Wednesday, February 23, 2005

Early Consolidation
Most experts agree that a potential "hydrogen economy" is still a couple of decades away, at best. So it might be surprising to see some consolidation this early in the development of the industry, with the recent acquisition of Stuart Energy Systems by Hydrogenics Corp. Stuart, a Canadian supplier of electrolysis-based hydrogen supply infrastructure, had itself recently acquired Vandenborre, another hydrogen technology provider.

Viewed from a purely financial perspective, the merger presumably creates a stronger, healthier company that is better equipped to handle the technological uncertainties inherent in a "pre-Hydrogen Economy", with a broader product and customer portfolio. Both of these companies have been dealing with early adopters in niche markets, such as delivery and transit fleets converting to fuel cell powered vehicles. The combination brings together a lot of practical experience in a field where much of the market is theoretical and prospective.

In addition, this transaction implicitly recognizes the potential of electrolysis--Stuart's core technology--in breaking the "chicken and egg" problem of hydrogen infrastructure. In other words, how do you justify infrastructure when there aren't enough customers on which to make a profit, and how so you encourage new customers without the existence of adequate infrastructure?

Electrolysis, though far from the most efficient way to turn primary energy into generate large quantities of hydrogen, can be done on essentially any scale required, and could be an ideal bridge to larger scale, more efficient technologies as the market for distributed hydrogen grows.

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