Energy firm blasts off in Kalihi

By Sean Hao
Advertiser Staff Writer

Hoku Scientific employees, from left, technician Stephanie Ito and scientists Gangadhar Panambur and Ramesh Chellappan discuss their work. The Kalihi venture has raised $3.3 million and needs $8 million more. Jeff Widener • The Honolulu Advertiser

Hoku Scientific Inc., in the Belt Collins building near Kuhio Park Terrace, is the type of company business leaders are hoping to see flourish in Hawai'i and help move the state away from its dependency on tourism.

The four-year-old company employs 14 people — five with post-doctoral degrees — and enters 2004 on the heels of a banner year that included key venture capital investments, a first patent and a $6 million development agreement with Japan electronics giant Sanyo Electric Co. Results are exceeding expectations.

"We're much farther than we thought we would be at this point," said Dustin Shindo, 30, Hoku co-founder and president.

Hoku — Hawaiian for "star" — is developing the membrane, or engine, that drives fuel cells. Tissue-thin, the membranes are worth more than their weight in gold, Shindo said.

A fuel cell operates like a battery, but does not run down or require recharging. It will produce energy in the form of electricity and heat as long as fuel is supplied, according to the Breakthrough Technologies Institute. It can utilize hydrogen from any hydrocarbon fuel, from natural gas to methanol.

Since the fuel cell relies on chemistry rather than combustion, emissions are considerably less than with the cleanest fuel-combustion processes.

If all goes well, Hoku hopes its products will be integrated into 1,000-watt power units in Japan in late 2005, Shindo said. Though small by U.S. standards, the units are expected to supply 60 percent to 80 percent of the power needed by a typical Japanese household, at a cost of $5,000 per unit installed with government subsidies.

The fuel cells, which give off heat, will double as water heaters and provide home electricity at cheaper rates than consumers pay now.

Hoku faces a critical, make-or-break period, Shindo said.

"For as good as we are in terms of our positioning today, there's deep concern that if we do not move quickly — by both getting the manufacturing capability up and expanding the customer base in the next twelve to twenty-four months — that we're not going to be a success," Shindo said.

Competition is one reason. Last year, the number of operating small, stationary cells — similar to what Hoku hopes to make — nearly doubled to an estimated 1,900, according to Fuel Cell Today, a United Kingdom Web site that tracks the industry.

Hoku has raised $3.3 million and seeks $8 million more this spring. About $250,000 was invested by Advantage Capital, with more coming from Lava Ventures, Garage Technology Ventures and Hawaiian Electric, among others. Much of that money was made available via Act 221 technology investment tax incentives.

"It was, without a doubt, a very high-risk investment," said Doug Beekman, a senior associate with Advantage Capital.

Of particular interest to Advantage was Hoku's development agreement with Sanyo, which should speed development of its technology and result in a future customer, Beekman said.

"I clearly believe, in the long-run, it's a very attractive market," he said.

Sanyo, in partnership with Korea's Samsung Group, is developing fuel-cell technology for use in Japan. Fuel cells work; the key is making them cheaper and more efficient, Shindo said. With its high electricity rates and attraction to cutting-edge technology, Japan is a natural location to launch the technology, he said.

Hoku hopes its fuel cell membrane earns a status similar to the central processor in a personal computer, which computer makers buy rather than produce themselves. Potential competitors include other startups as well large chemical companies, Shindo said.

Little more than a curiosity for most consumers, fuel cells will likely draw attention as they find their way from the experimental stage to products such as automobiles and consumer electronics, said Stephen Allen, an assistant chemistry professor at Hawaii Pacific University.

"People will pay extra for not having to replace or recharge batteries," he said. "The extended use time will also be a strong selling point. The fuel cell will provide the power as long as it has fuel."

Energy efficiency is another benefit. "The efficiency of fuel cells is higher than burning the fuel, so less fuel is needed," Allen said. "With a fuel cell, you also don't produce pollutants such as carbon monoxide and nitric oxide."

Hoku plans to build a pilot production plant locally. While that won't increase employment substantially, the relatively high wages it pays help pump money into Kalihi, where building owner Belt Collins Hawaii has invested $750,000 on offices and labs.

Hoku chose its site on North King Street as one of the few locations on O'ahu that met its needs for ventilation, water and security, Shindo said.

"People are very surprised when they find out where we're located," said Shindo, a graduate of Waiakea High School on the Big Island. "When people come here for the first time, they never would have thought this would have been up here."

Reach Sean Hao at shao@honoluluadvertiser.com or 525-8093.

Correction: A previous version of this story incorrectly reported that Hoku Scientific had spent $750,000 on building its headquarters. Building owner Belt Collins Hawaii spent the money.