ALTERNATIVE ENERGY TECHNOLOGY INDUSTRY

Initiating Coverage on Pioneers in an Emerging Industry

PETER TERTZAKIAN

GOEPEL MCDERMID

MARCH 7, 2000

(403) 509-0521

The information contained in this report is from sources believed to be reliable but its accuracy and completeness cannot be guaranteed. Neither the information nor any opinion expressed constitutes a solicitation of an offer to buy or sell any securities. Goepel McDermid Inc., and any of its directors, officers, employees or members of their families may from time to time make purchases and/or sales of the securities mentioned in this report. Goepel McDermid Inc. may also act as financial advisor, fiscal agent and underwriter for certain of the corporations mentioned and may receive remuneration for same. Goepel McDermid is a member of the CIPF.

Shares Market

Stock 12-Month Target O/S Cap. Stock

Company Symbol Price Target Return (mln) (mln) Rating

Ballard Power BLD - T $165.00 $265.00 61% 87.1 $14,367 BUY

Turbo Genset TUR.A - V $37.00 $67.00 81% 40.2 $1,486 BUY

Global Thermoelectric GLE - T $40.25 $70.00 74% 22.5 $906 BUY

Westport Innovations WPT - T $18.50 $42.00 127% 35.7 $661 BUY

Investors are continually on the lookout for the next junior Microsoft, Intel or Cisco Systems. But why limit the search to individual companies in now-established industries? Why not seek out the rise of another new technology-driven industry that could reshape our society?

The Alternative Energy industry spans a group of companies that we believe will redefine three of the largest industries in the world: Transportation, Electrical Power, and further down the road, Oil and Gas. Fuel cells, batteries, power conditioners, electric motors and generators, new fuel mixtures and emission control devices are examples from a long list of new products that emerging companies of today are seeking to commercialize over the next decade. 

Alternative Energy (AE) is a broad term that has typically been used to describe non-hydrocarbon-ased power generating methods. Our broad definition covers any technology that serves to improve the conversion or storage of energy over today’s traditional processes.Reducing undesirable by-products, like greenhouse gas emissions, also falls under our definition.

Although our Goepel McDermid Alternative Energy Technology Index – a market weighted basket of 11 leading AE Canadian and U.S. stocks – has appreciated five-fold since January, in our view the leading macro indicators suggest a long-term price appreciation trend. Note that:

• Over the past decade, tremendous wealth has been created in the telecommunications industry, principally as a consequence of legislative changes and the commercialization of radically new technologies. U.S. telecommunications equipment stocks have grown to an aggregate market capitalization exceeding US$650 billion. We see the same drivers – technology and legislation – feeding the growth of alternative energy companies. Both the electrical power and transportation industries are larger than telecommunications.
• The barriers to entry in alternative energy are high. As a consequence, there are only a few companies to invest in at this time. Public company share supply is likely to be tight for at least 12 to 18 months, thus concentrating capital into a handful of key companies.
• Starting in 2002, restrictive clean air legislation will force change, especially in many sectors of the transportation industry. This catalyst is likely to gain momentum.
• Utility deregulation is likely to drive a new, decentralized business model in electrical power generation. The change is analogous to the move from mainframe computers to PC-based networks.

To start, we are recommending exposure to a core group of four companies: Ballard Power Systems, Westport Innovations, Global Thermoelectric and the Turbo Genset. Under various scenarios ranging from pessimistic to aggressive we have assessed the long-term revenue and profit potential of alternative energy products in five key markets: light-duty vehicles, buses, heavy-duty vehicles, residential and industrial power. Our valuation analysis considers the market exploitation potential of each company, as well as less tangible value metrics such as stage-of-commercialization and strategic partnerships. Our target prices are derived accordingly.

Ballard Power Systems – The premium company in the group pioneering proton exchange membrane (PEM) fuel cell products and manufacturing methods. Ballard is fully exposed to nearly every key alternative energy market with blue chip strategic partners in each. Aligned closely with DaimlerChrysler and Ford, Ballard is considered the leader in automotive fuel cells.

Global Thermoelectric – Of the five different types of fuel cells, Global is pioneering the Solid Oxide type (SOFC). Operating at high temperatures, SOFCs are well suited to stationary power applications, including home co-generation systems. Working with Delphi Automotive Systems in the U.S. has fueled speculation about possible automotive applications for its SOFCs.

Westport Innovations – Diesel engines are still with us because of the high torque they produce at low RPMs. If they could run on natural gas, nitrous oxides and particulate matter would be reduced – they would operate cheaper as well. Westport is providing a viable solution through its high-pressure direct-injection (HPD) system. Aligned with Cummins Engine Company and Ford, Westport is targeting both transportation and stationary powergen markets.

Turbo Genset Inc. – Representing a radical, proprietary technological advance in high-speed electric motor/generator design, Turbo Genset’s ‘microturbine’ and ‘hybrid turbo-booster’ products will compete in both the transportation and stationary power markets. Turbo has a joint development agreement with the GE Research and Development Center, initially targeting the super heavy-duty vehicle market.

Our full, detailed report on the emergence of this exciting new industry and four core stocks is forthcoming. Research on additional companies in the universe will also follow.