Hydrogenics corporation equity analysis stock symbol - HYGS:NASDAQ

8/13/2019 Hydrogenics corporation equity analysis stock symbol - HYGS:NASDAQ

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Dev Bhangui Lino Camargo

Senior Analyst, Disruptive Technologies and Innovations Associate, Equity Research

647.426.1658 647.426.0289

[email protected] [email protected] see end of this report for important disclosures

Hydrogenics Corporation(HYG TSX, HYGS-NASDAQ, $12.10)

Fuel Cells on the Move in 2013: HYGS Established Leader

in H2Generation, Emerging One in P2G Storage

Increasing renewable generation intensifying grid imbalance issues: Renewables are filling the gap created by mothballing of nuclear and phasing out o

coal-fired plants.

Renewables crossing 1015% of grid capacity can cause failures due to inhereninstability of supply and the obvious lack of storage buffers in traditional grid designs

Currently, no generally applicable utility-grade, bulk storage solution meets thcomplete demand for capacity, price and duration.

Utilities are therefore forced to either curtail renewable generation or accept heftincremental costs in paying customers to purchase the excess capacity.

Power to Gas (P2G) storage solution: HYGS emerging as a leader:

Generating H2 using renewables and injecting it in gas pipelines for storage (P2G) gathering momentum due to its price, simplicity, versatility and scalability.

P2G is a high-capacity, long-term, demand responsive and transportable solution that able to use existing infrastructure without modification, and is economical.

HYGS has close ties with E.ON, the largest EU utility, and has won 7 out of 19 projects Germany, currently the most advanced energy storage market; 10 projects rema

unawarded.

HYGS has 12 MW P2G units deployed, 10MW being developed for commercial roll-ouAn established H2generation leader, experiencing new growth opportunities

Leading share of industrial H2market, outperforming rival 2:1, over 60 years of legacy. H2generation demand should grow due to the build-out of refuelling stations, with fu

cell electric vehicles (FCEVs) debuting in 2015.

EU gas utilities are leveraging P2G to stay relevant and enhance the value of thenetwork; they constitute a large and easily penetrable market for P2G.

Enbridge is building the first North American P2G storage system in Ontario, with HYGS apartner, and expects this to be followed by a 510MW commercial facility.

Power systems unit firing on all cylinders:

Commscope FC units for telecom back-up power delivered in Q2/13. Larger telecom orders from Commscope expected in 2014 after hot/cold season tests. $92M order from a European propulsion OEM will drive multi-year revenue. Fast-growing power systems revenue puts HYGS within arms reach of break-even.History has been hard, but future looks bright (finally):

We understand HYGShistory of operational losses and ongoing investor pain. HYGSpast investments have seeded this harvest, with clear signals from last 3 quarter HYGS leading share of industrial H2 market provides a hedge for the investor, whi

exposure to significant growthall from powerful partnersprovides the upside.

We see multiple areas for revenue growth, leading to positive cash flow by H2-CY2014.Valuation:Our $15.50 target price is derived using a DCF methodology based on a 13

discount rate and 4% terminal growth. We believe HYGS is a leading pure play in thhydrogen-based renewables industry, which is growing its revenue at a CAGR of 30%+

the near and medium term; its peers are growing at an average of 1819%. Our targ

implies 1.8x 2014E EV/Sales. HYGS is currently trading at 1.5x 2014E EV/Sales; its peers a

trading at an average of 3.3x. Given 2013 revenue acceleration, our estimates for 39

revenue growth in 2014 (vs. 19% for peers), formidable strategic partners/customers,

dominant position in Germany and a possible medium-term take-out from the likes of an

one of Siemens, other turbine OEMs or gas utilities, we believe HYGS should trade at

premium multiple, justifying our valuation and target.

INITIATING COVERAGE

Rating: Buy

Target Price: $15.50 (+28.0%)

Initiating CoverageRating Buy

Target $15.50

Revenue 2013E (MM) $44.4

EBITDA 2013E (MM) $(6.6)

EPS (F.D.) 2013E $(1.10)

Share data (estimated pro forma)

Shares O/S (Basic) (MM) 9

Market Cap (MM) $108.9

Enterprise Value (MM) $98.5

Average Weekly Volume (THSD) 65

Dividend Yield N/ANet Cash (MM) $12.3

Fiscal Year End 31-Dec

Financials F2013E F2014E F2015E

Revenue (MM) $44.4 $62.4 $84.3

EBITDA (MM) $(6.6) $1.6 $7.5

EPS (F.D.) $(1.10) $0.02 $0.69

DCF/Share $13.8 $15.6 $17.6

Company Description: Hydrogenics Corporation is a

globally recognized developer and provider of hydrogen

generation and fuel cell products and services, serving

the growing industrial, utilities and clean energy

markets. Based in Mississauga, Ontario, Canada,

Hydrogenics has manufacturing and operations in

Belgium and Germany.

Source: BigCharts.com

October 2, 201


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Hydrogenics Corporation

Dev Bhangui 647.426.1658 [email protected]

Lino Camargo 647.426.0289 [email protected] Page | 2

Investment Thesis

Mississauga, Ontario-based Hydrogenics (HYGS) is a leader in industrial and commercial

hydrogen generation systems, their applications and fuel cell (FC) solutions. HYGS has

manufacturing facilities in Belgium and Germany. Over the last 60 years, HYGS and its

predecessors have built partnerships with tier 1 players in the hydrogen value chain, some

of which are strategic investors in the company and leverage their distribution muscle tomarket HYGS products worldwide.

A pioneer and emerging player in the P2G (Power to Gas) method using hydrogen-based

energy storage, HYGS has a leading share of the German renewables energy storage

market, considered the most progressive, fast growing and demanding in the world. After

many years of posted losses, HYGS sits at an inflection point due to multiple growth

opportunities, which we expect to occur concurrently and in the near term. This growth is

driven by increasing interest from auto OEMs in fuel cells driving hydrogen refueling station

build-outs, the close relationship between HYGS and E.ON driving P2G energy storage and

large OEM orders for power systems, which have already resulted in a record backlog.

Germany will reduce coal generation capacity to cut GHG emissions and nuclear plants in

the wake of the Fukushima disaster. This has further intensified Germanys need forrenewable storage. As such, several P2G-based energy storage projects are expected to

move quickly from demo to roll-out. Roll-out projects are expected to be at least 10x demo

size, and HYGS is well positioned to experience this accelerated growth in the coming

quarters. In addition to recently winning the bid for a 1MW P2G facility with its strategic

investor Enbridge, we expect HYGS to also build the subsequent 510MW capacity

commercial unit.

While several technologies have been battling each other for a piece of the renewable

energy storage market, hydrogen-based solutions hold an edge due to their economics,

response, simplicity, higher capacity and location flexibility in storage and consumption,

which are particularly appealing to the utilities. Leveraged to the fast-growing hydrogen

economy, investors should view HYGS as a hydrogen pure play, which has a limiteddownside risk due to a strong legacy foundation of recurring revenue in traditional

industrial hydrogen supply, combined with significant upside in hydrogen fueling stations

for transportation infrastructure, back-up power for telecom and P2G energy storage, as

well as potential to build-own-operate some of these assets through Enbridge, its partner-

investor. While history does not conjure pleasant memories, given the performance trends

apparent in the last three quarters, the outlook for the company, our discussions with

management and checks with industry players leads us to believe that HYGS is in the initial

stages of history-reversing value creation. We suggest investors buy the stock and benefit

from this opportunity.

Our $15.50 target price is derived using a DCF methodology based on a 13% discount rate

and 4% terminal growth. We believe HYGS is a leading pure play in the hydrogen-basedrenewables industry, which is its growing revenue at a CAGR of 30%+ in the near and

medium term. Its peers are growing at an average of 1819%. Our target implies 1.8x

2014E EV/Sales. HYGS is currently trading at 1.5x 2014E EV/Sales; its peers are trading at an

average of 3.3x. Given 2013 revenue acceleration, our estimates for 39% revenue growth in

2014 (vs. 19% for peers), formidable strategic partners/customers, a dominant position in

Germany and a possible medium-term take-out from the likes of any one of Siemens, other

turbine OEMs or gas utilities, we believe HYGS should trade at a premium multiple,

justifying our valuation and target.


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Industry Background

The Situation: Renewables are filling large gap in our ever-increasing energy needs

Various countries are not expected to be on track to meet IPCC-based emission targets set

for 2020. On the other hand, there are fears that if we continue to consume the fossil fuels

at the current rate of acceleration (see Exhibit 1), some of these resources, such as oil, will

peak and begin their decline as soon as 2015. As populous countries in emerging markets

and BRICS in particular are posting higher economic growth rates, this issue will become

exacerbated. Continued global warming will not only increase the frequency of natural

disasters like flooding, droughts, etc. but also building our defenses for the fall-out will cost

us in billions of dollars, which can be avoided. To curb and control global warming, we need

to keep the Earth temperature rise below 2C (3.4F) compared to the pre-industrial times.

Exhibit 1 World Fuel Consumption Is Ever Increasing

Source: Peak Oil

It is estimated that by 2050, all the energy we need could come from renewable or

sustainable sources. Solar, wind, geothermal, biofuels, biomass and others have been

worked on in tandem with a view to find solutions.

Currently, none of these alternatives rank economically on par with the fossil fuels and

have yet to reach mass adoption rates. Economics for adoption is a game of appropriate

price points and scale. Governments around the world have made massive investments in

funding renewables innovation, research and product development. They have passed

subsidies and have issued mandatory policies for transportation and utility industries with

a view to encourage end users and bring price points down for mass market adoption.

Consequently, renewables production really took off after 2001 for wind and after 2005 for

solar, and today in Germany the renewable power generation capacity can support 50% of

the consumption on a typical summer weekend.


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Exhibit 2 New vs. Decommissioned Power, EU Region

Source: CleanTechnica

But continued challenges to this picture exist and new ones emerge. Nuclear disasters like

Fukushima have evoked strong negative public opinion, forcing many nations to take

several nuclear reactors off line (Exhibit 2). Coal plants continue to be shut down to reduce

GHG emissions. Renewable power has to fill this large and increasing gap, as shown in

Exhibit 3.

Exhibit 3 Share of Renewables in Power Generation is increasing

Source: IEC White Paper, Grid integration of large-capacity Renewable Energy sources and use of

large-capacity Electrical Energy Storage, Oct. 2012


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The Issue:Increasing proportion of renewable power causes electrical grid imbalance

As such, an increasing proportion of our energy consumption will come from renewable

sources (as shown in Exhibit 3), causing its own issues integration and imbalance. With

electricity generally created on-demand, the traditionally designed electricity grid has no

inherent storage capacity and this causes problems with increasing penetration of

renewables. Energy sources like solar and wind are inherently variable. Sun will shine and

wind will blow at their whim and they could generate supply peaks during demand troughs.

This supply excess introduced into the grid causes imbalance, overheats transmission

network and leads to a safety triggered shutdown. An excess beyond 1015% can cause

blackouts. Utilities have not yet found cost-effective means of storing this energy. As such,

they often curtail the energy produced by renewables or pay customers to off load excess

power (bearing negative tariffs) to prevent such imbalances. Asset utilization for

renewables is far below that of conventional systems and full potential cannot be realized

until suitable storage mechanisms are in place. This is a sad state of affairs, as significant

investment and tax dollars have gone into this sector.

The Solution: P2G storage

Industry has tried various solutions to solve this issue pumped hydro, compressed airand batteries have been the most common. Pumped hydro is the most tried and tested and

accounts for 80% of energy storage from renewable excess production (EPRI 2012 report).

But this solution is limited by geography, cannot respond quickly to renewable power

downs (such as when wind dies suddenly) and not feasible for flat terrains like Holland.

Others like compressed air and batteries face geographic, capacity or high cost drawbacks.

Utilities need massive amounts of capacity to store the excess renewable energy at low

costs. They also need flexibility to move these massive amounts from places of storage to

places of consumption.

Exhibit 4 Hydrogen Energy Storage vs. Alternatives A Comparison

Source: Electricity Storage Association


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As illustrated in Exhibit 4, the hydrogen-based P2G method provides an effective solution.

It is comparable in capacity to Pumped Hydro Storage and Compressed Air Energy Storage

but more cost effective and responsive to demand variations. Renewable power could be

used to generate hydrogen via electrolyzers. The hydrogen produced could be stored in

existing natural gas pipelines (P2G) and transported, to be used where and when needed.

One of the obvious benefits provided by P2G and the subject of focus from varioustechnology blogs and articles is seasonal storage and timeshift. In low season when supply

exceeds demand, the energy created by renewables is stored to be utilized during the high

season, when demand exceeds supply. Similarly, during evenings and nights, when

electrical tariffs are lower, the excess energy produces hydrogen which is stored and

utilized during day time when the demand and tariffs are higher. Besides salvaging the

excess renewables energy that is curtailed by utilities, P2G projects can make money

capturing the spread between high and low tariffs. Based on the tariff structure in the US,

and at current P2G pricing levels of $0.5/MW, break-even point on investment can be

reached in 2.5-4 years.

Exhibit 5

Power to Gas

The How to Schematic

Source: North Sea Power to Gas Platform and KEMA

Thus, P2G acts as a shock absorberfor the electricity grid, providing dynamic response

and the necessary capacity to cope with the variability in output of renewable electricity

sources. First, P2G has fast load following capability; second, it is flexible in terms oflocation of storage and scale; third, there is enough capacity in the gas grid for energy

storage on a seasonal scale (energy capacity of gas pipelines is 3x electrical grids); and

hydrogen, when injected, travels across the existing natural gas pipeline network and can

be tapped at various industrial and commercial consumption points. Thus, P2G can turn

renewables into dispatchable power plants, helping maintain a balanced electricity grid.

The P2G solution integrates power and gas infrastructure in an unprecedented way,

creating value from both and helping extend their life span (Exhibit 5).


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However, in countries like Germany, significant excess capacity in electrical power

production has compressed the tariff spreads enough whereby any type of storage cannot

be financially justified. In addition, the new generation of power plants are cheaper and

respond faster to issues caused by power-ups and downs inherent with the sun fading and

the wind dying. Non-believers in energy storage proclaim that the storage market need is

questionable and it will not develop as envisaged. However, as the Storage Benefit Analysis

table below in Exhibit 6 illustrates (, only $311/Kw out of $13,463/Kw of benefit (which is

only 6.5%) is delivered by time shiftversus several benefits provided by storage in areas

of load following, regulation, transmission and distribution support and black starts.

Exhibit 6: Economic Analysis of Bulk Storage Benefits for Electric Grid

Source: Sandia Labs (excerpt from an economic analysis of bulk storage for Renewable energy

applications, 2011)

Hydrogen can also be used to power fuel cells a cheaper, safer and longer-life

alternative for transportation, stationary back-up and motive power than batteries. Due to

its capacity, hydrogen can offer long driving ranges and short fueling times. Advantages of

H2 over alternatives are illustrated in Exhibits 7 and 8. The technical superiority of H2over

BEV in Exhibit 7 and massive cost advantages over all other alternatives in Exhibit 8 are

especially apparent.


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Exhibit 7 Comparison of Rated Power, Energy Content and Discharge Time of Different

EES Technologies

Source: IEC Electrical Storage Whitepaper 2011 and Fraunhofer ISE

Exhibit: 8 Technical and Economical Features of Various Power Storage Technologies

Source: European Commission Directorate-General for Energy, Working Paper)

Japanese auto OEMs such as Toyota have recognized the hydrogen fuel cell potential to

power the autos and are releasing models expected to be in commercial production by

2015. After neglecting the FC potential in favour of solar and batteries and lagging the

European Union (EU), the U.S. Department of Energy has now made an about-turn in its FC

policy in a bid to catch up with California Hydrogen Highway, which is leading the effort.


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The Office of California Governor Edmund G. Brown has published its 2013 Zero Emissions

Vehicle (ZEV) Action Plan, which includes a roadmap toward putting 1.5 million ZEVs on

California roads by 2025. Hydrogen fueling infrastructure investment has been keeping

with the auto industry. In 2010, there were 200 fueling stations worldwide, which grew to

340 in 2011. Currently, there are 503 (according to H2 Stations.org) and this is expected to

grow to 5,200 by 2020, providing a growth thrust to hydrogen generation and FC-based

transportation and motive power industry.

Exhibit 9: Hydrogen Demand for Transportation

Source: Pike Research

Opportunities

Increasing renewable energy capacity intensifying grid imbalance issues:

A lag with respect to IPCC 2020 emission targets, phasing out of coal plants and

mothballing of nuclear reactors in the wake of the Fukushima disaster have left a large and

increasing energy generation gap which renewables must fill. Germany currently produces

50 GW of renewable power, sufficient to satisfy almost half of a typical summer weekendbase load need, and is projected to reach 179 GW by 2020, according to Frost & Sullivan's

Energy group.

However, once in excess of 1015% of grid capacity, integration of renewables, in absence

of a flexible storage, causes grid imbalance issues and blackouts. Utilities therefore

ironically curtail renewable capacity, which has been expensive to install. Sources of

variability in renewable energy production sun and wind producing excess capacity

during demand troughs cannot be controlled, but effective storage can be. Utilities need


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storage capacities which are large, can be used for the long term, cheap and can provide

rapid response to demand.

Industry has tried various solutions to solve this issue pumped hydro, compressed air

and batteries have been the most common. Currently, pumped hydro accounts for 80%+ of

storage due to its vast capacity and quick response. But this solution is limited by

geography to build large reservoirs at an elevation, not feasible for flat terrain nations like

Holland. Harnessing the stored energy from pumped hydro needs electricity generation

and transmission network, making it less cost effective. Similarly, compressed air storage

has been used but low energy density of air and geographic dependence of underground

caverns limits large storage. Other geography independent methods, such as batteries and

supercapacitors, have been used, but large capacity can be provided only for a short period

of time (few minutes) and batteries occupy a large ground footprint, besides being

expensive. All these methods have another limitation: energy is stored where it is produced

(could be remote areas or offshore, in case of wind farms) and has to be transported to the

place of consumption, adding to the costs.

Estimates vary for the addressable market for energy storage but there is no denying that itis experiencing massive growth. Lux Research estimates it at 50 GW growing to 165 GW by

2017. Exhibit 10 shows the estimated total addressable storage market and projected

energy investment from the industry to 2020.

Exhibit 10 Addressable Market for Energy Storage and Industry Investment

Source: American Vanadium

P2G, an economical storage solution that enables place and time arbitrage: HYGS

emerging as a leader: Storing large capacity over long periods of time requires a stable,

scalable and cost-effective medium that is not dependent on geography. Hydrogen solves

all of these issues. Hydrogen is one such carrier which is stable in the liquid and gaseous

form and can be stored for long periods of time (such as a season). It is also miscible with

other gases such as natural gas, and hence can use existing gas pipelines without any

modification at 515% concentrations.


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P2G has emerged as a large and utility-scale solution and is experiencing a significant

momentum via utility adoption. Renewables produce power that is used to run

electrolyzers to produce hydrogen. Hydrogen is fed into existing natural gas pipeline

infrastructure, where it could be stored throughout the low season. At the time of

consumption, it could be transported by the same pipeline to a combined cycle gas power

plant or could be piped into end-user homes, recovering the energy during its use. This

application is scalable, avoids multiple conversion inefficiency losses and uses existing gas

networks, without any modifications. Due to hydrogens embrittlement and leakage

characteristics, the infusion cannot exceed 15%. However, since the gas infrastructure

capacity is 3x the electrical grid capacity, even a limit in high single-digit percentage will

likely provide enough storage capacity for several years.

In the P2G method of energy storage implementation, Germany is the most progressive

nation and HYGS is a well-acknowledged leader. HYGS holds key patents on ways to

introduce H2 into gas pipelines without affecting the grid balance, which needs a thorough

understanding of utility processes involved in maintaining that balance. Of the 18 German

demo projects in the 12 MW range, nine have been decided. HYGS has won seven versus

two for the competition and is awaiting the decision on balance. We expect HYGS to win atleast 50% of the remaining demo projects. Recently, the 2 MW facility, where E.ON

partnered with Swiss Gas, was opened commercially. The next 1 MW order is expected to

be delivered this quarter. With a stamp of German approval and a formidable partner like

E.ON, arguably the largest utility in the world, HYGS is well positioned. Everyone in Europe

has been watching the German progress on P2G. U.K., which has a similar issue as Germany

with high and rising percentage of renewable energy production, is expected to follow

Germanyslead. Revenue from P2G initiatives in Germany will make an impact on HYGS

financials only when the country moves from demo-sized 12MW capacities to commercial

stages of 10 MW or larger capacity modules. If this happens, P2G contracts priced at

~$1.5$2.0M/MW should be able to add significant growth in 2014.

The latest E.ON P2G order for a 1 MW PEM electrolyzer was followed by a similar-sized P2Gorder by Enbridge for energy storage into its facilities. Enbridge considers this a commercial

facility to be connected to the grid, to be followed by a 510 MW facility, and is working to

try and improve Canadian legislation on gas injection. We expect the P2G Enbridge facility

to be built in Southern Ontario, a region attractive for P2G due to proximity to refineries,

salt caverns, a natural gas network and energy variability driven by healthy wind

generation near Lake Huron. Such a facility is expected it to be the first of its kind in North

America. Due to close a strategic relationship between the two, we will not be surprised if

HYGS has an opportunity to jointly own some of these P2G assets as the initiative

progresses.

Despite the current P2G momentum, there is a sobering thought for the long term.Currently, nearly 50% of Germanys 60GW electrical energy consumption can be supplied

by solar on a summer weekend (as experienced in July 2012 and 2013). Currently installed

capacity in Germany is 34.5 GW (solar) and 30.5 GW (wind). Installed capacity via

conventional sources was estimated to be another 61 GW (according to Germany Trade

and Invest, 2013). Thus, Germany faces significant excess energy capacity. Hence, the price

spread between peak and trough energy prices has decreased significantly, neutralizing the

time shift arbitrage. The new generation power plants can provide fast response to

demand fluctuations and, in some cases, are cheaper than current storage alternatives.


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Refurbishing and extending the life of existing pumped hydro storage would be the

cheapest way of increasing storage, but even that has been made uneconomical by the

above factors. H2storage needs gas pipelines, which most electrical utilities dont own and

have to partner with a gas utility (E.ON partnered with Swiss Gas at the recently

commercialized P2G facility at Falkenhagen). Hence, for electrical utilities in Germany,

storage may not hold any appeal as a supply-demand shock absorber but as a means of

converting excess into profitable export. Even with the winding down of nuclear and coal

plants, surpluses of around 40 GW are expected by 2020.

At $0.5M/MW of storage costs in 2013, and assuming future cost reduction of 50%, we

expect the addressable storage market in German electricity grid to be $10$20B.

HYGS: An established leader in H2generation, experiencing new growth opportunities:

HYGS facilities in Belgium have over 60 years of history in electrolyzer-based generation for

industrial hydrogen. While 95% of the industrial H2 is produced by steam reformation of

natural gas or methane and then carried to the consumption sites in compressed form by

bottles or tankers, some applications need on-site generation or high purity. Hydrogen

production through hydrolysis of water is the only solution. This is a $100$200M/yearmarket growing at 510%/year Hydrogenics commands a steady 2530% market share,

outselling its nearest competitor two-to-one. It competes on quality, reliability and years of

reputation. The company uses Air Liquide and Linde as its preferred supply partners, who

dominate the industrial hydrogen landscape. High-purity hydrogen is required in glass,

power plant cooling, semiconductor fabrication, etc. as steam reformation leaves

unacceptable impurities like CO, carving a niche for electrolytic hydrogen.

While we have covered the revenue growth in electrolyser orders due to P2G momentum

Via E.ON and Enbridge contracts as described above, other opportunities in P2G for selling

hydrogen generation solutions abound and are discussed below.

Gas companies own an extensive network of pipelines used to supply natural gas tohouseholds, commercial and industry major consumers are refineries and combined

cycle generation plants owned by electric utilities. An increasing proportion of renewables

in the power mix threatens the future of gas companies. There is increasing evidence that

gas companies are investing in P2G as a means of extending the economic life of their

assets, capturing value and staying relevant.

As an example, a major entity driving P2G adoption is North Sea Power to Gas Platform. It

is a consortium of 11 leading gas companies in Europe (includes gas utilities of Switzerland,

Sweden, Austria, Germany, Denmark, Belgium and Netherlands) which have joined forces

in the newly established Power to Gas Platform to further develop the concept of P2G: the

conversion of renewable power into gas. The group expects to utilize excess power from

intermittent wind and solar, store it in the gas grid for short- and long-term usage,transport it to remote parts where it is needed and where the electrical grid is inadequate,

and provide H2from renewable sources as feedstock for industry and mobility.

P2G is of particular interest for the North Sea area, as its on and offshore natural gas

infrastructure is well developed. In addition, the combined generating capacity of offshore

wind farms on the North Sea could reach around 100 GW by 2030, while the PV capacity

installed in the countries surrounding the North Sea is expected to increase from 35 GW in

2012 to almost 60 GW in 2020. Hydrogenics is a member of the group and will likely benefit


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from MFN-like status for its P2G solutions. At current prices, this addressable market is

~$15$20B.

In another P2G initiative, Audi is expected to open a renewable energy e-gas plant in

Werlte, Germany. The power-to-gas facility Audi built in Germany works in two steps:

electrolysis and methanation. In the first step, the plant uses surplus green electricity to

break water down into oxygen and hydrogen in three electrolyzers. While the hydrogencould one day power fuel-cell vehicles, for now, in the absence of an area-wide

infrastructure, a second step is carried out directly: methanation. The hydrogen is reacted

with CO2 (obtained from its own bio gas plant) to produce synthetic methane, or Audi e-

gas. It is virtually identical to fossil natural gas and will be distributed via an existing

infrastructure, the German natural gas network, to the CNG filling stations. The plant is

scheduled to begin feeding Audi e-gas to the grid this fall.

The Audi e-gas plant will produce about 1,000 metric tons of e-gas per year, chemically

binding some 2,800 metric tons of CO2. This roughly corresponds to the amount that a

forest of over 220,000 beech trees absorbs in one year. Water and oxygen are the only by-

products. Besides, avoiding CO2 emissions, syngas holds significant potential in curtailingcontroversial fracking activity currently used to unlock the natural gas trapped in rock

formations.

Exhibit 11: Projections for H2Retail Fuel Stations Growth in the EU

Source: Company Presentation EU Hydrogen FCEV Coalition Workshops


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In addition, recently, the traditionally slow growth hydrogen generation business received

another shot in the arm, by the build out of hydrogen fueling stations, due to auto OEMs

interest in bringing FCEVs to the market by 2015. Through powerful partners, such as Linde

and Air Liquide, Hydrogenics has helped build 45 out of 200 built globally until 20102011.

About 5,200 fueling stations are expected to be operational by 2020 worldwide. Exhibit 11

shows projections for H2retail fuel station growth in the EU.

California, the EU and Japan are regions experiencing the highest activity in such a build

out, due to push and incentives from local governments. The U.S. offers a 30% investment

tax credit up to $200,000/station built until 2014. In FY2012, Japan invested ~$240M in fuel

cell and hydrogen energy programs, nearly twice as much as the U.S., and included

$37.71M for hydrogen infrastructure & vehicle demonstration projects. The addressable

market in fueling stations is expected to be $2B, according to Hydrogenics.

Power systems unit firing on all cylinders:

HYGS as a public company is unique due to nearly 40% ownership by strategic entities

Commscope, Enbridge and GM. Two of those investors contributed to the massive year-

over-year growth of the company during the last year when Commscope placed asignificant fuel cell order for telecom tower back-up. HYGS then won a massive $92M

multi-year order for a power propulsion system (fuel cells) with prominent European OEM

(unnamed at clients request) with whom it has been working with for the last 10 years.

Besides the initial phase of $36M for delivery within two years, the order comes with a

$10M advance for product development and exclusivity for eight years (read: recurring

revenue and a captive customer for years to come). All units for the Commscope telecom

order were delivered by Q2/13 and are being tested in the field for hot and cold seasons. If

the tests go well (we believe they will), we expect larger roll-out orders commencing at the

end of 2013/early 2014. Delivery of several demo orders has primed the commercial roll-

out funnel where the orders are expected to be magnitudes larger, potentially catapulting

HYGS above the break-even point earlier than expected, which is in FY2014. Power systems

target opportunities in telecom and data centre back-up power, material handling andpropulsion equipment, with an addressable market estimated at $2$3B.


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Exhibit 12 DC Back-up Power Addressable Market

Source: Company Presentation

History is tough but future looks equally bright (finally):

We understand the pain of a tech investor invested in a company ahead of its time. HYGS is

one such story with a sordid past. Several years of losses, financings, reverse splits have

have inflicted pain and made investors leery of the space and the players. However, all

these years of investments have seeded tomorrows harvest, and since the last year,

prospects have changed dramatically.

Going forward, we view HYGS as a significantly hedged play due to the decades old and

relatively shielded industrial H2 business of $25M/year as profitable and provides a safety

net, upon which growth layers in power systems, hydrogen fueling stations and P2G energy

storage systems will be built, inflecting the company quickly beyond the break-even point

and toward financial self-sustainability. Growth is further de-risked by HYGSgo-to-market

strategy by partnering with long-term customers like Linde and Air Liquide, and strategic

investors like Commscope and Enbridge.

Larger competitors like Siemens (which are major vendors of wind generation equipment in

Germany) are watching HYGS growing success, profile and prominent wins in Germany,

and may have made acquisition overtures in the past and are likely to keep HYGS on their

active radar of potential targets, providing an additional value realization for patient

investors. All of these catalysts coming together almost concurrently convince us of a

potential bright future for HYGS to be fully visible by H2-2014.


16/27




Exhibit 13: HYGS Go-to-Market Strategy Leverages Established Networks

Source: Company Presentation

Risks

Fuel cells may not be able to reach commercializable mass-market price points: Stacking

of PEM cells is a precision activity and since build volumes are low, stacks are builtmanually. Stack building is a manually intensive and highly skilled activity, and hence labour

intensive. High costs of platinum catalysts and high maintenance to prevent CO poisoning

and reduced catalytic activity also significantly add to the costs. Both of these factors make

fuel cells, especially PEM cells, an expensive choice, eroding their smaller footprint

advantage. While research is ongoing for CO resistant catalyst coatings on electrodes, or to

operate FCs at higher temperatures to increase their efficiency and CO resistance,

production of FCs may not scale high enough to bring the costs down by incentivizing

better catalyst materials or robotizing assembly, which will lower the productions costs

and, consequently, mass acceptance.

P2G may not take off with German electrical utilities dampening short-term upside for

electrolyzers: Imminent commercialization expected to be driven by German electrical

utilities may not materialize due to Germanysenergy excess situation (discussed earlier).

German utilities like E.ON may not undertake the P2G commercial roll-out with units of 10

MW and larger in the near term. Mitigant: we believe the medium-term P2G upside will be

driven by gas utilities, such as the North Sea Alliance Platform, for a myriad of reasons,

discussed earlier.

Another strike on electrolyzers is that round-trip efficiency for P2G using electrolytic H2 is

low at 20% (wind to electrolysis to H2 to fuel cells to electricity) versus 50% for H2


17/27




production from steam reformation of natural gas. H2 produced from electrolyzers is

expensive versus that produced from methane reformation. So long as high H2purity and

on-the-site production is not necessary, it dampens the P2G business case for hydrolyzers

Customer concentration: HYGSrecord backlog and its near-term revenue conversion are

driven by three-four customers. In Q2/13, four customers constituted 55% of revenues.

Current revenue inflection, if unmatched by follow-on orders from these customers may beshort-lived. For example, Commscope may not follow through with orders in early 2014 on

telecom back-up power, due to delays in testing and ultimately orders from its carrier

customers. Mitigants: major customers as strategic investors and P2G pioneer advantage.

Valuation

Hydrogenics has entered H2-FY2013 with a record $50M backlog 1.6x its FY2012

revenue. Most of the backlog is translated into revenue in two quarters. New generation

electrolyzer products are being readied for 10 MW and larger-scale P2G projects. New

products are also being developed for strategic partner and P2G customer Enbridge, on

track to build and commission the first P2G facility in North America. HYGS is also

developing next generation products and solutions in propulsion systems for its $92M OEMcustomer. Outlook is further brightened by nine P2G projects in Germany, where HYGS has

won a lions share of wards so far, are yet undecided.

We are also awaiting results of hot/cold season tests on the hundreds of telecom back-up

FC units delivered to Commscope the largest strategic investor and customer. With a

significant footprint with several dominant carriers and tower asset owners, we believe the

power systems units sales funnel is primed.

We believe HYGS is sitting on several, simultaneous layers of sales growth in 2013 and

2014. Its customers are market leaders in their own sector and some are investors. Most

have just moved off successful demo stages and are transitioning to commercial stages,

orders of magnitude larger than demo stages. As such, we believe HYGS will be cash flowand EPS positive in H2-FY2014, creating significant shareholder value, and we urge

potential investors to buy before this value creation.

Our $15.50 target price is derived using a DCF methodology based on a 13% discount rate

and 4% terminal growth. We believe HYGS is a leading pure play in the hydrogen-based

renewables industry, which is growing its revenue at a CAGR of 30%+ in the near and

medium term. Its peers are growing at an average of 1819%. Our target implies 1.8x

2014E EV/Sales. HYGS is currently trading at 1.5x 2014E EV/Sales; its peers are trading at an

average of 3.3x. Given 2013 revenue acceleration, our estimates for 39% revenue growth in

2014 (vs. 19% for peers), formidable strategic partners/customers, a dominant position in

Germany and a possible medium-term take-out from the likes of any one of Siemens, other

turbine OEMs or gas utilities, we believe HYGS should trade at a premium multiple,justifying our valuation and target.


18/27




Last

Market

EV

Company

Ticker

Price

Cap

2013E

2014E

2015E

2013E

2014E

2015E

2013E

2014E

2015E

MaxwellTechnologies

M

XWL

$9.1

$262.9

$237.0

$192.8

$205.5

NA

$19.0

$25.4

NA

$0.2

$0.4

NA

Electrovaya

EFL

$1.1

$79.0

$80.8

$4.6

$15.2

$44.5

($4.1

)

$0.1

$2.1

($0.1

)

($0.0

)

NA

ITMPower

ITM

$0.7

$91.7

$82.4

$1.7

$6.3

$12.0

($8.7

)

($6.4)

($5.0

)

($0.1

)

($0.1

)

($0.0

)

ProtonPower

PPS

$0.0

$29.8

$43.4

NA

NA

NA

NA

NA

NA

NA

NA

NA

BallardPowerSystems

BLD

$1.7

$171.0

$160.1

$60.4

$75.9

$97.7

($15.8

)

($10.4

)

$4.5

($0.2

)

($0.2

)

($0.1

)

FuelCellEnergy

FCEL

$1.3

$243.9

$230.2

$179.7

$200.3

$256.7

($23.6

)

($3.3)

NA

($0.2

)

($0.1

)

NA

PlugPower

P

LUG

$0.7

$72.8

$69.6

$31.3

$60.0

NA

($22.0

)

($9.9)

NA

($0.5

)

($0.2

)

NA

CapstoneTurbine

C

PST

$1.2

$353.7

$345.3

$128.5

$149.4

$186.8

($18.9

)

($9.2)

$12.8

($0.1

)

($0.0

)

$0.0

Average

$85.6

$101.8

$119.5

($10.6

)

($1.9)

$3.6

($0.1

)

($0.0

)

($0.0

)

Hydrogenics

H

YGS

$12.1

$108.9

$98.5

$44.5

$62.5

$84.3

($6.6

)

$1.6

$7.5

($1.1

0)

$0.0

2

$0.6

9

Company

Ticker

2013E

2014E

2015E

201

3E

2014E

2015E

MaxwellTechnologies

M

XWL

12.2x

9.1x

NM

1.2x

1.1x

NM

Electrovaya

EFL

NM

673.0x

38.1x

12.4x

3.7x

1.3x

ITMPower

ITM

NM

NM

NM

48.6x

11.7x

6.1x

ProtonPower

PPS

NM

NM

NM

NM

NM

NM

BallardPowerSystems

BLD

NM

NM

35.6x

2.3x

1.8x

1.4x

FuelCellEnergy

FCEL

NM

NM

NM

1.6x

1.5x

1.2x

PlugPower

P

LUG

NM

NM

NM

1.9x

1.0x

NA

CapstoneTurbine

C

PST

NM

NM

27.3x

2.7x

2.3x

1.9x

Average

12.2x

341.1x

33.7x

10.1x

3.3x

2.4x

Hydrogenics

H

YGS

-15.0x

62.8x

13.1x

2.2x

1.6x

1.2x

Source:CapitalIQEstimates,

BloombergandByronEstimates

EV/EBITDA

Revenue(US$M)

EBITDA

(US$M)

EPS(US$M)

EV/SALES

iit

:

r

r

ls


19/27




HydrogenicsCorporation

IncomeStatement

USD$'000

FY2011A

Mar-12A

J

un-12A

Sep-12A

Dec-12A

FY2012A

Mar-13A

Jun-13A

Sep-13E

Dec-13E

FY2013E

FY2014E

Revenue

23,8

32

5,7

24

8,2

59

7,8

97

9,9

26

31,8

06

12,3

12

9,7

71

11,2

00

11,1

69

44,4

52

62,4

50

CostofSales

18,3

44

4,9

19

6,7

87

6,2

39

8,6

16

26,5

61

8,7

70

7,2

05

7,9

20

8,0

15

31,9

10

42,4

70

GrossProfit

5,488

805

1,472

1,658

1,310

5,245

3,542

2,566

3,280

3,154

12,542

19,980

GrossMargin%

0

14%

18%

21%

13%

0

29%

26%

29%

28%

28%

32%

OperatingExpenses

General&Administrative

11,740

2,953

3,221

3,462

3,115

12,751

3,622

4,875

3,600

3,700

15,797

15,791

%

Revenues

0

51.6

%

39.0

%

43.8

%

31.4

%

0

29.4

%

49.9

%

32.1

%

33.1

%

36%

25%

Research&Development

2,934

1,149

843

1,573

1,041

4,606

938

1,080

1,100

1,000

4,118

3,650

%

Revenues

0

20.1

%

10.2

%

19.9

%

10.5

%

0

7.6

%

11.1

%

9.8

%

9.0

%

9%

6%

OtherOperatingExpense/(Income)

50

-

-

(5)

-

(5

)

-

-

-

-

-

-

%

Revenues

0

0.0

%

0.0

%

-0.1

%

0.0

%

0%

0.0

%

0.0

%

0.0

%

0.0

%

0%

0%

TotalOperatingExpenses

14,724

4,102

4,064

5,030

4,156

17,352

4,560

5,955

4,700

4,700

19,915

19,441

%

Revenues

61.8

%

71.7

%

49.2

%

63.7

%

41.9

%

54.6%

37.0

%

60.9

%

42.0

%

42.1

%

44.8

%

31.1

%

EBIT(Operatingincome)

(9,236)

(3,297)

(2,592)

(3,372)

(2,846)

(12,107

)

(1,018)

(3,389)

(1,420)

(1,546)

(7,373)

539

EBITMargin%

-39%

-57.6

%

-31.4

%

-42.7

%

-28.7

%

-38%

-8.3

%

-34.7

%

-12.7

%

-13.8

%

-17%

1%

EBITDA

(8,286)

(3,093)

(2,332)

(3,163)

(2,649)

(11,675

)

(820)

(3,185)

(1,216)

(1,342)

(6,563)

1,569

EBITDAMargin%

-35%

-54.0

%

-28.2

%

-40.1

%

-26.7

%

-37%

-6.7

%

-32.6

%

-10.9

%

-12.0

%

-15%

2.5%

NetInterestExp.

(171)

(63)

(78)

(88)

(74)

(303

)

(85)

(94)

(90)

(90)

(359)

(400

EBTIncl.UnusualItems

(9,746)

(3,181)

(3,145)

(3,081)

(3,272)

(12,679

)

(1,551)

(4,516)

(1,660)

(1,686)

(9,413)

139

EBTMargin%

-41%

-55.6

%

-38.1

%

-39.0

%

-33.0

%

-40%

-12.6

%

-46.2

%

-14.8

%

-15.1

%

-89%

0.2%

TaxIncome(Expense)

-

-

-

-

-

-

-

-

-

-

-

-

NetIncome

(9,746)

(3,181)

(3,145)

(3,081)

(3,272)

(12,679

)

(1,551)

(4,516)

(1,660)

(1,686)

(9,413)

139

NetMargin%

-41%

-55.6

%

-38.1

%

-39.0

%

-33.0

%

-40%

-12.6

%

-46.2

%

-14.8

%

-15.1

%

-21%

0.2%

EPS(GAAP)

Basic

($1.58)

($0.4

8)

($0.4

2)

($0.4

0)

($0.4

2)

($1.72

)

($0.2

0)

($0.5

3)

($0.1

9)

($0.2

0)

($1.10)

$0.02

Fully

iluted

($1.58)

($0.4

8)

($0.4

2)

($0.4

0)

($0.4

2)

($1.72

)

($0.2

0)

($0.5

3)

($0.1

9)

($0.2

0)

($1.10)

$0.02

ii

:I

)

:

t,

itl

t


20/27




Appendix A: Management and Board of Directors

Management

President and Chief Executive Officer Daryl Wilson was appointed President and Chief Executive Officer in

December 2006. Prior to joining Hydrogenics, he held seniorleadership positions at Royal Group Technologies Inc., ZENON

Environmental Inc., TOYOTA and DOFASCO Inc. Mr. Wilson is a

director of ATS Automation Tooling Systems Inc. In 1990, Mr. Wilson

earned an MBA from McMaster University in Operations

Management/Management Science. He is a Professional Engineer

and holds a Bachelors degree in Chemical Engineering from the

University of Toronto. Mr. Wilson is a Chartered Director (C.Dir),

having graduated in 2009 from Directors College.

Chief Financial Officer and Corporate Secretary Robert Motz was appointed Chief Financial Officer, Corporate

Secretary of Hydrogenics Corporation, in Nov. 2012. Mr. Motz was

previously Chief Financial Officer and then Chief Executive Officer of

Aeroquest International Limited from 2008 to 2012 (at the time aTSX-listed company). Prior to his role at Aeroquest, Mr. Motz served

in a senior financial leadership role at Agility Logistics, Co., AMJ

Campbell Inc. and Motorola Canada Limited. Mr. Motz is a Chartered

Accountant and a Chartered Professional Accountant, having

received his designation in 1987.

Vice President, Sales and Marketing Wido Westbroek joined the company in 2006 as Vice President,

Operations, of the Belgium OnSite Generation business and

subsequently was appointed Vice President and General Manager for

Hydrogenics Europe n.v. in 2007. Mr. Westbroek was appointed to

his current position in Aug. 2011. His former career, spanning 18

years, was with Powerlasers, a developer and manufacturer of

unique laser welding technology and a maker of auto parts for

automotive OEMs based in Canada and the U.S. Mr. Westbroek

received his Bachelor of Science in Physics at the University of

Waterloo in Ontario.

General Manager, OnSite Generation Filip Smeets joined Hydrogenics in 2011 as General Manager of the

Belgian-based OnSite Generation business. Mr. Smeets was

previously a general manager with Cabot Corporation, a global

performance materials company, headquartered in Boston,

Massachusetts. During his 12-year tenure at Cabot Corporation, he

held increasingly responsible positions in marketing and business

leadership. Mr. Smeets received his Master's degree in Chemistry

from the University of Antwerp in Belgium.


21/27




Board of Directors

Douglas S. Alexander, Chairman, joined the board in May 2006 and has served as

Chairman since May 2009. He is a director and member of the Audit Committee of Critical

Outcome Technologies Inc., Biorem Inc. and Equitable Life Insurance Company, and has

served as the Chief Financial Officer of various Canadian public companies for 15 years. Mr.

Alexander was formerly the lead director and chair of the Audit Committee of SaxonFinancial Inc. He served as a director of Stuart Energy from 2003 to January 2005. From

1999 to 2004, Mr. Alexander was Executive Vice President and Chief Financial Officer of

Trojan Technologies Inc., an international environmental high technology company. Mr.

Alexander is a Chartered Accountant and is a member of the Institute of Chartered

Accountants in Scotland and Ontario. He is also a Chartered Director, having graduated

from the Directors College, a joint-venture between McMaster University and the

Conference Board of Canada.

Mr. Michael Cardiff has been an Independent director of Hydrogenics Corporation since

November 2007. Mr. Cardiff is the Chief Operating Officer of SAP Canada. Prior to that, he

held numerous senior positions in a number of technology companies, including multi-

nationals such as EDS and IBM, as well as start-up companies such as Fincentric,Convergent Technologies, Tandem and Stratus Computer. Mr. Cardiff is currently a director

of Medic Alert. He has also served as a director of Burntsand Inc., Descartes Systems

Group, Husky Injection Molding Systems, Solcorp, Visible Genetics, Spectra Security

Software Visible Decisions and the Toronto Film Festival, Roy Thomson Hall. Mr. Cardiff has

received many awards including A Canadian Export Life Time Achievement Award. He is a

member of and holds the ICD.d designation from the Institute of Corporate Directors.

Mr. Joseph Cargnelli is Chief Technology Officer, Director of Hydrogenics Corporation. Mr.

Cargnelli is one of the founders and served as a director from January 1996 to January

2005, when he resigned in connection with the closing of the Stuart Energy acquisition. Mr.

Cargnelli was re-elected at the meeting of shareholders on May 17, 2005. Mr. Cargnelli

served as the Treasurer from January 1996 until July 2000. Mr. Cargnelli was appointed asthe Vice President, Technology in July 2000. His title was changed to Chief Technology

Officer in April 2003. Mr. Cargnelli earned both a Masters of Applied Science degree in

Mechanical Engineering and a Bachelor of Applied Science degree in Mechanical

Engineering from the University of Toronto. From April 1992 to April 1993, Mr. Cargnelli

served as a Research Engineer with the Laboratory of Advanced Concepts in Energy

Conversion Inc., a laboratory engaged in the research, development and demonstration of

alkaline fuel cells and hydrogen storage methods. Mr. Cargnelli is a member of the

Professional Engineers of Ontario.

Mr. Henry J. Gnacke has been an Independent Director of Hydrogenics Corporation since

May 2008. Mr. Gnacke is a Director at Variety Foods Services Inc. He is also a senior advisor

to Mobias Motors and is currently a Senior Director at OHorizons LLC., a corporate advisoryfirm, specializing in acquisitions and operations in the Automotive sector. Formerly, he was

the Executive Director, Global Purchasing Supply Chain at General Motors Corporation. He

was responsible for Alternative Propulsion Technologies and specifically Fuel Cell

propulsion and storage systems. Mr. Gnacke has over 30 years of experience and has held

numerous positions at General Motors Corporation, including several international

assignments in the Middle East, Asia and Europe. Mr. Gnacke is the nominee of General

Motors Corporation in connection with the strategic alliance with General Motors


22/27




Corporation. Mr. Gnacke is a Chartered Director (C.Dir), having graduated from Directors

College in 2012.

Mr. Norman M. Seagram is an Independent Director of Hydrogenics Corporation. He

served as Chairman of the Board from July 2000 to December 2006, as Lead Director from

JanuarySeptember 2007, and subsequently as Chairman until May 2009. Mr. Seagram was

President of Sportsco International LP (SkyDome) from February 2001 to March 2003. FromSeptember 1996 to May 1997, he was President and Chief Executive Officer of Molson Inc.

(now Molson Coors), a company he had previously served for 24 years in a variety of senior

management positions. From October 1992 to August 1996, Mr. Seagram was Chairman

and Chief Executive Officer of Air Liquide Canada, Inc., a producer of industrial gases. He is

Chairman of the Toronto Symphony Foundation, a trustee of Trinity College School and the

Toronto Symphony Foundation, and a director of Harbourfront Foundation. He has served

on the advisory board of the Faculty of Applied Science and Engineering, University of

Toronto and INSEAD, Fontainebleau, France. He is a former director of the Toronto

Economic Development Corporation (TEDCO).

Daryl Wilson, President and Chief Executive Officer (see above)

Share Ownership of Management and Directors (as of May 8, 2013)

Source: Company Reports

Beneficial Owner Shares DSUs RSUs Stock Options Total Securit

Douglas S. Alexander, Chairman 998 42,632 Nil Nil 43,630

Michael Cardiff, Director Nil 20,417 Nil Nil 20,417

Joseph Cargnelli, Director 156,100 24,015 56,574 64,500 301,189

Henry J. Gnacke, Director Nil 13,730 Nil Nil 13,730

Norman M. Seagram, Director 1,428 49,175 Nil Nil 50,603

Don Lowry, Director Nil 477 Nil Nil 477

Daryl Wilson, Pres. & CEO 4,000 78,636 108,989 185,399 377,024


23/27




Appendix B: Business Description

Hydrogenics reports the top line of its financial performance in two business segments:

OnSite Generation (electrolysers) and Power Systems (Fuel Cells). Below, we provide a

description of both lines of business.

HydrogenicsLines of Business

OnSite Generation

OnSite Generation business segment is based in Oevel, Belgium, and develops products for

industrial gas, hydrogen fueling and renewable energy storage markets, using waterelectrolysis technology. Onsite Generation includes the design, development, manufacture

and sale of hydrogen generation products.

The products developed in this business line are mainly sold to leading merchant gas

companies, oil and gas companies, fueling stations, electric power utilities, and small,

medium and large scale energy storage products.

Given the potential opportunities, the company has expanded into a new energy storage

application, Power to Gas , a technology that converts electrical power to fuel. So far, this

business remains included in OnSite; nonetheless, it is expected to benefit both the

electroylizer and fuel cell segments.

Power Systems

Power Systems is based in Mississauga, Ontario, Canada, with a satellite facility in

Gladbeck, Germany, and develops products for energy storage, stationary and motive

power applications. It is based on Proton Exchange Membrane (PEM) fuel cell technology,

which transforms chemical energy liberated during the electrochemical reaction of

hydrogen and oxygen into electrical energy. This division includes the design, development,


24/27




manufacture and sale of fuel cell products, and is well supported by commercial product

and project work.

Hydrogen generation systems, which use alkaline and PEM water electrolysis technologies,

are sold directly to industrial customers, as well as through leading merchant gas channel

partners.

Also, this division targets back-up power for telecom and data centre installations, motive

power applications and heavy-duty applications, such as buses, trucks and utility vehicles.

Hydrogenics Product Line

The companys product line is divided into three categories:

I) Industrial Hydrogen Generators by Electrolysis

INDOOR INSTALATION INDOOR INSTALATION

POWER PLANT SOLUTIONS

INDOOR LARGE CAPACITY

TheHySTAT Indoor Version i s a modular electrolyzer composed

of skids and enclosures that are easily interconnected.

HyLYZER PEM Electrolysis Technologyis a modular electrolyzer

which uses clean dei onized water and either AC or DC electricity toproduce up to 1.1 and 2.2 normal cubic metre per hour (Nm3/h) of

hydrogen. The ele ctrolysis reaction takes place within a proton

exchange membrane (PEM) cell stack.

Models:

- HyLYZER-1 Nm3/h

- HyLYZER-2 Nm3/h

A HySTAT10-60 unitsconsists of a hydrogen

generating unit wi th our proprietary IMET cell

stack, a control/power panel with controlle d

AC/DC conversion to produce hydrogen in a safe

and reliable way.

It is adapted specifically to meet the requirements of higher capacity installation in excess of

500Nm3/h.

TheHySTATOutdoor Version is a turnkey

hydrogen generation plant that comes installed

inside a modified ISO high cube shipping

container.

The container hosts the ele ctrolyzer and theoptional util ity equipment such as the water

treatment system & cooling systems.

All mechanical and el ectrical interconnections

are made inside the contai ner, which simplifies

and reduces the installation costs on site.

The container is weatherized and can be

installe d in temperatures ranging from -20C to

Hudrogenics offer complete packages

to deli ver hydrogen in a safe and

reliable way to cool down generators

with no concessions on quality of its

equipment.

This ensures hydrogen availability atall time .


25/27




Source: Company Reports

II) Energy Storage and Fueling Solutions III) Fuel Cell Power Systems

POWER-TO-GAS MOBILITY POWER

HYDROGEN FUELING STATIONS Defence, Aerospace and Security

REMOTE COMMUNITIES Defence, Aerospace and Security

Hydrogenics is pioneering Power-to-Gasan

innovative energy conversion and storage

solution using electrolysis.

Power-to-Gas is a highly eff ective way of

integrating renewables. It can provide a rapid,dynamic response to the Independent Grid

Operators signal to adjust to the variations in

renewable generation output.

Unlike other e nergy storage technologies,

Power-to-Gas provides the means to both

store and transport energy.

TheHySTAT fueling station uses dvanced

electrolysis technology to split water into

hydrogen and oxygen, using only electricity.

Hydrogenics offers complete hydrogen

fueling stations with modular capacities

ranging from 20 kg to 130 kg/day and

beyond. T

The hydrogen is dispensed at 350 or 700 bar.

Hydrogenics build and install standalone

hydrogen energy storage and power stations

for remote communities. For 1MW and largerscale renewable energy systems, a

Hydrogenics HES consists of Hydrogenics

modules that can be configured and

integrated:

HySTATElectrolysis Systems

HyPM XR Fuel Cell Systems

It offers transportation application to

displace outdated petroleum burning

technology with clean, ef ficient, reliable and

abundant hydrogen power.

Hydrogenics products:

HyPX Power Packs for powering electric

motors in place of conventional lead-acid

battery packs

HyPM HD Fuel Cell PowerModules

Hydrogenics provides a link to a cleaner energy

future by filli ng the energy gaps in the air,

space, land and underwater.

Hydrogenics offers solutionsto leave behind

burning oil, gas and diesel for the advantages

of advanced hydrogen technologies for remoteand intermittent power needs.

Power Systems products are operating in

remote locales and commercial/industrial

facilities around the globe:

HyPM XR Fuel Cell Powe r Modules

HyPMRacks with multiple fuel cell modules

and power electronics in 19-inch server

equipment racks


26/27




Fuel cells 101 (Excerpts from FuelCellToday)A fuel cell is like a battery in that it generates electricity from an electrochemical reaction.

Both batteries and fuel cells convert chemical energy into electrical energy and also, as a

by-product of this process, into heat. However, a battery holds a closed store of energy

within it and once this is depleted the battery must be discarded, or recharged by using an

external supply of electricity to drive the electrochemical reaction in the reverse direction.

A fuel cell, on the other hand, uses an external supply of chemical energy and can run

indefinitely, as long as it is supplied with a source of hydrogen and a source of oxygen

(usually air). The source of hydrogen is generally referred to as the fuel and this gives the

fuel cell its name, although there is no combustion involved. Oxidation of the hydrogen

instead takes place electrochemically in a very efficient way. During oxidation, hydrogen

atoms react with oxygen atoms to form water; in the process, electrons are released and

flow through an external circuit as an electric current.

Fuel cells can vary from tiny devices producing only a few watts of electricity up to large

power plants producing megawatts. All fuel cells are based on a central design using two

electrodes separated by a solid or liquid electrolyte that carries electrically charged

particles between them. A catalyst is often used to speed up the reactions at theelectrodes. Fuel cell types are generally classified according to the nature of the electrolyte

they use. Each type requires particular materials and fuels and is suitable for different

applications.


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Documents

Hydrogenics corporation equity analysis stock symbol - HYGS:NASDAQ