The curious history of Plurion, our latest hi-tech enterprise hope

Aberdeen-based ITI Energy is investing 9.3 million in a company called Plurion to develop a battery system capable of providing "back-up support for the national grid or to gather energy more effectively from renewables".

The market for this "game changing" technology could, according to ITI Energy, be worth 1 billion by 2020.

What astonishing goods news. And how fortuitous that it should come after a torrent of bad publicity over the departures of two senior ITI chiefs, including no less than the chief of ITI Energy, Tony Amor, amid claims of disagreement with Scottish Enterprise over future funding.

California-based Electrochemical Design Associates, a technology development concern, is setting up Plurion as a new company and relocating six key staff to the business.

It all sounds cutting edge and promising.

However, might this be the same Plurion whose battery power potential failed to generate much of a spark with North American investors three years ago?

Back in March 2002, Plurion Systems was set up as an R&D company by Nevada investors and, according to the 2004 annual statement of its successor company, "aggressively pursued the development and commercialisation of large capacity electrical storage". However, during late 2002 and early 2003, management re-assessed the progress of the electrical storage development "and concluded that commercial success was unlikely" .

It proposed to the board of directors that the business of the company was shifted and its remaining cash resources "redeployed to oil and gas exploration, development and production". The company changed its name to Berens Energy, registered in Canada.

Plurion was certainly high burn. In 2002 The business registered a loss of $9 million (5.2m).

On 15 May, 2003, the shareholders of Berens approved a reorganisation under which they returned to the original investors the development stage business of Plurion for $3.4m.

In addition, "manufacturing assets and intellectual property related to the battery technology development activities having a carrying value of $281,612 were transferred to Plurion Systems Inc for no consideration".

This appears to be the business, or rump of it, that a Scottish public sector agency has just acquired - for 9.3m.

Now, I am sure all due diligence has been done. But it might help if Scottish Enterprise or its sponsoring minister answered one question.

What is it, exactly, that makes you so confident you can succeed where the board, management and shareholders of Berens all felt the business was a no-hoper?

The crisis in gilts

IF YOU thought investment in shares was scary, consider the lemming-like charge of fund managers into the gilt-edged market as yields on government stocks fall to historic lows. Last week the yield on the new(ish) 50-year gilt fell below 4per cent - the first time the yields on long-dated gilts have fallen this low since 1954.

The yield on the index-linked 50-year stock is down to well below one per cent.

This is due largely to aggressive buying by pension funds, driven by regulatory requirements to pursue "liability driven investment". It is reinforced by the shrinkage of equities as companies are taken over or opt to de-list and go private.

Gordon Brown, the Chancellor, can hardly believe his luck. The man who took such pride in cutting debt is now able to redeem short-dated stock and offer bucket-loads of government debt at a fraction of the cost paid by his predecessors.

But for the rest of us, this is scary. Who in Britain is really confident that inflation will stay this low and the real value of our pension savings will be protected by such low yields for the next 50 years?

There has been no recorded period in financial history when yields would have stayed so low for so long. Moreover, overall returns from pension funds implied by yields this low will have a huge impact on investment returns and exacerbate the problem of under-funding.

The mortgage endowment policy shortfalls and bonus cuts of recent years will be a vicar's tea party by comparison.

How ironic that "safety first" regulation is driving pension funds to stuff portfolios full of long gilts offering such poor returns over the huge period involved.

No less scary are the macro economic signals implied by yields this low. This could indicate little or no growth in the economy - indeed a battle against recession - for decades to come. Rock bottom yields if sustained could imply the economics of distress for a generation.

Those who thought that getting out of equities into gilts (or switching into those misnamed "cautious managed" funds) would relieve them of financial uncertainty may be in for nasty surprise.

In the words of JP Morgan analysts last week, "The fashion for asset allocation shifts from equities into bonds at best amounts to rearranging the deck chairs son the Titanic. At worst it could sink the ship".