investment now goes to renewable energies such as wind and solar, AltEnergyStocks.com’s Konrad sees more value in the basics. “I’m pretty much always more keen on energy efficiency than renewable energy. Greening your portfolio is like greening your home: you should eat all your energy-efficiency vegetables before you have your renewable-energy dessert.” At this point, Konrad considers these to be the most promising fields for green business: “energy efficiency, electricity transmission, mass transit/rail, batteries, suppliers to the wind and solar industries (including inverter companies such as Xantrex) and geothermal.” Using the niche approach taken by B.C.’s most promising clean-techs, that offers plenty of choice for people who would build their business on these “extraordinary times.”