Crisis and Opportunity’s “Breakthrough technology turns air, sunlight, coal, even water into precious gas”

Deciphering DeHaemer's "How to Make 10 Times Your Money on the Energy Mega-Shift"

By Travis Johnson, Stock Gumshoe, July 10, 2014

[ed note: We got a lot of questions about this pitch after we solved a different DeHaemer teaser yesterday, so we’ve brought it up for all to see again. The stock spiked up in the Spring, a few months after this article first ran back in January, but has come back down to a bit below the price it was when DeHaemer was first teasing the stock. We have not looked at the stock since or researched what caused the move up and back down, but the ad does not seem to have changed at all. What follows has not been edited or updated since it first appeared on January 28.]

—from 1/28/14—

It sounds, of course, very exciting — the spiel is an ad for DeHaemer’s Crisis and Opportunity newsletter, which is a fairly pricy $500 number that tends to focus on smaller companies and on stocks in war-torn or otherwise scary parts of the world. This one, however, is quite a bit more mundane — it’s a technology company that he says can turn sunlight and water and air into natural gas, solving the world’s energy storage problems.

Who wouldn’t want that?

Or, as he puts it:

“A technology that can convert air, sunlight, coal and even water into gas is the equivalent of a cure for cancer!

“What’s that worth?

“A lot. Maybe the biggest windfall ever.

“…. the company was able to convert air into gas.

“That’s right… the same air you and I breathe.

“This company was able to turn it into gas and transport it through a natural gas pipeline.

“This gas can be used to turn on your lights and heat your home, among countless other things.”

That’s hyperbole, of course, but there’s a bit of truth in there … and plenty of cash out there for the companies who can solve energy problems. What’s the problem DeHaemer is talking about?

Well, I won’t make you sit through the whole presentation, but the basic idea is that this company can solve the problem of energy storage for renewable energy.

Renewable energy is sometimes cost-effective these days, depending on where and how it’s produced, and it’s obviously important to lots of people and is in high demand. Many consumers will pay more for energy they feel better about, and technology improvements should continue to make solar, wind and other renewable energies more efficient in the decades to come.

But storage is an unsolved problem — the wind doesn’t blow all the time, the sun doesn’t shine at night, batteries are expensive and short-lived and many other storage solutions, like pumped hydro (you pump water up hill, then run it back downhill through a turbine when you need to generate electricity), are inefficient and take up a lot of space or just haven’t been economically feasible (like Beacon Power’s flywheels, which are in use in two plants to help regulate the electric grid but weren’t profitable enough to keep Beacon out of bankruptcy — Dehaemer actually teased those folks too, though that was back in 2007 when they were riding a bit higher, and when he was penning a different letter for a different publisher).

So really, what this company is doing is converting wind (“air”) or sunlight into electricity, which happens all the time, but then instead of that electricity just feeding into the electric grid this company uses their technology and that electricity to split water molecules into hydrogen and oxygen (the process is called electrolysis). That hydrogen is used either as a fuel itself, as in fuel cells, or can be pumped into the natural gas network (and/or turned into synthetic natural gas through methanation).

Here’s a bit more of the hype, in case that basic stuff got a little too boring:

“You see, this company has been working on this breakthrough for many years.

“It has patented (145 patents and patent applications in all) and perfected the technology.

“And when all is said and done, it can supply all of the energy America could possibly want for just $0.02 a kilowatt hour. That’s the equivalent of filling up your car for just $0.57 a gallon.

“It works by converting air, sunlight, coal, and even water into gas.

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“It’s clean, cheap, and abundant.

“You can even transport this gas right through existing natural gas pipelines — so there’s no extra infrastructure costs to move it, because the pipelines already exist.

“And get this: Since air, sunlight, coal, and water are essentially limitless in supply, this energy will never run out… ever.”

Then, thankfully, we get a few clues about the actual company that DeHaemer is teasing — I’ll extract a few of those clues for the Thinkolator here:

“Their annual revenue has jumped to $40 million from $19 million in 2009.

“And they have a backlog (sales for this company’s technology that’s already been booked) of over $53 million.

“The most recent customer to adopt their technology was the nation of Germany. Germany is the sixth largest energy consumer in the world. They licensed this company’s technology to build a two-megawatt power plant facility in Falkenhagen. Two megawatts can power more than 2,000 homes.

“The power plant went live this past August. For Germany, this is just the beginning of a major rollout of this company’s power generation technology….

“Enbridge — a $33 billion company that owns and operates the longest oil and gas pipeline systems in the world — invested millions into this company last year. In return for millions invested, they now own 13% of what I think is about to become an energy giant….

“Another ‘big name’ investor in this company is General Motors (GM).

“GM — the second largest automobile manufacturer in the world with annual sales of $152 billion — owns a 5% stake. Like Enbridge, GM knows that the millions of dollars it has invested in this company could return hundreds of millions, if not billions, of dollars in the years to come….

“That’s why the company’s stock is up about 100% in a year.

“However, it still trades for less than $19 a share… and has a total market valuation of less than $250 million!”

So what’s our secret stock? As you can imagine, with that nice pile of steaming clues it didn’t take the Thinkolator long to identify our target — this is Hydrogenics Corp. (HYGS).

Hydrogenics has long been a hydrogen company with a good story, creating hydrogen systems and pushing for fuel cell adoption, but their story turned sour a few years back (coincidentally, that’s about when the last promise of hydrogen fuel cell cars fell out of favor with the first reliable hybrid and electric cars), but they have indeed had a bit of a recovery lately on the strength of both renewed interest in hydrogen fuel cells for transportation and telecommunications, and, more recently, on the pilot projects of their “power to gas” systems like the operational project in Germany that DeHaemer is teasing today.

The stock is slightly above $19 now, right around $21, but the market cap is under $200 million still and they have enough cash to keep going for a while. They are not profitable, but they do envision themselves becoming profitable fairly soon — they don’t think they need a capital infusion ore increase in production capacity to reach profitability. And they have some strong partners in E.on in Germany and Enbridge in North America (and Hyundai and GM).

The “power to gas” division is not their biggest one, but it’s a very appealing story (which is no doubt why DeHaemer’s publisher is using it, probably successfully, to catch the attention of new customers). The company describes the advantages of their system pretty nicely here:

“One of the unique characteristics of the Power-to-Gas solution is that it leverages the inherent advantages of the natural gas system. It provides the means to both store and transport energy. By storing hydrogen or substitute natural gas in the existing natural gas pipeline network and its associated underground storage facilities, the stored energy is not restricted to the site of generation. In effect the natural gas system serves as a ‘Power by Pipes’ alternative to the transmission grid to alleviate network congestion and transport energy. Separating the storage and discharge of energy results in a higher overall integrated energy system efficiency”

I haven’t seen any information about the efficiency of the system — about how this “gas storage” system for electricity compares to grid storage or batteries or simply to the current system — but it does seem like it could make for a nice and tidy way to turn solar power or wind power into baseload “always on” power if that electricity is turned into natural gas that can be stockpiled and burned in a nat gas turbine. How much it costs versus actually producing the natural gas and burning it, I don’t know. They do have the large project in Germany, which is for 2MW but is apparently scalable and started operations over the Summer, and a second plant in Hamburg is apparently underway … and they also are selling self-contained systems to essentially provide local baseload power from renewable energy in the form of “micro-grid storage,” as with this order they announced just recently.

This is one of those companies where the one-year chart looks like an awesome breakout company, the five-year chart shows us a recovery from a several-year lull, and the ten-year chart shows a completely collapse of a market darling. Consolidation-adjusted, the stock was around $200 not much more than a decade ago, three or four bucks in 2010-2011, and is now back above $20 (there was a 25:1 share consolidation or “reverse split” back in 2010 so they could stay on the Nasdaq — the stock was down in penny range for a while before that). The same is true for most of the hydrogen fuel cell companies that have survived, stocks like Ballard Power (BLDP), FuelCell (FCEL) and Plug Power (PLUG) — I can’t say that I remember a specific catalyst to all of those companies collapsing in the early-to-mid 2000s, but they were all darlings for at least a little while at the same time that the internet bubble was preparing to burst … and they’re all down 80, 90 or whatever percent from their long-ago highs.

But Hydrogen is certainly capturing our fancy again — hydrogen cars are being pushed again by a couple carmakers, with baby steps taken on building up hydrogen fueling stations again, and that has helped the fuel cell companies this year (there’s a good Washington Post piece on hydrogen fuel cars at the DC auto show here), and Hydrogenics has shown some life in building up their backlog of orders a little bit … heck, there’s even one analyst who thinks they’ll be profitable next year (perhaps he’s dating the CEO’s daughter or is just more optimistic than others, I don’t know).

And HYGS is making some progress, it appears — they think that they can keep gross margins stable and become profitable once annual revenue hits $50 million, which might not be more than a year or two away if all goes well, and they have enough cash to at least get through another year like last one without having to sell shares. That’s on the strength of backlog for telecom backup power systems from their partner Commscope, as well as a big order still working its way through for propulsion power cells (for a secret customer) and some hydrogen generation orders (for systems that use electrolysis to produce hydrogen where it’s needed — like in industry, or at hydrogen fueling stations). Here’s how the CEO put it on their last quarterly call:

“… let me just reiterate that Hydrogenics remains on track to attain the goals led out since 2012, the company is now at inflection point with our energy storage and power systems operations coming to represent a much larger share of Hydrogenics’ overall business, we remain on track to become profitable at the 50 million revenue run rate, and at a 30% gross margin and we’re well on way this milestone achievement. We have what it takes to support rapid growth, scale up our operations and diversify our business space but we still anticipate full year revenue to be up over 30% this year versus 2012.”

And … that’s about all I can tell you about HYGS from my few minutes scanning their information. They’re still small, the story is really cool, particularly the energy storage capabilities, and they still think they’ll reach profitability fairly soon … if the hydrogen “story” really takes off again they could certainly be a beneficiary, as they have been with their parade of positive news over the last six months, but keep half an eye on those 2004-2006 charts for the hydrogen companies before you fall too much in love with stories like these, until some kind of sustainable profitability is reached they’re very much at the whims of shifting tides of sentiment.

What do you think? Ready for the next wave of hydrogen companies? Think HYGS is good fuel for your portfolio? Let us know with a comment below.


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