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ITM Power (LON:ITM) share price tanks as it raises £250m

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The ITM Power (LSE:ITM) share price fell as much as 10% on Friday. This occurred after the company announced it successfully sold 57.5 million new shares to financial institutions at a price of 400p. As a result, the firm has raised approximately £250m. And the ITM Power share price appears to have corrected itself to account for the equity dilution, pushing its 12-month performance to just over 60%.

Why did the firm issue new shares?

ITM Power is an alternative energy business producing electrolyser machines that can extract hydrogen from water. With many countries worldwide pushing for carbon-zero emissions by 2050, the demand for green energy alternatives has skyrocketed.

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As such, the firm’s contracted order backlog for machine capacity has risen to 310 megawatts. And another 1,011 megawatts of contracts are currently being negotiated with potential clients. To capitalise on the situation, management intends to use £170m of the newly raised funds to finance the construction of a second Gigafactory in the UK. The rest will be deployed in technology initiatives. If these are successful, the cost of manufacturing electrolyser machines could fall by 50% over the next five years.

The objective is to reach an energy capacity of five gigawatts by 2024.

What does this mean for the ITM Power share price?

The new facility will take several years to complete. However, over the long term, it may help the ITM Power share price grow considerably. According to the International Energy Agency, a total of 3,585 gigawatts of global electrolyser capacity will be needed to achieve net-zero emissions. By comparison, there is only 0.2 gigawatts of installed capacity worldwide as of September 2020.

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Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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