Thursday, September 28th 2023

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Is hydrogen on the horizon for this Pineapple?


“…Could the arrival of such a well known figure within the emerging hydrogen sector, whose credentials include membership of the UK Government’s Hydrogen Advisory Council, indicate the future direction of this ambitious small cap?…”


Special acquisition vehicle Pineapple Power Corporation (LON:PNPL) surged nearly 50pc earlier this week as the market assessed the significance of the appointment of Dr Graham Cooley, former CEO of £600m market-cap hydrogen pioneer ITM Power, to the company’s Advisory Board.

Since listing just over two years ago PNPL has been assessing candidate acquisitions in the clean energy space. Could the arrival of such a well known figure within the emerging hydrogen sector, whose credentials include membership of the UK Government’s Hydrogen Advisory Council, indicate the future direction of this ambitious small cap?

As regular TMS readers will know, PNPL raised gross proceeds of £1.3m on joining the market in December 2020, with ‘the intention to acquire renewable or clean energy technology companies and to finance, develop and promote those environmentally sound projects internationally’. To recap, a Special Purpose Acquisition Company (SPAC) is a ‘cash shell’ seeking to acquire one or more private companies, offering them the opportunity to secure capital without having to endure the lengthy and costly IPO process. According to Financial Conduct Authority (FCA) rules SPACs are expected to complete a significant acquisition within 24 months of listing, although – as in PNPL’s case – this is extendable by up to 18 months. On acquiring a company the shell becomes a conventional listed company, valued thereafter according to the performance of the business in which it has invested. The FCA confirmed last year that new regulations requiring companies to list with a minimum market capitalisation of £30m do not apply to Pineapple in relation to its first reverse takeover, ‘provided that it makes a complete submission to the FCA for an eligibility review for listing and a prospectus review relating to that reverse takeover which does not lapse and is not withdrawn, prior to 4pm on 1 December 2023.’

In brief, PNPL remains ‘one of a very limited number of special purpose vehicles able to conduct future reverse takeover transactions on the London Stock Exchange with valuations of less than £30m’, and will therefore, following a reverse takeover, be eligible to re-list with a market capitalisation of £0.7m or more provided that it does so within the specified timeframe. The boom times for SPACs have subsided, but, as markets learn how best to incorporate them, they are here to stay, helping fulfil a demand among retail investors for access to early-stage companies that would otherwise be tempted to remain private, giving start-ups access to a deeper pool of capital without undue administrative burden. Comparisons might be made with other financial instruments that once seemed novel, such as real estate investment trusts and business development companies, which went through boom and bust cycles before normalising.

Dr Cooley’s appointment


Welcoming Dr Cooley’s appointment, PNPL Corporate Finance Advisor Clive de Larrabeiti said: ‘His participation in our efforts to delineate an appropriate acquisition in the renewable energy sector is most welcome and strengthens our ability to connect with the rapidly growing universe of renewable energy through his extensive contact network and the high regard he enjoys within the hydrogen and power storage industry.’

Dr Cooley joined ITM Power as CEO in 2009, leading it through its transition from an R&D business to a world leading manufacturer of electrolysers, the units used to derive hydrogen from water. Under Dr Cooley ITM became the first hydrogen related company to be listed on the London Stock Exchange, undertaking equity fundraisings worth almost £500m, developing partnerships with European industry leaders including Germany’s Linde Engineering, and opening the world’s largest electrolyser manufacturing facility.

ITM’s story illustrates both the promise and challenge of the emerging hydrogen sector. Though now firmly established as a global player, the company had to weather a tough 2022, losing more than two-thirds of its market value after issuing a series of profit warnings, like other hydrogen ventures finding – as the Financial Times put it – that ‘developing new hydrogen kit and building actual projects require very different skillsets’. Incoming CEO Dennis Schulz, a former managing director at Linde, is implementing a new strategy to ‘transform ITM from an R&D culture company to a professional and credible delivery organisation ready for volume manufacturing’. Dr Cooley, who stepped aside as CEO last September, retains a senior strategic role with ITM, and remains a significant shareholder.

The hydrogen horizon


Hydrogen is one of the most exciting transition technologies, promising to substitute for fossil fuel energy across carbon-intensive industries that are hard to electrify, or modes of transport where the lithium-ion batteries used for electric vehicles cannot be readily employed. As with hydrocarbons, it produces energy when burned, but unlike oil and gas produces no carbon, the hydrogen residue simply dissolving back into the atmosphere as water.

The new fuel can be used to generate the energy necessary to turn iron ore into steel, a coal-intensive process that currently generates huge amounts of carbon. Hydrogen can power big vehicles like trucks and trains, which cannot run on the present generation of lithium batteries (Germany recently opened the first-ever rail line to be entirely powered by hydrogen). And hydrogen or hydrogen carriers like ammonia can fuel ships and aircraft, which, again, are too big for batteries.

Right now, nearly all hydrogen is so-called ‘blue hydrogen’, generated through electrolysis powered by fossil fuels. Although it is theoretically possible to reduce blue hydrogen’s carbon output through carbon capture, utilisation and storage, such mitigatory technologies are still unproven. The big opportunity lies in ‘green hydrogen’, produced solely with renewable power sources. Less than 1pc of all hydrogen currently produced is green, the production of which requires expensive purpose-built electrolysers of the kind employed by ITM. Speaking to the Financial Times shortly before stepping down as ITM CEO Dr Cooley said the picture was gradually improving: ‘Over the last three or four years we’ve halved the cost of our electrolysis equipment. And over the next three to four years, we’re looking at at least a 40pc reduction from where we are today. So that’s about scaling and the scaling effect.’

The most recent global hydrogen report published by the International Energy Agency (IEA) highlights the extent of the opportunity for companies that win the race to produce green hydrogen. Right now hydrogen – ‘blue’, ‘green’ or otherwise – produces no more than about 2.5pc of the world’s energy, some 94 million tonnes (Mt). Nearly 200 Mt is needed by 2030 to meet targets for net zero emissions by 2050. Of that currently being produced, low-emission hydrogen accounts for less than 1 Mt. Practically all of it comes from plants using fossil fuels with carbon capture and storage technology. If all projects currently in the pipeline were realised, by 2030 the production of low-emission hydrogen could reach 16-24 Mt per year, with 9-14 Mt based on electrolysis and 7-10 Mt on fossil fuels with carbon capture.

There is plenty of activity, with the IEA reporting that: ‘Announcements for new steel projects are growing fast … The first fleet of hydrogen fuel cell trains have started operating in Germany. There are also more than 100 pilot and demonstration projects for using hydrogen and its derivatives in shipping, and major companies are already signing strategic partnerships to secure the supply of these fuels. In the power sector, the use of hydrogen and ammonia is attracting more attention; announced projects stack up to almost 3.5 GW of potential capacity by 2030.’ But although a significant portion of projects are currently at advanced planning stages, no more than 4pc are under construction or have reached a final investment decision, the key reasons being ‘uncertainties about demand, lack of regulatory frameworks and of available infrastructure to deliver hydrogen to end users.’ 

Policymakers are integrating low-emission hydrogen production and infrastructure into national and international energy strategies: the US Inflation Reduction Act offers significant subsidies, the EU includes hydrogen in its Important Projects of Common European Interest, Germany has launched its H2Global Initiative, and the UK has earmarked low-carbon hydrogen as a key means to decarbonise energy-intensive industries and heavy transport. But the IEA maintains ‘there is still not enough policy activity for creating hydrogen demand, which is critical to secure off-take agreements. A lack of demand creation can hinder final investment decisions.’ And cost needs to come down much further to make green hydrogen competitive. The EU commission has set a target for its member states to produce 10 millions tonnes of hydrogen domestically by 2030. But insistence that it be low-carbon will add more than €2/kg to the cost of hydrogen, or €50/MWh, roughly the cost of natural gas in Europe today.



It should be remembered that PNPL is seeking opportunities across the clean energy space, not just hydrogen. But it is understandable that this week’s news should have sparked speculation about the possibilities opened by Dr Cooley’s extensive connections within the hydrogen world. Should PNPL move in that direction the company opens the opportunity to establish itself as an early mover in one of the most challenging but highly prospective green industries. The market seems to think so, pushing the company’s shares up 48pc to 3.7p on Monday, and its market cap to £2.5m. PNPL still has work to do to find a new prospect, but with a window open till December 2023 and newly established connections, it has time on its side.