The Power of Conservation |
A Western Canadian startup could help cut big users’ electrical bills by double digits
by Fabrice Taylor
“Electrical Harmonizer” has a musical ring to it but it has nothing to do with tunes. It’s about saving money on power, helping reduce greenhouse-gas emissions and, if it all works out, making investors a lot of money on the stock of the company, Legend Power Systems Inc. (TSXV:LPS), that makes it.
As policymakers fresh off the Copenhagen climate-change conference are coming to realize, virtually all the proposed fixes to our carbon dioxide emissions problem, from wind power to biofuels to carbon capture and storage, come with serious drawbacks. The biggest opportunity to save the environment remains conservation, especially of energy. Moreover, it contains its own, built-in economic incentive for business and consumers alike: controlling or lowering energy costs.
The Electrical Harmonizer is an energy conservation tool that has all the hallmarks of a successful product. First, it’s proven to reduce electricity bills by between 6% and 12%. Case studies with the likes of Honda Canada, Ikea and Vancouver’s Telus World of Science attest to the device’s ability to save users money on power. The technology is endorsed by the Energy Star program and BC Hydro has verified the company’s energy savings claims.
How does it work? Pretty simply. Electrical juice doesn’t flow through power lines evenly in terms of voltage. (Voltage is to a power line what pressure is to a hose: the higher the pressure, the more water moves; the higher the voltage, the more electricity moves.) Sometimes it’s higher, sometimes lower – and the closer you are to an electrical substation the higher the voltage can get. When it’s higher, though, consumers can end up paying for more power than they consume, paying too much and overdriving their equipment. The target market is big buildings and power users, for which this problem means big money.
The Electrical Harmonizer uses a set of “taps” to optimize the voltage of the incoming power, automatically adjusting to the fluctuations of the power grid. Most electrical equipment is designed to operate at nominal voltage levels plus or minus 10%. By optimizing the voltage level, the Electrical Harmonizer allows customers to reduce energy consumption, peak demand, greenhouse gas emissions and maintenance costs while improving overall power quality issues.
Given the apparent viability of its products, the rising cost of electricity and the push to reduce greenhouse gas emissions (most electricity in the world is produced by burning coal), Burnaby, B.C.-based Legend Power’s addressable market is obviously pretty big.
End users – big consumers of power – are an obvious market. As mentioned, they can save money and cut consumption by about the same magnitude, which makes them greener. Their maintenance costs and the life of their machinery also improve.
Ironically, perhaps, utilities are also a prime customer. That may not make sense at first – after all, utilities make money by selling power, right? But it’s not that simple. Utilities face huge capital costs to maintain and increase generation and transmission infrastructure. Legend Power can reduce peak demand by 10% to 14% and increase production without the need to make expensive upgrades.
The economics for end users are attractive too. An average installation will cost about $70,000 – not much for a big company – and the payback period, according to Legend Power’s calculations, is three years or less.
With all that said, the company’s shares trade at 42 cents and the market value is about $11 million, slightly more than Legend has invested in the development of the technology.
True, the company, like most startups, doesn’t make money and has limited revenues. But as Wayne Gretzky once famously said, go to where the puck is going, not where it’s been. In other words, look ahead. Legend’s prospects are potentially very good. The stock has traded at almost twice this level in the past six months and as high as $2.50 a couple of years ago.
The truth is that it takes time and money to break into an established industry. But the stars appear to be aligning. Having raised a little over $5 million in a two-tranche private placement wrapping up last fall, Legend has built a team of salespeople to flog its products to big-box retailers, grocers, institutional buildings and other big power consumers.
Meanwhile, governments are imposing tougher regulations on GHGs and also offering subsidies and incentives to power users and producers to make investments in efficiency. This stimulus to the demand for Legend’s product should start to show up on the bottom line if the company can continue to get traction. The management team is strong and the board of directors includes Bruce Sampson, former vice-president of sustainability at BC Hydro and Power Authority, and Michael Costello, former president and CEO of the BC Transmission Corporation and president and CEO of BC Hydro.
What’s most interesting to the investor: there’s a lot of buzz about cleantech and greentech, and lots of money thrown at both. But you don’t have to be a genius to appreciate that the push for energy conservation will precede the push for radical technological change. Legend Power is in that sweet spot.
Fabrice Taylor is the Prairie Trader. He is an award-winning journalist and equity analyst.
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