Burnaby, B.C. — There was a time not so long ago when an annual general meeting of Ballard Power Systems Inc. generated a level of excitement that was almost palpable and played to a packed house of investors.

Here, after all, was a company on the brink of developing high tech’s holy grail; a device that promised, in a single stroke, to resolve the world’s looming energy crisis and to dispel the problems associated with greenhouse gases.

“We thought of this as our Microsoft,” says Surrey, B.C., homemaker Laura Thaw, explaining why, nine years earlier, she and her husband decided to tie their retirement hopes to Ballard’s revolutionary fuel-cell technology.

At the time, less than a decade ago, their aspirations were hardly far-fetched. Predictions that fuel cells would replace the internal combustion engine had made Ballard a household name in investment circles.

Auto industry giants Ford Motor Co. and DaimlerChrysler AG were so impressed that they bought 30 per cent of the company, vowing to put 100,000 fuel-cell vehicles on the road by 2005. This frothy wave of optimism helped propel Ballard shares to more than $210 on the Toronto Stock Exchange in March, 2000.

But last month, when Ms. Thaw and other shareholders filed into a ballroom at the Metrotown Hilton in Burnaby, B.C., to hear Ballard chief executive officer Dennis Campbell address the AGM, there was little in the way of hoopla or hype — and a lot of empty seats.

After spending more than $1-billion (U.S.) on development, $65-million of it from government funds and grants, the company has yet to deliver a commercially viable product.

The stock is mired in the doldrums, trading at about $9 (Canadian). And the euphoria has soured into skepticism. It is clear that hydrogen-powered fuel-cell cars won’t be available in showrooms any time soon, and industry observers are beginning to ask if they ever will be.

The omens aren’t auspicious. Investors are fleeing, disheartened by the continuing delays and technology hurdles. The auto makers, while still actively pursuing fuel-cell dreams, have been distracted by the surprising success of so-called hybrids, such as Toyota’s Prius and Honda’s Civic.

Running on electricity and gasoline, there are already about 120,000 on the road in the United States. Meanwhile, improvements to the old internal combustion engine have reduced the urgency of the quest for new alternatives, while in the alt-fuel sector dozens of rivals are vying for investor attention and, more importantly, much-needed cash.

And cash is an issue. Some analysts fear Ballard may run out of it before it can start commercial production. “Should Ballard fail to develop economical suitably performing [fuel-cell] stacks,” MacMurray Whale of National Bank Financial warns, “it could possibly run out of resources to continue.”

Only a few years ago, it was a question of when, not if, Ballard would make the long-promised commercial breakthrough. Today, some observers wonder if, a decade from now, one of Canada’s brightest tech lights will still be around. Even its own former chief financial officer is dubious.

“I think it is a built in assumption that they are going to slip and fall,” says Paul Lancaster, now CFO of Palcan Fuel Cells Ltd. of Burnaby, B.C. “It’s hard, because they are facing competition from 50 other companies in an industry where the time lines to development are long and where it can’t afford to talk too much about what it is doing.”

Mr. Campbell insists his company remains the global leader in fuel-cell development. “If you are going to bet on fuel cells,” the 56-year-old aerospace engineer said in a recent interview, “you need to be betting on Ballard.”

But the choir of naysayers is growing. BMO Nesbitt Burns Inc. analyst Brian Piccioni, for example, tells clients he is “virtually certain” that they will not see widespread use of hydrogen, or fuel cells, in transportation applications in their lifetime — or even this century.

Although fuel cells — they yield electricity, heat and water by catalyzing the reaction of oxygen and hydrogen — were discovered 160 years ago by British scientist Sir William Grove, it was not until the 1960s that they found their first practical application, in the U.S. space program.

More recently, they’ve been embraced by environmentalists because they are capable of powering vehicles without emitting harmful sulphur dioxides or nitrogen oxides.

“This is very seductive technology,” says Felix Pilorusso, a Toronto auto industry consultant who has written on the subject.

So what’s gone wrong? Analysts say sentiment has changed for reasons as complex as the technology itself. First, finding a fuel cell with the right combination of features has proved difficult. That’s because it must be lightweight and compact enough to fit under the hood of a car, yet still capable of delivering power, acceleration and durability at a cost that drivers expect.

Other key barriers to commercialization include the high cost of platinum (it alone can account for up to 24 per cent of a system), and of the external unit needed to extract high-purity hydrogen from whatever fuel is used.

Then there are the challenges associated with producing the hydrogen — among them, replacing the existing network of gasoline stations with a hydrogen refuelling infrastructure. Estimated cost: $500-billion (U.S.).

Hydrogen also requires a great deal of energy to produce and suffers from the perception — a legacy of the legendary Hindenburg airship disaster of 1937 — that it is extremely unsafe. Hydrogen storage is another major issue. Because it lacks the density of natural gas, much higher volumes are needed to provide the equivalent driving range; some method of compression is therefore required.

No wonder that John Wallace, head of Ford’s Th!nk Group, compared the challenge facing the fuel-cell industry to putting 10,000 men on the moon — every day — at an affordable price. In a February report to the Washington-based National Research Council, a committee of scientists concluded that it would take at least a decade for this to happen, if it ever happens at all. “People in the industry have known that,” Mr. Pilorusso says, “but there seems to be great reluctance to speak about it openly.”

The mood changed last week, when Ballard and its major shareholders, Ford and DaimlerChrysler, announced that they were reshaping a complex alliance formed three years ago, to speed commercialization. Under the widely anticipated accord, Ballard is selling back to the auto giants its interest in the German fuel cell systems division, taking an $18-million writedown.

Ostensibly, this move will allow Ballard to focus on the critical task of developing fuel-cell stacks and electric drives, leaving Ford and DaimlerChrysler to figure out how to integrate other components (cooling, fuel and air delivery systems) into the vehicle. Ballard expects to receive $58-million (Canadian) from its partners to finance development of the next two generations of fuel-cell stacks.

What stands between Ballard and fuel-cell nirvana? A key target is to massively reduce the cost of the stack to $45 (U.S.) per kilowatt, from the current $4,500, through increased production volumes and design improvements. The latter would include cutting the use of high-cost platinum. But it must also demonstrate that fuel cells can deliver long-term durability and cold-weather performance.

“The two generations we have now defined…give us the ability to see a line of sight to commercial production,” Mr. Campbell says. “We see the technology path now and we know how to get there.”

But the investment community has begged to disagree. Ballard’s share price dropped 20 per cent after the announcement.

“I see this as the first sign that motor vehicle manufacturers are backing away from fuel cells as a feasible production technology for the next 20 years,” Mr. Pilorusso, the consultant, says. “There’s no way that they’re going to make a success of this any time soon, either jointly or on their own.”

Clearly hedging their bets, Ford and DaimlerChrysler are expected to concentrate on hybrid vehicles; once thought to be a stepping stone to fuel cell commercialization, they are seen as serious competition.

So, too, ironically, is the old internal combustion engine. By 2020, according to a Massachusetts Institute of Technology study, design improvements to traditional equipment could reduce energy consumption and greenhouse gas emissions by about a third from current levels, while increasing car costs by only 5 per cent.

Even Mr. Campbell concedes Ballard’s outlook is clouded — that it is attempting to sell products that have never been sold before into markets with entrenched technology. “It is virtually impossible to predict with any accuracy what adoption rates [for them] would be.”

Refocused on its core technology, Ballard intends to concentrate on staying ahead of auto companies, including Toyota, General Motors, Honda, Nissan and Fiat, that have launched fuel-cell programs. “Everything we do,” he says, “is focused on maintaining that lead.”

The company now has 75 fuel-cell vehicles (passenger cars, buses and vans) in field trials with customers in Europe, China, Australia and California. Each vehicle cost about $1-million to build. It aims to double that number by mid-2005, and sharply ramp up production after 2008. Its leading competitor, Nuvera Fuel Cells of Cambridge, Mass., has only five prototypes now on the road worldwide.

“We are the only company that is building production-quality fuel cells,” Mr. Campbell maintains. “Everyone else is making a laboratory scale, hand-made fuel cell.”

Indeed, analysts say it is vital that Ballard stays head of the pack because, under terms of their agreement, Ford and DaimlerChrysler would be released from their commitment to buy Ballard fuel cells if another manufacturer came up with better technology. That, in addition to the myriad other hurdles it already confronts, would almost certainly signal its demise.

But shareholder Laura Thaw hasn’t abandoned hope. She’s more concerned about Ballard’s cumulative losses — $525-million to date — than about fear that the hydrogen fuel economy won’t materialize.

“The fact that countries are having to participate in unpopular wars to protect oil reserves will facilitate the switch away from fossil fuels,” she says. “I feel that there is a place for fuel-cell technology and that is where we will go.”