Fuel fixer: Westport Innovations finds a new way to go green

Westport Innovations finds a new way to go green

While everyone from Willie Nelson to President George Bush is hyping alternative fuels like biodiesel and ethanol for your fuel tank, Vancouver-based Westport Innovations has quietly spent the last six years marketing an even cleaner technology: truck and bus diesel engines powered by liquefied natural gas (LNG).

It was first fashioned in a lab at the University of British Columbia's Mechanical Engineering Department in the 1980s. A decade of testing passed before the university issued a license to David Demers, CEO of newly formed Westport Innovations (TSX:WPT), to commercialize and market the new fuel technology. Initially, it wasn't easy securing funding for a technology virtually unproven in real-world environments. “I still have scars,” Demers jokes.

Canadian investors were especially tough to crack: “Canada just doesn't have the same venture capital depths or patient investor base,” he says. But after signing a development agreement with Indiana-based engine giant Cummins, Demers got the attention of a handful of U.S. and European firms including Merrill Lynch's London office.

The company went public in 1999 when “anything that was about clean energy was still easy to finance,” and eventually bought all proprietary rights from UBC. The wheels promptly fell off the tech markets around 2000 and since then cash hasn't flowed in as quickly, but by consistently meeting technological and commercial milestones for a core group of investors, Westport has been able to grow into $44-million company with 163 employees worldwide. Today, it's the worldwide leader in LNG technology and its system is the only one in the market for heavy-duty engines over 300 hp.

There aren't, however, too many of those running on roads in Canada, where Demers says only 75 out of a total 14,000 engines have been sold. The company has instead managed to tap into emerging markets in Southern California, South America, and Southeast Asia.

Thus far, the biggest pot is in the Golden State, where aggressive environmental interests have been able to affect policy, particularly in the areas of city transit and work trucks. But Demers says Asia is in fact the ripest of growing markets for his green transportation solutions.

Unlike California, Westport's opportunities in China — whose government has swallowed up the largest number of LNG-spec'd engines — seem to be more naturally market-driven (notwithstanding the pressure to clean up the environment in advance of the 2008 Olympics in Beijing).

Natural gas can be as much as 50% cheaper than diesel fuel in China, and the country — although now reaching capacity — has a solid gas pipeline and supply chain in place, Demers explains. Furthermore, China is the world's fastest growing market for new vehicles, with an immature energy infrastructure not yet totally married to oil.

“Strategically, the government plans to grow its GDP by 10% a year for the next 25 years,” says Demers. “But with the economy highly dependent on energy supply and with the oil supply situation around the world what it is, they don't believe there's enough to meet their economic needs. … So it's a great opportunity to establish a new fuel system.”