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ITM Power at an inflexion point as order book grows

Last updated: 10:31 06 Nov 2014 EST, First published: 11:31 06 Nov 2014 EST

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The current year is one of “significant transition” for ITM Power (LON:ITM), according to chief executive Graham Cooley; a point underscored by the recent trading update.

It revealed a group firmly in the commercial phase of development with £6.77mln of projects under contract and £1.2mln-worth in final negotiation.

It also showed there is significant industry demand for its CE-marked energy storage and clean fuel products. 

This is no longer an R&D-led firm, but one on the cusp of financial self-sufficiency, says Cooley.

“What we are attacking now and remain absolutely focused on is the final transition; to become cash flow positive, and absolutely everything we do is directed at this goal,” he tells Proactive Investors.

ITM is targeting two distinct segments in the emerging hydrogen fuel market: power-to-gas and clean fuel equipment.

Each, potentially, is a very significant money-spinner for ITM. And the legwork it has done to date has given it the means of converting the company’s considerable promise into something far more tangible.

ITM’s rapid response power-to-gas electrolyser provides the answer to a problem that has long dogged renewable energy from sources such as turbines.

As the wind is an intermittent source of energy it would be good to be able to store a turbine’s peak output for that time when it’s most needed. 

In very broad terms this is what the ITM technology allows. It converts electricity into hydrogen that can then be fed into the gas grid and burned when needed.

The electrolyser is packaged in a 20 foot standard shipping container, which means it is easily transported.

More importantly for the users, it can be turned on and off instantly, which means it can react instantaneously to spikes and troughs in electricity output. 

“The National Grid pays for rapid response loads under payment structure called frequency control by demand management, (FCDM)” points out Cooley. So this will supplement the cash made from sales of hydrogen into the gas network.

The most pessimistic forecasts reckon a unit will pay for itself in six years, although it could take as little as half that time as utilisation increases and the cost of the equipment comes down. 

This compelling economic case allied to the reliability and responsiveness of the units explains why there is a widespread acceptance of the technology in the utility industry both in Europe and North America.

ITM Power has links with companies such as Scottish & Southern Energy, Scotia Gas Networks, Shell and National Grid here in the UK, and EDF, GDF Suez, SoCalGas and many others internationally.

The delivery of a power-to-gas plant to Germany’s Thüga Group was significant on a number of levels.

It won the order in the face of stiff competition from local companies, which is an achievement in itself. 

At the same time, Thüga provides the ideal commercial partner, as it has significant minority stakes in 100 municipal utility providers in Germany.

Partnerships are also key to roll out of refuelling stations for hydrogen powered cars.

It is part of a £31mln European project called HyFive that will bring to the roads fuel cell electric vehicles made by five manufacturers. 

It is one of a number of major collaborations in which it is involved that could eventually convert into significant sales of its products.

ITM currently has three large-scale refuelling stations ready to be shipped and another three for the HyFive project are about to go into production together with one to be supplied to the City of Riverside in California.

As Cooley points out: “The limitation of a new vehicle is the infrastructure and we have fully-integrated refuelling stations we can build and put on the ground.

“We make renewable hydrogen and make the whole piece of equipment. We are in quite an astonishing position for a company of our size from the UK.”

The recent update revealed the financial momentum is building.

The company’s broker Zeus Capital is predicting the company will achieve sales of £6.2mln in the year to next April, rising to £10.6mln in 2016. Profitability is expected the year after.

It receives at least of 50% of any order upfront to cover its working capital needs and has enough cash currently to last at least a year.

“We are confident that 2015 forecasts will be met and reiterate the message that mass uptake of ITM’s technology is a ‘when’ not an ‘if’, making an investment in the company at current levels attractive,” said analyst Dr Tom McColm.

Year to date, the shares are down 44%, which suggests a disconnect between perception and the reality of a company standing on the verge of commercial success.

Not that the major investors will be too perturbed. The German insurer Allianz, Majedie Asset Management and Herald Investment Management are all understood to be in for the long haul. 

The same can be said of entrepreneur Peter Hargreaves, co-founder of investment firm Hargreaves Lansdown, and owner of 9.2% of ITM.

“We have made quite a significant transition over the last year or so, with more than half of our stock in institutional hands,” Cooley said. “They get the story.”

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