By GEOFF SENESCALL
If Fletcher Energy had taken part in the last capital-raising of Capstone Turbines before Capstone listed on the US Nasdaq market two months ago, a further $1.7 billion would have been added to its price tag.
That is because, until around 1998, Fletcher Energy owned 20 per cent of Capstone. But Fletcher's decision then to revert to being just an oil and gas producer diluted its holding to 11 per cent.
Given the relative insignificance of the investment at the time nobody batted an eyelid.
But with Capstone shares listing at $US16, then rocketing to $US92, the whole picture has changed.
In spite of the dilution, Fletcher's 8.12 million Capstone shares are still worth, on paper, around 520c each.
That compares to a closing Fletcher Energy share price on Friday of 871c. So Capstone is still a chunky bite to get through for any prospective buyer wanting Fletcher Energy's exploration assets.
But the fact that the Capstone investment would have swamped Fletcher's oil and gas exploration business if the holding had been maintained is not lost on at least one of the firm's former executives, the now-retired John Blundell.
He is the man who fought long and hard to interest Fletcher Energy in making an investment in the company five years ago.
While reluctant to openly criticise Fletcher, Mr Blundell is obviously disappointed at its decision to abandon its alternative energy operation.
"This technology has the potential to do to the Huntly power stations of this world what the PC did to the mainframe," he says.
Mr Blundell is not alone in this view. The August 5 edition of the Economist had a front-page splash on the "micropower" revolution happening in the US.
Micropower is the generation of electricity by small-scale fuel cells and gas turbines, which is what Capstone is all about.
According to the Economist: "It could be every bit as dramatic as the revolution that hit the world's telecommunications industry in the 1980s."
Mr Blundell estimates the market size for generation, transmission and distribution worldwide at about $US1 trillion a year.
The investment in Capstone was no accident. Mr Blundell and his small development team at Fletcher Energy were instrumental in driving it forward. The team had been set up to look at the future needs of energy markets.
They quickly became aware of the need for distributor generation technology, which generated electricity onsite, Mr Blundell recalls.
"We knew the [environmental] constraints on coal plants, which generate around half the power in America, and nuclear, which generates about a third ... So basically, the insatiable demand in the US for electricity was going to have to come from a new technology."
Mr Blundell said his team had been keeping a close eye on new turbine technology.
"Quite fortuitously I came across an obscure article in the Society of Automotive Engineers' journal about a small gas turbine concept that a retired engineer ... Robin Mackay, was arguing was the solution to the Californian vehicle emissions debate."
He tracked down Mr Mackay in Palos Verdes, California.
"So it started from there. We travelled back and forth many times to the US and talked to him."
When it came to the issue of funding, Mr Blundell says the Fletcher board initially flagged it away.
But the Blundell team persisted and Fletcher ended up taking a 20 per cent shareholding in one of Capstone's early capital-raisings around five years ago.
Capstone also had the backing of US venture capitalist Ben Rosen and other East Coast financiers. They had already taken the technology past the concept stage.
But the focus was entirely on the motor vehicle.
"We pushed long and hard to try to hook them over to the distributor generation concept, which they weren't interested in. But that all changed when the motor car guys opted for fuel cells, not the Rosen hybrid flywheel.
"If you want any proof as to whether or not the push for distributor generation came from us, just look at the fact that they gave away the entire marketing rights outside North America for stationary generation in return for Fletcher's first investment. Capstone had to pay Fletcher $60 million to get them back just prior to its listing."
Mr Blundell says the payment means that Fletcher's net investment in Capstone is around zero.
"You look back now and it looks easy. But there were times when Capstone was pretty close to the wire. Not everyone wanted to participate. They had trouble getting in new investors. We had our own internal battles of straying from the oil and gas producer basis."
Most people are not willing to take such a long-term view. "I make the comment that the reason why it has taken 12 years is because that is how hard it is."
But what Capstone shows is that "we can mix-and-match it with the best."
Till the plug was pulled some two years ago, Fletcher had around 150 engineers in California. "We are talking something about 300 man-years of engineering R&D. It's been a big project. If we talk about the knowledge economy, this is it."
Mr Blundell admits that Capstone was a punt for Fletcher - something no one could be sure was wanted.
But, as Fletcher Challenge's gross capital expenditure since the 1987 sharemarket crash is $20 billion, Mr Blundell says problems didn't lie in Capstone.
"Five Capstones and we pay off the nation's debt. And what do we do? Plant more pine trees."
Capstone gold could have been platinum
AdvertisementAdvertise with NZME.