Executive Summary / Key Takeaways

• Pacific Green Technologies is undergoing a strategic transformation, pivoting from its historical environmental technologies business towards becoming a developer and seller of utility-scale Battery Energy Storage Systems (BESS), capitalizing on the accelerating global energy transition.
• Fiscal Year 2024 marked a significant turning point, with the company achieving net profit ($31k) primarily driven by substantial gains ($42.33M) from the sale of two UK BESS projects, Richborough and Sheaf, validating its develop-to-sell model.
• The BESS project pipeline has seen substantial growth (2000 MW in FY24), with recent sales in the UK and Australia (Limestone Coast North post-FY24), and expansion into Italy and Poland, signaling future revenue potential from project disposals and associated services.
• Despite operational progress and BESS sales success, the company faces significant financial challenges, including negative working capital, negative operating cash flow in FY24, and the need to secure a crucial AUD 50M development loan facility and find a buyer for the Limestone Coast West project, raising substantial doubt about its ability to continue as a going concern.
• Identified material weaknesses in internal control over financial reporting, leading to restatements of prior quarterly financials, highlight operational and financial reporting risks that the company is actively working to remediate through enhanced controls and personnel.

A Strategic Pivot in the Energy Transition

Pacific Green Technologies Inc. (OTCQB: PGTK) stands at a critical juncture, having strategically repositioned itself to seize opportunities within the burgeoning global energy transition. Founded in 1994, the company's early history saw various iterations before finding a foothold in Environmental Technologies, notably with its proprietary marine exhaust scrubber systems. While this segment continues to operate, contributing to revenue through product sales and services, the narrative has fundamentally shifted. Beginning in 2021, PGTK embarked on a significant pivot, developing capabilities in the Battery Energy Storage Systems (BESS) sector. This move, initially focused on the UK market, has rapidly become the company's primary driver, reflecting a strategic response to the accelerating demand for grid-scale energy storage solutions essential for integrating renewable energy sources.

The core of PGTK's BESS strategy is a "develop-to-sell" model. The company identifies potential project sites, secures necessary permits and grid connections, arranges project financing, and brings the projects to a "Ready to Build" (RtB) stage before selling them to large renewable energy funds and investors. This approach aims to de-risk project execution for buyers while generating development profits for PGTK. The company often retains involvement post-sale through construction management and asset management agreements, creating additional service revenue streams. This strategic evolution positions PGTK not just as a technology provider, but as a project developer facilitating the deployment of critical energy infrastructure.

The competitive landscape in both the BESS and Environmental Technologies sectors is intense and populated by players with significantly greater resources. In BESS, PGTK competes with large utilities and developers like SSE (SSE), Enel (ENEL), and EDF (EDF) in the UK, and Akaysha Energy, Firm Power, and ACE Power in Australia. These competitors often possess deeper financial pockets and more established track records. In Environmental Technologies, the market is fragmented but includes larger entities like CF Industries (CF) (indirectly through sustainability initiatives), Turner EnviroLogic, KRAFTPOWERCON, and Kanadevia Inova Steinmüller, who may offer more competitively priced or widely available products or have more mature businesses. PGTK's ability to carve out market share depends heavily on its technological differentiation, strategic partnerships, and efficient project execution.

Technological Edge in a Competitive Arena

A key element of PGTK's strategy, particularly in its legacy Environmental Technologies segment, lies in its proprietary technology. The company holds global product patents and intellectual property for its Emission Control Systems (ECS), marketed under names like ENVI-Clean™, ENVI-Pure™, and ENVI-Marine™. These systems are designed to remove pollutants like sulfur dioxide, particulate matter, and hazardous air pollutants from various combustion sources, including marine diesel engines.

While the 10-K filing notes an impairment of these intangible assets in FY24, indicating challenges in the marine scrubber market, the technology itself offers distinct advantages that PGTK aims to leverage. Based on external analysis, PGTK's ENVI systems demonstrate quantifiable benefits over some alternatives:

• Superior Efficiency: PGTK's technology offers 20-30% greater efficiency in pollutant removal compared to some competitor approaches, potentially leading to better environmental compliance and performance.
• Lower Operating Costs (ENVI-Pure): The proprietary design of the ENVI-Pure system can result in 15-20% lower operating costs per unit, offering a tangible economic benefit to customers.
• Greater Energy Efficiency: PGTK's offerings exhibit 25% greater energy efficiency in pollutant removal, contributing to lower operational energy consumption.
• Faster Processing Speeds: For certain emissions, PGTK's ENVI technologies can offer up to 20% faster processing speeds.
• Higher Dioxin Removal Efficiency: The technology shows approximately 30% higher dioxin removal efficiency in specific applications.

These quantifiable advantages represent a potential competitive moat for PGTK in specific niches, allowing for potential premium pricing or capturing market share from competitors like Turner EnviroLogic or KRAFTPOWERCON who may focus more on customization or lower upfront costs. The "so what" for investors is that this technology, despite recent market challenges in the marine sector, provides a foundation of expertise and differentiated capability that could be applied or leveraged in other environmental or industrial applications as the company explores expansion. PGTK's R&D efforts, though not detailed with specific metrics in the filing, are aimed at pushing the boundaries of sustainable energy solutions and improving existing technologies, which is crucial for maintaining competitiveness in rapidly evolving markets.

BESS Momentum Drives Financial Turnaround

Fiscal Year 2024 (ended March 31, 2024) marked a pivotal period for PGTK's financial performance, largely driven by the successful execution of its BESS develop-to-sell strategy. Total revenue increased significantly to $14.55M from $7.64M in FY23. This increase was primarily attributable to two factors: a one-time recognition of $8.04M in product revenue from a lapsed postponed marine scrubber contract and the emergence of new service revenue streams ($978k) from BESS construction management and asset management agreements following project sales.

The most impactful financial event in FY24 was the substantial gain on derecognition of BESS project subsidiaries, totaling $42.33M. This gain resulted from the sale of two UK BESS projects, Richborough Energy Park (100MW) and Sheaf Energy (249MW), both sold to Sosteneo. The Richborough sale in June 2023 contributed a gain of $17.42M, while the Sheaf sale in December 2023 added $24.91M. These figures underscore the profitability potential of PGTK's BESS development model when projects reach the RtB stage and find buyers.

Overall gross profit surged to $8.69M in FY24 from $1.81M in FY23. The product gross profit margin was an exceptionally high 84% in FY24, skewed by the one-time revenue recognition, compared to 20% in FY23. The service gross profit margin decreased to 22% in FY24 from 30% in FY23, partly due to inflationary cost increases in the marine segment.

However, the year also saw a dramatic increase in expenses, totaling $34.74M compared to $12.44M in FY23. This surge was largely driven by significant cash bonuses ($8.07M) and stock bonuses ($4.91M) paid to the CEO, as well as a $4.69M impairment charge on intangible assets related to marine scrubber technology. Other expenses also rose substantially to $13.88M from $1.17M, primarily due to an $8.30M loss on the fair value of derivatives related to the Sheaf project and increased interest expense ($5.58M) from short-term borrowings used to fund project development prior to sale.

Despite these increased costs and other expenses, the large gains from BESS project sales propelled the company to a net profit of $31k in FY24, a significant turnaround from the $11.79M net loss in FY23. The effective tax rate in FY24 was a high 98.7%, influenced by US Subpart F income from the UK project disposals, US tax limitations on executive compensation, and a change in the valuation allowance for US net operating losses.

From a liquidity perspective, PGTK's working capital remained negative at $8.22M as of March 31, 2024, although this was an improvement from the negative $11.78M in FY23, partly due to milestone receivables from BESS sales. Operating cash flow was negative in FY24 (-$18.34M), reflecting the increased expenses. Investing activities used $31.29M, driven by project development costs, partially offset by proceeds from BESS sales. Financing activities generated $52.00M, primarily from debt raised within the BESS project entities before their sale.

Outlook and Critical Challenges

The future trajectory of PGTK is heavily tied to the continued execution and expansion of its BESS development pipeline. As of March 31, 2024, the pipeline stood at 2000 MW, a significant increase from 349 MW in FY23. This includes large projects in Australia (Portland 1 GW, Limestone Coast 500 MW) and Italy (500 MW across five projects), with recent expansion into Poland (at least 400 MW).

Management is confident in the potential for future project sales to drive profitability, similar to the gains realized in FY24. The sale of the Limestone Coast North project (250MW/500MWh) in Australia was completed post-fiscal year end (March 2025), with approximately AUD 33M in cash received in March and April 2025, providing a near-term liquidity boost. The five Italian projects are expected to reach Ready to Build status in 2025, with the company holding an agreement to acquire the remaining 49% interest upon achieving this milestone, targeted for 2026-2027. Additionally, the company anticipates receiving further variable consideration from the Sheaf sale, with a $7.26M payment milestone expected in late 2025 upon battery delivery.

However, the path forward is fraught with significant risks and challenges, most notably the substantial doubt about the company's ability to continue as a going concern, as highlighted by its auditor. This uncertainty stems from two critical factors:

• Funding Requirements: The company needs to secure a larger development loan facility, anticipated to be approximately AUD 50M, to meet ongoing obligations (including $16.7M in short-term debt due within 12 months) and fund pipeline development. The fact that this funding is not yet fully secured raises significant doubt. Management expresses confidence based on existing lender relationships, positive interest, and an independent study supporting the Australian pipeline's value as security.

• Limestone Coast West Sale: The Limestone Coast West project, a major component of anticipated cash receipts in the next 12 months, does not yet have firm sale offers. Management is confident in completing this sale based on the recent success of the Limestone Coast North sale, interest from prospective buyers, and a secured 7-year offtake agreement for 50% of the capacity.

Delays or failure to secure the necessary funding or complete the Limestone Coast West sale could severely impact the company's liquidity and ability to execute its strategy.

Furthermore, the identified material weaknesses in internal control over financial reporting – specifically, a lack of US GAAP resource for complex transactions and insufficient monitoring controls – led to material errors and restatements of prior quarterly financials. While the company is implementing remediation efforts, including training, enhanced review controls, and increasing experienced finance personnel, these weaknesses pose a risk to the reliability of future financial reporting and could negatively impact investor confidence and the stock price.

The highly competitive nature of the BESS market, with larger, better-resourced players, also presents a significant hurdle. PGTK must effectively leverage its partnerships and project execution capabilities to compete for pipeline opportunities and attract buyers. Reliance on China-based battery supply chains also introduces geopolitical and supply chain risks that could impact project costs and timelines.

Conclusion

Pacific Green Technologies is in the midst of a transformative period, successfully leveraging its strategic pivot to the BESS market to generate significant gains and achieve net profitability in fiscal year 2024. The company's growing BESS pipeline and recent project sales demonstrate the potential of its develop-to-sell model in capitalizing on the global energy transition. Its proprietary environmental technologies, while facing challenges in certain markets, offer a foundation of technical expertise and quantifiable advantages in pollutant removal.

However, the company faces critical financial and operational headwinds, including substantial doubt about its ability to continue as a going concern due to funding needs and the uncertainty surrounding a key project sale. The identified material weaknesses in internal controls add another layer of risk that requires diligent remediation. For investors, PGTK represents a high-risk, high-reward opportunity. The investment thesis hinges on the company's ability to successfully secure the necessary financing, execute on its BESS pipeline development and sales strategy, particularly for the Limestone Coast West project, and effectively remediate its internal control deficiencies. The competitive landscape demands sharp execution, and PGTK's ability to translate its technological and development capabilities into consistent financial performance while navigating these challenges will be paramount to its long-term success.