Hydrogen, which produces zero carbon emissions, is the most abundant energy source on the planet. Owing to its properties, applications for hydrogen are far-reaching. For starters, it can be used as an energy source to power buildings to reduce strain on an aging, vulnerable and overworked electrical grid. Because it can reach extremely high temperatures, it can be used in steel making and for other industrial uses recognized as leading pollutants today. There are already hydrogen cars on the road, which speaks volumes to the potential for the transportation sector.
It is with good reason that Toyota, General Motors, Nissan, Honda and more automakers have poured decades and hundreds of millions of dollars into hydrogen-powered vehicle initiatives.
To those points, hydrogen has long been regarded as a possible solution to counter climate change. However, certain challenges, namely cost of production through electrolysis of water, have thwarted adoption. A second type of production is done through industrial processes involving natural gas, which pretty much defeats the purpose because these processes create carbon gases.
But what if the price of hydrogen were to decrease dramatically? What if the technology were created to overcome these obstacles? The answer is that the world would experience a radical shift in usage of renewable energy.
As it happens, we’re on that precipice of that shift and investors should be taking note.
According to Bloomberg, the cost to produce the hydrogen fuel is seen falling up to 80% by 2030 as new technologies emerge. In a new market analysis, Bloomberg New Energy Finance forecasts that hydrogen prices could even drop to as low as 80 cents by 2050, which equates to about $6 per million BTUs of natural gas. Another new report, titled, “Economics of converting renewable power to hydrogen,” shows that renewable hydrogen is already a cost-efficient alternative for certain uses in Texas and Germany.
As a cheap commodity, hydrogen will turn the energy industry on its head. It could also accelerate growth in the hydrogen market that Persistence Market Research already forecasts to increase 6.1% annually to reach $200 billion by 2025.
The changes are playing right into the business model of H/Cell Energy Corporation (OTCQB:HCCC), which has developed a hydrogen energy system for residential and commercial properties, as well as being applicable for fueling stations for transportation. The system, called HC-1, combines solar technology with hydrogen energy to provide consistency in energy storage that eliminates the need for users to rely purely on solar, wind or batteries.
With HC-1, users are delivered clean energy allowing them to run independent of the utility grid and also provide energy to the utility grid for monetary credits.
Each HC-1 system is designed to accommodate the electrical loads for a customer. The system is scalable and can be configured to meet any kilowatt hour (kWh) demands. The installation includes solar panels, a hydrogen generator, a fuel cell and a tank located exterior to the property with the battery system located inside the property.
How the system works is complicated in detail, but quite easy to understand at the surface. When there is solar power, the solar modules produce electricity that charges a bank of batteries. Once those batteries are charged, the excess electricity powers a hydrogen generator that electrolyzes water, extracting the hydrogen in a gasified state, which is stored in a tank.
When the tank is full, the excess electricity can be sent from the batteries to the utility grid, earning the system owner energy credits.
The owner uses electricity held in the charged batteries. If there isn’t ample solar power to charge the batteries, the system processes the stored hydrogen through a fuel cell to charge the batteries to meet the electricity demand.
Through the usage of solar and hydrogen technologies, the system is able to provide a steady supply of clean electricity independent of the utility grid. The combination of the two has the added benefit of requiring a smaller battery storage footprint compared to solar on its own.
This isn’t hypothetical science, two projects have previously been installed in New Jersey. The one in Pennington generates 150 kWh of electricity per day on average, of which the owner only requires 50 kWh each day. The owner has zero electricity bill and receives an average of $9,000 annually in energy credits from the utility company. With investment credits, the system cost about $100,000 to the owner, meaning a rapid ROI when considering savings on monthly electric bill and energy credits.
The other install, in Hopewell, delivered similar results. The owner requires about 40 kWh from the 120 kWh produced each day by the system. Energy credits from the utility work out to $8,000 per year on average and the owner has a net zero electricity bill.
Dallas-based H/Cell is a relatively new company, incorporated in 2015 to focus on clean energy systems. To that end, the company acquired the Australian company The Pride Group Pty in 2017. Founded in 1997, The Pride Group’s legacy business is in providing security systems integration to customers in the government and commercial sectors. The company generates about $5.5 million in profitable annual revenues, inclusive of approximately $2 million in recurring annual maintenance revenue. The company employs 40+ people. Now, it is using that network as a jumping off point to expand its newly launched clean energy division with a focus on Asia-Pacific, one of the fastest growing renewable energy markets in the world.
Last year, H/Cell acquired PVBJ Inc., a company that’s been around more than a decade serving the Mid-Atlantic residential and commercial markets with its environmental systems solutions. With 15 employees, PVBJ generates about $2.5 million in annual sales. PVBJ is also expanding into clean energy systems.
While each company is only recently getting its feet wet in the clean energy system market, both subsidiaries are operationally profitable. During the three months ended June 30, 2019, H/Cell reported revenue of $1.93 million. Gross profit for the quarter was $618,599. Further, H/Cell CEO Andrew Hidalgo said that the company incurred its annual audit fees and other expenses related to closing a financing during the quarter, which cut into profits.
On the discussion of revenues, the Company just announced after the bell today (September 4th, 2019) that it had completed over $1.2 million in various environmental systems and general contracting projects awarded throughout the last few months.
The projects included work done at various locations in Australia and the U.S. including the SCHHS Community Health Facility, St. Bernard State School, Gayndah Hospital, St. Columban’s College, Buranda Railway Station, Xcoal Energy & Resources, Maroochydore Ambulance, Pacific Lutheran College, Proserpine Police Station, Gap Inc. and Old Navy.
Commenting on the recent awarded contracts, Andrew Hidalgo, CEO of HCCC, stated, "We are very pleased to successfully conclude several key projects as we continue to build our backlog of business. The summer months have remained active and bid activity remains high. Our two operating subsidiaries are now focused on converting more of our bids to project awards so that we can have a solid finish for the current fiscal year.”
News of this type speaks to the fundamental strength of this company, and the prospects for future revenue growth.
Hidalgo is seasoned in all aspects of the public markets and corporate development as the former founder, chairman and CEO of design-build engineering firm WPCS International Incorporated (NASDAQ:WPCS). Founded in 2002, Hidalgo built the company from scratch into a firm of more than 500 employees, $100 million in profitable annual revenue and a NASDAQ Global Market listing.
He’s at it again with H/Cell, making the two acquisitions and recently completing a $3 million equity financing to provide the company with its first-ever growth capital.
Moreover, H/Cell and its units have over $40 million in bids outstanding of which nearly $4 million is specific to renewable energy as those subsidiaries begin their market efforts of the HC-1 systems.
HCCC remains extremely clean and tightly held with only about 7.6 million shares outstanding and 2.1 million in the public float. The company’s market cap, at just $3.29 million, is about equal to the cash on hand and the equity funding H/Cell has in place.
H/Cell is expanding at the right time amid a very favorable environment for renewable energy. Consider some of the events supporting adoption. Once legislated, the Renewable Portfolio Standards (RPS) will mandate public utilities to generate up to 20% of their electricity through clean energy methods. Two years ago, only 12 states were signed on to the RPS; now there are 28. Elsewhere, the U.S. Department of Energy recently announced that it is initially allocating $38 million in government grant funding to support innovative hydrogen and fuel cell technology.
Globally, 12 countries have recently established clean energy mandates led by China, Australia, India and the United Kingdom.
Add it up and what the world is experiencing is expanding legislated tax and energy credits, a concerted push to mandate clean energy technologies, expanded uses for affordable hydrogen/fuel cell technology and high demand for integration services. These changes all bode very well for the direction of H/Cell, a company led by proven management that is quietly building a presence and flying under investor’s radar as a very well position company in the renewable energy space.
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