October 2004

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TORONTO - In yet another example of accelerating interest in China and the Chinese market, Stuart Energy Systems here has entered what it calls a master supply and distribution agreement with a Chinese electrolyzer maker.

Stuart said it is teaming up with the Purification Equipment Research Institute (PERIC) of CSIC (China Shipbuilding Industry Corporation) to become the exclusive global distributor of large-scale hydrogen generation plants based on technologies jointly developed by the two companies.

Beijing-based CSIC is a huge conglomerate consisting of some 90 companies and institutes with 170,000 employees, according to the CSIC website. PERIC is located in an industrial area outside Beijing.

In addition, Stuart Energy will be the exclusive distributor of PERIC-built equipment “in certain territories,” the Canadian company said in a mid-September release.

Gets Canadian Gov't Marketing Assistance

As a gauge of official Canadian government interest in Asia, Stuart said a few days later it had been awarded roughly Can $300,000 by the Canadian International Development Agency (CIDA) to go after marketing and business collaboration opportunities in both China and India (Shortly afterwards, Stuart was awarded another $300,000 by Natural Resources Canada for preliminary engineering of three hydrogen fueling stations in Ottawa, Toronto, and Charlottetown, Prince Edward Island).

Stuart already has active subsidiaries in both countries, Stuart Energy China and Stuart Energy India. In fiscal 2004, revenue from those two countries accounted for 14% of Stuart’s total, and the company expects that share to rise to about 27% in the first half of fiscal 2005, the company said.

It’s a win-win situation for both companies, and PERIC is bringing valuable technology to the deal: “By partnering with China’s leading developer and manufacturer of large-scale hydrogen generation plants, we gain immediate access to PERIC’s robust and reliable technology,” Stuart CEO Jon Slangerup said. Their existing lineup of electrolyzers together with products to be jointly developed “will complement our product portfolio, particularly for large-scale industrial, wind, solar and nuclear applications.” Slangerup said, including transportation market applications.

Amplifying, Slangerup explained in a telephone interview that Stuart’s current equipment lineup is based on a modular stack design that produces 10-15 standard cubic. meters of hydrogen/hour at fairly low pressure - 25 bar, or 300 psi. Stack modules can be combined into larger units, typically up to 120 n cu.m/hour.

PERIC builds large stacks starting at about 80 n cu. m/hour, going up to 350 n cu. m./hour, Slangerup told H&FCL. “This gives us access to large-scale technology without having to make the investments needed otherwise,” he said. These sizes are needed for large bus and vehicle fleet applications, hydrogen from wind turbines - “large utility stuff.”

PERIC’s engineers in turn will get access to improve the efficiency of their equipment with Stuart’s proprietary membrane and electrode coating materials, something “they are very desirous of having,” he added.

PERIC hasn’t been “on anybody’s radar screen, but they have been making these large units for a long time - several decades - for steel processing” and other metallurgy applications, Slangerup explained.

Mutually Beneficial Relationship

This “mutually beneficial relationship,” gives Stuart exclusive distribution rights in the West, initially for three years, he says. Secondly, it “gives us an amazing range of product offerings,” Slangerup says - from one standard cubic meter/hour of hydrogen to 350 cu meters/hour.

Thirdly, large 350 ncu.m/h units are more cost effective: “The balance of plant is much less expensive” than combining several smaller systems into one large one, he adds. Slangerup estimates deploying these big units “gets us to $300/kW for the entire system, delivered,” compared to Stuart’s current cost range of $1,200-$1,500 - which is “pretty cheap in the market already.”

Essentially, he expects the equipment to be sold as a Stuart-branded product: “It will be their stack and our balance-of-plant equipment, and the stacks will be developed jointly,” he said.

Slangerup estimates the deal accelerates its cost cutting efforts and drive to profitability by 3-4 years. “It puts us into a commanding position from a markets standpoint,” he adds, and it “gets us closer to the goal of $1/kg of hydrogen” in terms of capital costs. Current estimates are $2-3/kg.

The other variable of course is the cost of electricity. With discount-priced off-peak electricity, Slangerup believes hydrogen costs in the foreseeable future could get “into the ballpark range of gasoline.”

So far nobody is considering transferring production of any of the current Stuart lineup to China. “If we have large-scale success, and if we can do mid-range equipment in China, and the quality of work is what we require, then, yeah, there is an opportunity to manufacture in China,” he adds. But that seems to be a pretty distant prospect right now.

Stuart got its start back in 1948 as the Electrolyser Corporation Ltd.. Founded by Alexander T. Stuart and his son Alexander (Sandy) who is now widely regarded as the reigning elder statesman of the Canadian hydrogen energy industry, it is one of the oldest, most respected global companies in this business. Contact: Stuart (media) Wanda Cutler, 905/282-7769.