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                            any might think establishing a new       cell stocks were hugely overvalued and development
                            venture capital firm now is madness,     was going to be a long haul. Stocks crashed, money
                            but Phil Doran is sure the timing is     for development became scarce and companies
                            perfect. Core Technology Ventures,       retrenched. The banks had made the right decision.
                            which Doran has formed with
                            partners Simon Robeson and David         SLOPE OF ENLIGHTENMENT
          Wright, is a specialist VC, concentrating on raising       Doran explains this series of events as part of the
          capital to develop fuel cell technology.                   Gartner hype cycle (Fig 1). Ford’s investment was the
             “It’s a good point to set up a VC firm,” he says.       technology trigger, with the peak of inflated
          “Valuations are more realistic than they were two or       expectations being reached in March 2000. Doran is
          three years ago and we’re not carrying debts.”             confident fuel cells have now passed the trough of
             The fuel cell is a technology that could change the     disillusionment and are on the slope of enlightenment.
          world. By generating electricity and heat through the      With venture capital timing is everything.
          chemical reaction between hydrogen and oxygen, a fuel          From ’97 to ’99, Doran immersed himself in fuel cells
          cell’s efficiency is not limited by the thermodynamics     and in trying to persuade UBS to invest in the
          of the Carnot cycle. Even if a hydrocarbon like                        .
                                                                     technology Eventually he accepted the bank’s point-of-
          methanol is used the CO2 emitted is far less per unit of   view that the commercialisation of fuel cells is too far
          power than with conventional                                                    away for them to get involved.
          generators or internal combustion                                               However he had learnt a lot in the
          engines. If pure hydrogen can be                                                process.
          used, fuel cells could eventually be a                                             “I now speak fuel cell reasonably
          key part of a carbon free energy                                                well and am fluent in finance,” he
          system. Fuel cells also have the                                                says. “There aren’t many who speak
          benefit of emitting virtually no                                                both. I decided to move down the
          pollutants such as sulphur dioxide,                                             financial intermediation chain into
          nitrogen oxides or particulates.                                                venture capital.”
             Doran can hardly contain his                                                    Even in a booming investment
          enthusiasm for fuel cells’ potential                                            climate this would be a brave
          and his excitement at being involved                                            decision. Europe is more risk averse
          in the field. An economist by                                                   than North America and Core
          training, for 15 years he worked                                                Technology is European based, with
          at    UBS      Warburg,     eventually                                          Robeson and Wright in London and
          specialising in investments in                                                                              .
                                                                                          Doran living in Germany but the
          alternative energy technologies.                                                lack of fuel cell quoted companies in
          Although always interested in                                                   Europe could be an opportunity; at
          environmental issues, it was the motor manufacturer        some point some must emerge.
          Ford’s decision in 1997 to buy a minority stake in the         “One of the problems in Europe for a VC is that
          Canadian fuel cell company, Ballard Power Systems,         there is no exit,” says Doran. “We don’t have a fuel cell
          that sparked his imagination.                              quoted sector; the European Commission must think
             “This was the trigger,” says Doran. “Ford was           about this. A VC comes in at an early stage and lets go
          effectively saying we don’t think batteries will make it   after the company has developed. This is called the exit
          as a technology for zero emission vehicles. I tried to     and it usually happens when a company goes to an
          persuade UBS to invest, but they, along with other         initial public offering (IPO) or a trade sale.”
          banks, thought commercialisation was too far away   .”         This does not put off Doran. The technology is now
             Meanwhile Daimler Benz also invested in Ballard         so advanced, he argues, new technologies and their
          and other automotive companies began programs to           associated companies are going to emerge. He is
          develop fuel cells vehicles. Suddenly there was            convinced now is the time for the European Union and
          momentum and stocks rocketed. But as the high tech         its member governments to back the technology or risk
          bubble burst in March 2000, it became clear that fuel      finding the rest of the world has stolen a march.



                                 Peak of inflated
                                  expectations       Wilder Hill
                                                   fuel cell index
                                           September 1999–March 11, 2003
                   450                                                      Plateau of
                   400                                                     productivity
                   350                            Trough of
                   300                         disillusionment
                   250                                        Slope of
                   100                                                             Corrected company valuations
                         1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

DIFFERENT DRIVERS                                                  involved in the beginnings of development out of
There are currently about 700 stationary large-scale               universities or small teams. You can’t manage
fuel cell systems operating around the world. The vast             that from 5000 miles away. We are looking to
majority of these are in North America and Japan.                  invest in components, system developers and
Fuel cells are generating 40MW of energy in the US. In             peripherals.
Europe the figure is 12MW, with 9MW of this in                         “We are trying to raise funds from corporate
Germany North Rhine Westphalia has a quarter of the                investors that can’t escape the fuel cell risk. Some
German figure. The UK has one 250kW fuel cell                      companies could be negatively effected if they don’t do
operated by Woking Borough Council. Doran despairs                 anything. They can’t keep their head in the sand. These
at this lack of commitment. Germany in general and                 include battery companies, electricity, gas companies
North Rhine Westphalia in particular, are the                      and heating companies. All the German heating
exception to the European rule.                                    companies, such as Buderos and Waillant, are involved.
   “The UK Government needs to provide stable                      There are also companies that are likely to be
policies; at the moment there is no fuel cell policy,” he          positively effected, such as chemical firms that can
says. “North Rhine Westphalia has government                       produce the materials.”
support and cash.”                                                     There are many materials issues to address and
   Part of the reason for Europe’s apparent lack of                companies that develop high performance polymers,
commitment is the different drivers pushing                        for example, could reap great rewards. Currently a
technologies in North America and Europe. Ford’s                   proton exchange membrane (PEM) fuel cell operates at
commitment to Ballard was a response to Californian                80ºC. If a polymer could be developed that allowed it to
legislation calling for large numbers of zero emission             operate at 140-160ºC, the power density could be
vehicles. This demand is a result, largely, of air                 increased and hence its size reduced. This is key to it
pollution in Los Angeles and fuel cells appeal because             realising its potential as an alternative to the internal
of the fact they do not produce NOx and SO2. In Europe,            combustion engine.
the focus is on reducing CO2 emissions due to concern                  Given that North American and Japanese
over climate change and governmental commitments                   companies are well ahead of Europe in developing
to the Kyoto treaty Investment has therefore tended to             actual fuel cell devices, it is likely that European
concentrate on renewable generation and especially                 companies are going to have to exploit niches such as
wind power.                                                        membranes, within the market. However from the
   As well as government commitment, Doran believes                investment point of view, finding the university start-
companies cannot afford not to get involved. There are             up or company research team with the winning
many companies that will be effected by the emergence              technology is a very risky game. This is the problem
of fuel cells. As well as the politicians, Doran is trying         Doran hopes Core Technologies can address.
to convince companies this is something they have to                   “We are offering companies ways to manage the
be involved in.                                                    market risk fuel cells pose,” he says. “They might think
   “Core Technology Ventures is a specialist fund                  it is too early to invest in the sector; instead they can
focused on seed and early stage fuel cell technologies             buy an option with us. Many companies have ‘the best
within Europe,” he explains. “It has to be                         technology in the world’. We offer a portfolio of these.
geographically focused because you are getting                     If fuel cells are successful, we will be successful.”

                                                                                                                  POWER ENGINEER | APRIL 2003    7

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