(The Toronto Star posted the following article on its website on March 15.)
TORONTO — The lonely whistle in the distance, smoke belching from the stack — it is story of the railways that built our nation.
But nowadays smoke also conjures up images of nitrous oxide and other pollutants that harm the environment, cost railways and ultimately all of us money and grief.
In the United States, the Environmental Protection Agency has mandated all locomotives cut emissions to two-thirds of mid-1990s levels by 2005. In Canada, the Ministry of the Environment has a memorandum of understanding with the railways to cut emission levels as much, and bring them in line with Kyoto Accord standards.
So railways are looking for ways to derail their polluting act while keeping costs low, profits high and staying competitive.
Several big-league players on both sides of the border are looking to Vancouver-based RailPower Technologies Corp. to help them.
RailPower makes the Green Goat, a locomotive used to jockey rail cars around a yard and line them up for a long-haul run. Goats, slang for switching-yard engines, are typically older locomotives that have been replaced on long hauls by newer and more efficient models.
What RailPower knew was that the goat was one of the biggest sources of pollution for the rail industry. Just like a car spews out most energy and exhaust when the driver first puts pedal to metal, goats emit vast quantities of fumes because they’re always starting, stopping and using a lot of energy. The complexities of starting and stopping a 2,000 horsepower diesel engine means the goats have to be idling all the time, wasting up to 25,000 gallons of diesel fuel a year and spewing 5,000 tonnes of pollutants into the air — never mind the noise pollution from having them constantly running.
With the help of inventor Frank Donnelly and a group of former rail engineering specialists, RailPower set out to patent and commercialize what no one else in the industry had tried before: to create a Green Goat — a hybrid locomotive that could provide plenty of oomph to move railway cars around without wasting fuel or spewing fumes.
“The advantage of the technology is that it requires very little fuel to function, and one of the results of that is there is very little pollution associated with its operation,” says Roger Cameron, spokesperson for the Railway Association of Canada, an industry group representing some 60 freight, tourist, commuter and intercity railways.
Most think of hybrid engines in cars — vehicles like the Toyota Prius or the Honda Insight that run on a combination of gas, electricity and re-chargeable batteries.
The Green Goat operates on similar principals, with 42 custom-designed racks of lead batteries (336 batteries) weighing upwards of 60,000 pounds, a generator charging them, and a digital control system that monitors what power goes where and when. The batteries get charged by a 70- to 285-horsepower diesel engine that fires up only when it’s needed. The result: an 85 per cent reduction in emissions and a 50 to 80 per cent reduction in greenhouse gases — all from using less fuel to do the same thing.
The Green Goat uses, typically, 50 per cent less fuel than a regular diesel-powered switcher.
“It’s not rocket science; it is a true hybrid,” says Jim Maier, RailPower’s president and chief executive officer, though different from a hybrid car. “In an auto hybrid, the battery has to have high energy but low volume and low weight. In a locomotive, a locomotive loves weight. The more weight you get the better.”
RailPower has two principal switchers — the Green Goat with 2,000 horsepower and used for medium to heavy switching, and the Green Kid, a 1,000 horsepower goat for lighter operations.
RailPower has no manufacturing plants; it has made outsourcing agreements with other vendors and railway companies to strip down old locomotives and rebuild them.
A 16-month trial by Union Pacific Corp., one of the largest railway operators in North America and a big potential client for RailPower, has gone well, according to analysts and both companies, exceeding expectations in California as well as in cold-weather testing in Chicago.
Other potential clients that have tested the Green Goat include Canadian National Railway, which has been conducting cold-weather testing in Moose Jaw, Sask., as well as the Pacific Harbor Line in Los Angeles, the Barstow Marine Corps Logistics Base in California and Burlington Northern Santa Fe’s line in the Los Angeles area.
The Green Kid — the baby version — has been tested by the Southern Railway of British Columbia, at ChevronTexaco’s El Segundo refinery in Los Angeles, and fertilizer giant Agrium’s facilities in Idaho. Shipping company CSX Corp. has tested several prototypes.
RailPower recently announced its first firm order, made to Railserve Inc., which received funding under the Texas Emissions Reduction Program, or TERP, to buy seven of the hybrid locomotives. Six 1,000 horsepower Green Kids and one 2,000 horsepower Green Goat will be built and used by Railserve’s customers in the Texas region.
The TERP Program is allocating approximately $130 million (U.S.) a year to reduce emissions in the state from heavy-duty trucks and off-road equipment.
Montreal-based Canac Inc., a company that provides different kinds of technology that finds its way into locomotives and other railway operations, is buying an additional two Green Goats through the TERP program. Canac is owned by Canadian National Railway.
There are at least another dozen or so on RailPower’s radar from both large railways and private operators expected to be filled in 2004.
The company is also talking to other potential clients about using the Green Goat, the Green Kid or both: The Metropolitan Transportation Authority, which runs the subways and trains that move New York City commuters, has 50 switcher locomotives in the subway system alone. They all operate on diesel power, suggesting RailPower has another potential client to lure in.
What it adds up to is a huge potential market, according to the growing roster of analysts that now cover the company, which graduated to a TSX listing just last week. The shares closed up 5 cents at $3.40. On the TSE Venture Exchange, where it traded before last week’s leap, its shares floated between $1.50 and $3.50 over the course of last year.
There are roughly 4,800 switchers throughout North America, another 5,000 at various industrial plants and military facilities that produce things like coal and grain and need to move their goods and equipment to main rail routes, another 1,000 or so at people-moving rail services like GO Transit and another 4,000 to 5,000 “road” switchers used for long-haul operations.
That’s a market worth some $10 billion (U.S.), according to analysts’ predictions, or $1 billion a year in potential revenues — and that doesn’t include Mexico, Europe and other regions.
“With both economic and regulatory factors working in concert, RailPower is beginning to accumulate a backlog of orders that will rapidly transform it from an R&D-focused developer of technology to a rapidly growing industrial supplier to the rail industry, particularly in North America,” wrote National Bank Financial analyst MacMurray Whale in a research report initiating coverage on the company.
He put an “outperform” rating on the company’s shares, with a one-year target of $4.50 (Canadian).
RailPower has competition. General Motors Corp. Electro-Motive division based in London, Ont. has been looking at fuel cell-powered locomotives for long-range hauling that are noiseless, don’t pollute and don’t need batteries that need to be recharged.
General Electric Co.’s Transportation Systems unit based in Erie, Pa., is also experimenting with fuel- saving and environmentally-friendlier technologies. These include less-polluting diesel fuels as well as batteries that store excess energy from braking systems that can be converted to run the train.
Both companies could offer competition to RailPower.
However, neither has jumped into the pasture with the goat just yet, and RailPower has made overtures to GM and GE to utilize their excess factory capacity — keeping them happy and in the loop.
“What I’ve done is I’ve approached both of them and said we’re going to take old locomotives and refurbish them into the goat — and we’re willing to put work in facilities that might be idle at different times,” says Maier.
“Both have agreed to work with us, which is a very good thing. Their markets are for entire fleets of locomotives to be replaced. They’re not looking at competing with us.”
There are competing technologies, too. Kim Hotstart Manufacturing Co., of Spokane, Wash., has developed a process that solves switching engines’ stop-and-start problem, where the fuel waste and excess emissions come from.
Kim Hotstart’s technology runs cooling water and lubricating oil past a heating unit, ensuring the engine stays warm when it’s turned off — a system that has worked for Burlington Northern Santa Fe, but doesn’t save as much fuel or cut emissions as much as the Green Goat.
Alternative fuels such as liquid natural gas have been tested by the rail industry — on goats, long-haul locomotives and other areas. But special filling stations have to be added and there are other technological issues.
So analysts get the impression RailPower is onto something — because of the preliminary success of its products, because of its experienced management team and because of additional technologies it is working on. They include CINGL, which stands for compressed integrated natural gas locomotive, and rDIRECT, which is the name given to a process that converts mechanical energy delivered by a gas turbine into a useful form of AC electricity.
RailPower has patents pending on both technologies.
The risks, according to the same analysts, are that there are no guarantees railways will rush to stock up on Green Goats, even with the threat of tougher emission standards looming. There’s also a chance competing technologies will overtake the goat in the next few years, quickly making it a more expensive and cumbersome option.
And even though the company has no debt and some $12 million in the bank, there’s no guarantee another company won’t come along and produce the same thing — whether the technology is patented or not.
Maier indicated that much of the cash on hand is to defend against potential patent infringements, and that the company’s main investors are aware that their money may have to be handed over to lawyers if patent infringement surfaces.
But Maier and others a little more removed from the company believe RailPower will prevail, if for no other reason than their products will save money.
Oh, and the environment too.
“There are alternatives, but not like RailPower,” says Cameron Neufeld, an analyst with Northern Securities Inc. in Calgary who also recently initiated coverage on the company. He has a “speculative buy” rating on the company’s stock, with a one-year target of $5.
“You can talk all you want about it being green, but they won’t listen if the economics aren’t there,” says Maier. “They don’t want the environmental sell, they want to know it works, it will save money and `by the way, there are environmental benefits.’ “