Consolidated Financial Statements(Expressed in U.S. dollars)

BALLARD
POWER SYSTEMS INC.

Years ended
December 31, 2016 and 2015

---



MANAGEMENTS REPORT

Managements Responsibility for the
Financial Statements andReport on Internal Control over Financial
Reporting

The consolidated financial statements
contained in this Annual Report have been prepared by management in accordance
with International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board. The integrity and objectivity of the
data in these consolidated financial statements are managements responsibility.
Management is also responsible for all other information in the Annual Report
and for ensuring that this information is consistent, where appropriate, with
the information and data contained in the consolidated financial statements.

Management is responsible for
establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of consolidated financial statements for external reporting purposes
in accordance with IFRS. Internal control over financial reporting may not
prevent or detect fraud or misstatements because of limitations inherent in any
system of internal control. Management has assessed the effectiveness of the
Corporations internal control over financial reporting based on the framework
in Internal Control  Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission, and concluded that the
Corporations internal control over financial reporting was effective as of
December 31, 2016. In addition, management maintains disclosure controls and
procedures to provide reasonable assurance that material information is
communicated to management and appropriately disclosed. Some of the assets and
liabilities include amounts, which are based on estimates and judgments, as
their final determination is dependent on future events.

The Board of Directors oversees
managements responsibilities for financial reporting through the Audit
Committee, which consists of eight directors who are independent and not
involved in the daily operations of the Corporation. The Audit Committee meets
on a regular basis with management and the external and internal auditors to
discuss internal controls over the financial reporting process, auditing matters
and financial reporting issues. The Audit Committee is responsible for
appointing the external auditors (subject to shareholder approval), and
reviewing and approving all financial disclosure contained in our public
documents and related party transactions.

The external auditors, KPMG LLP, have
audited the financial statements and expressed an unqualified opinion thereon.
KPMG has also expressed an unqualified opinion on the effective operation of the
internal controls over financial reporting as of December 31, 2016. The external
auditors have full access to management and the Audit Committee with respect to
their findings concerning the fairness of financial reporting and the adequacy
of internal controls.

|RANDALL MACEWEN       | TONY GUGLIELMIN      
|----------------------- | -----------------------
|                       
|                       
|RANDALL MACEWEN         | TONY GUGLIELMIN        
|President and           | Vice President and     
|Chief Executive Officer | Chief Financial Officer
|March 1, 2017           | March 1, 2017          

---



KPMG LLP
    Telephone
    
    (604) 691-3000Chartered Professional
      Accountants
    Fax
    
    (604) 691-3031PO Box 10426 777 Dunsmuir Street
    Internet
    
    www.kpmg.caVancouver BC V7Y 1K3Canada


REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

To the Shareholders and Directors of
Ballard Power Systems Inc.

We have audited the accompanying
consolidated statements of financial position of Ballard Power Systems Inc. as
of December 31, 2016 and December 31, 2015 and the related consolidated
statements of loss and comprehensive loss, changes in equity and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of Ballard Power Systems Inc.s management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance
with Canadian generally accepted auditing standards and the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Ballard Power Systems Inc.as of December
31, 2016 and December 31, 2015, and its consolidated financial performance and
its consolidated cash flows for the years then ended in conformity with
International Financial Reporting Standardsas
issued by the International Accounting Standards Board.

We also have audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United
States), Ballard Power Systems Inc.s internal control over financial reporting
as of December 31, 2016, based on the criteria established in Internal Control 
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO), and our report dated March 1, 2017 expressed
an unqualified opinion on the effectiveness of Ballard Power Systems Inc.s
internalcontrol over financial reporting.

//s// KPMG LLP

Chartered Professional
Accountants

March 1, 2017Vancouver, Canada

KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
KPMG Canada provides services to KPMG LLP.


---





KPMG LLP
    Telephone
    
    (604) 691-3000Chartered Professional
      Accountants
    Fax
    
    (604) 691-3031PO Box 10426 777 Dunsmuir Street
    Internet
    
    www.kpmg.caVancouver BC V7Y 1K3Canada


REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

The Shareholders and Directors of
Ballard Power Systems Inc.

We have audited Ballard Power Systems
Inc.s (the Company) internal control over financial reporting as of December
31, 2016, based on criteria established in Internal Control  Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Ballard Power Systems Inc.s management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the section titled Managements Report on Disclosure
Controls and Procedures and Internal Controls over Financial Reporting under
the heading Internal Control over Financial Reporting included in the
Companys Managements Discussion and Analysis. Our responsibility is to express
an opinion on the Companys internal control over financial reporting based on
our audit.

We conducted our audit in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining
an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our
audit also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.

A companys internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. A companys internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys
assets that could have a material effect on the financial statements.

Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
KPMG Canada provides services to KPMG LLP.


---



In our opinion, Ballard Power Systems Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based criteria established in Internal Control  Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance
with Canadian generally accepted auditing standards and the standards of the
Public Company Accounting Oversight Board (United States), the consolidated
statements of financial position of Ballard Power Systems Inc. as of December
31, 2016 and December 31, 2015, and the related consolidated statements of loss
and comprehensive loss, changes in equity, and cash flows for the years then
ended, and our report dated March 1, 2017 expressed an unqualified opinion on
those consolidated financial statements.

//s// KPMG LLP

Chartered Professional Accountants

March 1, 2017Vancouver, Canada

---



BALLARD POWER SYSTEMS INC.Consolidated Statement of Financial
Position(Expressed in thousands of U.S.
dollars)

|                                                                        |  |         |  | December
      31, |            | December 31,
|----------------------------------------------------------------------- |  | ------- |  | ------------------ | ---------- | ------------
|                                                                        |  | Note    |  | 2016               |            | 2015        
|Assets                                                                  |  |         |  |                    |            |             
|                                                                       
|Current assets:                                                         |  |         |  |                    |            |             
|Cash and cash
      equivalents                                         |  |         |  | $                  | 72,628     |             
|Trade and other receivables                                             |  | 8       |  |                    | 14,924     |             
|Inventories                                                             |  | 9       |  |                    | 17,228     |             
|Prepaid expenses and other current
      assets                         |  |         |  |                    | 2,973      |             
|Total current
    assets                                                |  |         |  |                    | 107,753    |             
|                                                                       
|Non-current assets:                                                     |  |         |  |                    |            |             
|Property, plant and
      equipment                                     |  | 10      |  |                    | 15,701     |             
|Intangible assets                                                       |  | 11      |  |                    | 18,083     |             
|Goodwill                                                                |  | 12      |  |                    | 40,562     |             
|Investments                                                             |  | 13      |  |                    | 1,191      |             
|Other long-term
      assets                                            |  |         |  |                    | 156        |             
|Total assets                                                            |  |         |  | $                  | 183,446    |             
|                                                                       
|Liabilities and Equity                                                  |  |         |  |                    |            |             
|                                                                       
|Current liabilities:                                                    |  |         |  |                    |            |             
|Trade and other
      payables                                          |  | 15      |  | $                  | 17,767     |             
|Deferred revenue                                                        |  |         |  |                    | 20,621     |             
|Provisions                                                              |  | 16      |  |                    | 3,568      |             
|Finance lease liability                                                 |  | 14 & 17 |  |                    | 569        |             
|Debt to Ballard Power
      Systems Europe A/S non-controlling interest |  | 18      |  |                    | 521        |             
|Total current liabilities                                               |  |         |  |                    | 43,046     |             
|                                                                       
|Non-current
      liabilities:                                          |  |         |  |                    |            |             
|Finance lease liability                                                 |  | 14 & 17 |  |                    | 6,428      |             
|Deferred gain on finance
      lease                                    |  | 17      |  |                    | 3,398      |             
|Provisions                                                              |  | 16      |  |                    | 3,864      |             
|Employee future
      benefits                                          |  | 19      |  |                    | 5,167      |             
|Total liabilities                                                       |  |         |  |                    | 61,903     |             
|                                                                       
|Equity:                                                                 |  |         |  |                    |            |             
|Share capital                                                           |  | 20      |  |                    | 977,707    |             
|Contributed
    surplus                                                 |  | 20      |  |                    | 295,547    |             
|Accumulated deficit                                                     |  |         |  |                    | (1,149,128 | )           
|Foreign currency
      reserve                                          |  |         |  |                    | 718        |             
|Total equity attributable to equity
      holders                       |  |         |  |                    | 124,844    |             
|Ballard Power Systems
      Europe A/S non-controlling interest         |  |         |  |                    | (3,301     | )           
|Total equity                                                            |  |         |  |                    | 121,543    |             
|Total liabilities and
      equity                                      |  |         |  | $                  | 183,446    |             

See accompanying notes to consolidated
financial statements.

Approved on behalf of the Board:

|Doug Hayhurst | Ian Bourne
|--------------- | ------------
|Director        | Director    

---



BALLARD POWER SYSTEMS INC.Consolidated Statement of Loss and
Comprehensive LossFor the year ended December 31(Expressed in thousands of U.S. dollars,
except per share amounts and number of shares)

|                                                                      |  | Note |  | 2016 |            | 2015
|--------------------------------------------------------------------- |  | ---- |  | ---- | ---------- | ----
|Revenues:                                                             |  |      |  |      |            |     
|Product and service revenues                                          |  |      |  | $    | **85,270** |     
|Cost of product and
      service revenues                            |  |      |  |      | 61,086     |     
|Gross margin                                                          |  |      |  |      | 24,184     |     
|                                                                     
|Operating expenses:                                                   |  |      |  |      |            |     
|Research and product development                                      |  |      |  |      | 19,827     |     
|General and
      administrative                                      |  |      |  |      | 12,938     |     
|Sales and marketing                                                   |  |      |  |      | 7,190      |     
|Other expense                                                         |  | 25   |  |      | 2,298      |     
|Total operating expenses                                              |  |      |  |      | 42,253     |     
|                                                                     
|Results from operating
      activities                               |  |      |  |      | (18,069    | )   
|Finance income (loss) and other                                       |  | 26   |  |      | (777       | )   
|Finance expense                                                       |  | 26   |  |      | (686       | )   
|Net finance expense                                                   |  |      |  |      | (1,463     | )   
|Gain (loss) on sale of
      assets                                   |  | 27   |  |      | (623       | )   
|Gain on sale of intellectual
    property                             |  | 11   |  |      | -          |     
|Impairment charges on
      intangible assets and property, plant and |  |      |  |      |            |     
|equipment                                                             |  | 28   |  |      | (1,151     | )   
|Loss before income taxes                                              |  |      |  |      | (21,306    | )   
|Income tax
    expense                                                |  | 29   |  |      | (381       | )   
|Net loss                                                              |  |      |  |      | (21,687    | )   
|                                                                     
|Other comprehensive income (loss):                                    |  |      |  |      |            |     
|Items that will not be
      reclassified to profit or loss:          |  |      |  |      |            |     
|Actuarial gain (loss) on
      defined benefit plans                  |  | 19   |  |      | (361       | )   
|                                                                      |  |      |  |      | (361       | )   
|Items that may be
      reclassified subsequently to profit or loss:  |  |      |  |      |            |     
|Foreign currency
      translation differences                        |  |      |  |      | 268        |     
|                                                                      |  |      |  |      | 268        |     
|Other comprehensive income (loss), net of tax                         |  |      |  |      | (93        | )   
|Total comprehensive
      loss                                        |  |      |  | $    | (21,780    | )   

See accompanying notes to consolidated
financial statements.

---



BALLARD POWER SYSTEMS INC.Consolidated Statement of Loss and
Comprehensive Loss (contd)For the year ended December 31(Expressed in thousands of U.S.
dollars, except per share amounts and number of shares)

|                                                                                  |  | 2016 |             | 2015
|--------------------------------------------------------------------------------- |  | ---- | ----------- | ----
|Net loss attributable to:                                                         |  |      |             |     
|Ballard Power Systems
      Inc.                                                  |  | $    | (21,112     | )   
|Ballard Power Systems Europe
      A/S non-controlling interest                   |  |      | (575        | )   
|Net
    loss                                                                      |  | $    | (21,687     | )   
|                                                                                 
|Total comprehensive loss attributable to:                                         |  |      |             |     
|Ballard Power Systems
      Inc.                                                  |  | $    | (21,322     | )   
|Ballard Power Systems Europe
      A/S non-controlling interest                   |  |      | (458        | )   
|Total
      comprehensive loss                                                    |  | $    | (21,780     | )   
|                                                                                 
|Basic and diluted loss per share attributable to Ballard Power
      Systems Inc. |  |      |             |     
|Loss per
      share                                                              |  | $    | ($0.13      | )   
|                                                                                 
|Weighted average number of common shares outstanding                              |  |      | 163,449,737 |     

See accompanying notes to consolidated
financial statements.

---



BALLARD POWER SYSTEMS
INC.Consolidated Statement of Changes in
Equity(Expressed in thousands of U.S. dollars
except per share amounts and number of shares)

|                                              |  |                                       |  |         |            |             |   |             |   |          |   |            |             |  |         |        |  |      | Ballard |        |       |  |  |      
|--------------------------------------------- |  | ------------------------------------- |  | ------- | ---------- | ----------- | - | ----------- | - | -------- | - | ---------- | ----------- |  | ------- | ------ |  | ---- | ------- | ------ | ----- |  |  | -----
|                                              |  |                                       |  |         |            |             |   |             |   |          |   |            |             |  |         |        |  |      | Power   |        |       |  |  |      
|                                              |  |                                       |  |         |            |             |   |             |   |          |   |            |             |  |         |        |  |      | Systems |        |       |  |  |      
|                                              |  | Ballard Power Systems Inc.
    Equity |  |         | Europe A/S |             |   |             |   |         
|                                              |  |                                       |  |         |            |             |   |             |   |          |   |            |             |  | Foreign |        |  | Non- |         |        |       |  | 
|                                              |  | Number
    of                         |  | Share   |            | Contributed |   | Accumulated |   | currency |   |            | controlling |  |         | Total 
|                                              |  | shares                                |  | capital |            | surplus     |   | deficit     |   | reserve  |   |            | interests   |  |         | equity
|Balance, December 31, 2014                    |  | 132,104,116                           |  | $       | 914,786    |             | $ | 288,533     |   |          | $ | (1,121,671 | )           |  | $       | 280    |  |      | $       | (2,694 | )     |  |  | $    
|Net
    loss                                  |  | -                                     |  |         | -          |             |   | -           |   |          |   | (5,815     | )           |  |         | -      |  |      |         | (759   | )     |  |  |      
|Non-dilutive financing (note 21)              |  | -                                     |  |         | -          |             |   | 3,347       |   |          |   | -          |             |  |         | -      |  |      |         | -      |       |  |  |      
|Net Offering
      proceeds (note 20)         |  | 9,343,750                             |  |         | 13,389     |             |   | -           |   |          |   | -          |             |  |         | -      |  |      |         | -      |       |  |  |      
|Acquisition (note 7)                          |  | 11,415,704                            |  |         | 13,699     |             |   | -           |   |          |   | -          |             |  |         | -      |  |      |         | -      |       |  |  |      
|Private
      placement (note 20)             |  | 3,322,479                             |  |         | 4,987      |             |   | -           |   |          |   | -          |             |  |         | -      |  |      |         | -      |       |  |  |      
|DSUs redeemed (note 20)                       |  | 83,619                                |  |         | 354        |             |   | (520        | ) |          |   | -          |             |  |         | -      |  |      |         | -      |       |  |  |      
|RSUs redeemed
      (note 20)                 |  | 119,627                               |  |         | 203        |             |   | (345        | ) |          |   | -          |             |  |         | -      |  |      |         | -      |       |  |  |      
|Options exercised (note 20)                   |  | 322,892                               |  |         | 627        |             |   | (239        | ) |          |   | -          |             |  |         | -      |  |      |         | -      |       |  |  |      
|Warrants
      exercised (note 20)            |  | 125,000                               |  |         | 168        |             |   | -           |   |          |   | -          |             |  |         | -      |  |      |         | -      |       |  |  |      
|Share distribution plan                       |  | -                                     |  |         | -          |             |   | 2,556       |   |          |   | -          |             |  |         | -      |  |      |         | -      |       |  |  |      
|Ballard Power
      Systems Europe NCI        |  |                                       |  |         |            |             |   |             |   |          |   |            |             |  |         |        |  |      |         |        |       |  |  |      
|adjustment for cancellation of
      Azure    |  | -                                     |  |         | -          |             |   | -           |   |          |   | (337       | )           |  |         | -      |  |      |         | 337    |       |  |  |      
|shares                                        |  |                                       |  |         |            |             |   |             |   |          |   |            |             |  |         |        |  |      |         |        |       |  |  |      
|Other comprehensive income (loss):            |  |                                       |  |         |            |             |   |             |   |          |   |            |             |  |         |        |  |      |         |        |       |  |  |      
|Defined benefit plan actuarial
      loss     |  | -                                     |  |         | -          |             |   | -           |   |          |   | 168        |             |  |         | -      |  |      |         | -      |       |  |  |      
|Foreign currency translation
      for        |  |                                       |  |         |            |             |   |             |   |          |   |            |             |  |         |        |  |      |         |        |       |  |  |      
|foreign operations                            |  | -                                     |  |         | -          |             |   | -           |   |          |   | -          |             |  |         | 287    |  |      |         | 273    |       |  |  |      
|Balance,
      December 31, 2015              |  | 156,837,187                           |  | $       | 948,213    |             | $ | 293,332     |   |          | $ | (1,127,655 | )           |  | $       | 567    |  |      | $       | (2,843 | )     |  |  | $    
|Net loss                                      |  | -                                     |  |         | -          |             |   | -           |   |          |   | (21,112    | )           |  |         | -      |  |      |         | (575   | )     |  |  |      
|Net Offering
      proceeds (note 20)         |  | 17,250,000                            |  |         | 28,199     |             |   | -           |   |          |   | -          |             |  |         | -      |  |      |         | -      |       |  |  |      
|DSUs redeemed (note 20)                       |  | 146,211                               |  |         | 299        |             |   | (565        | ) |          |   | -          |             |  |         | -      |  |      |         | -      |       |  |  |      
|RSUs redeemed
      (note 20)                 |  | 80,945                                |  |         | 161        |             |   | (283        | ) |          |   | -          |             |  |         | -      |  |      |         | -      |       |  |  |      
|Options exercised (note 20)                   |  | 435,287                               |  |         | 835        |             |   | (339        | ) |          |   | **-**      |             |  |         | -      |  |      |         | -      |       |  |  |      
|Share
      distribution plan                 |  | -                                     |  |         | -          |             |   | 3,402       |   |          |   | -          |             |  |         | -      |  |      |         | -      |       |  |  |      
|Other comprehensive income:                   |  |                                       |  |         |            |             |   |             |   |          |   |            |             |  |         |        |  |      |         |        |       |  |  |      
|**Defined benefit plan
      actuarial loss** |  | -                                     |  |         | -          |             |   | -           |   |          |   | (361       | )           |  |         | -      |  |      |         | -      |       |  |  |      
|**Foreign currency
      translation for**    |  | -                                     |  |         | -          |             |   | -           |   |          |   | -          |             |  |         | 151    |  |      |         | 117    |       |  |  |      
|**foreign operations**                        |  |                                       |  |         |            |             |   |             |   |          |   |            |             |  |         |        |  |      |         |        |       |  |  |      
|Balance, December 31,
      2016              |  | 174,749,630                           |  | $       | 977,707    |             | $ | 295,547     |   |          | $ | (1,149,128 | )           |  | $       | 718    |  |      | $       | (3,301 | **)** |  |  | **$**

See accompanying notes to consolidated
financial statements.

---



BALLARD POWER SYSTEMS
INC.Consolidated Statement of Cash
FlowsFor the year ended December 31(Expressed in thousands of U.S. dollars)

|                                                                                |  | Note    |  | 2016 |             | 2015
|------------------------------------------------------------------------------- |  | ------- |  | ---- | ----------- | ----
|Cash provided by (used in):                                                     |  |         |  |      |             |     
|                                                                               
|Operating
      activities:                                                     |  |         |  |      |             |     
|                                                                               
|Net loss for the
      year                                                     |  |         |  | $    | **(21,687** | )   
|Adjustments for:                                                                |  |         |  |      |             |     
|Share-based
      compensation                                                  |  | 20      |  |      | 3,024       |     
|Employee future benefits                                                        |  |         |  |      | 235         |     
|Employee future
      benefits plan contributions                               |  |         |  |      | (760        | )   
|Depreciation and amortization                                                   |  |         |  |      | 4,544       |     
|(Gain)/loss on
      decommissioning liabilities                                |  |         |  |      | 218         |     
|(Gain)/loss on sale of assets                                                   |  | 27      |  |      | 623         |     
|Gain on sale of
      intellectual property                                     |  | 11      |  |      | -           |     
|Impairment charges on intangible assets and property, plant and
      equipment |  | 28      |  |      | **1,151**   |     
|Impairment loss on
      trade receivables                                      |  | 25      |  |      | 390         |     
|Unrealized (gain)/loss on forward contracts                                     |  |         |  |      | (151        | )   
|                                                                                |  |         |  |      | (12,413     | )   
|Changes in non-cash working
    capital:                                        |  |         |  |      |             |     
|Trade and other
      receivables                                               |  |         |  |      | (771        | )   
|Inventories                                                                     |  |         |  |      | (2,339      | )   
|Prepaid expenses and
      other current assets                                 |  |         |  |      | (1,322      | )   
|Trade
      and other payables                                                  |  |         |  |      | 1,010       |     
|Deferred
      revenue                                                          |  |         |  |      | 14,536      |     
|Warranty provision                                                              |  |         |  |      | (2,605      | )   
|                                                                                |  |         |  |      | 8,509       |     
|Cash used in operating activities                                               |  |         |  |      | (3,904      | )   
|                                                                               
|Investing activities:                                                           |  |         |  |      |             |     
|                                                                               
|Additions to property, plant and
      equipment                                |  | 10      |  |      | (2,778      | )   
|Net proceeds on sale of
      property, plant and equipment and other           |  | 27      |  |      | 3,009       |     
|Additions to intangible assets                                                  |  | 11      |  |      | (4,103      | )   
|Net proceeds on sale of
      intangible assets                                 |  | 11      |  |      | 9,244       |     
|Cash and cash equivalents acquired on
      acquisition of Protonex             |  | 7       |  |      | -           |     
|Acquisition of
      Protonex                                                   |  | 7       |  |      | -           |     
|Investment in associated companies                                              |  | 4(a)&13 |  |      | (180        | )   
|Cash provided by (used in)
      investing activities                           |  |         |  |      | 5,192       |     
|                                                                               
|Financing
      activities:                                                     |  |         |  |      |             |     
|                                                                               
|Non-dilutive equity
      financing                                             |  | 21      |  |      | 3,347       |     
|Net payment of finance lease
      liabilities                                  |  |         |  |      | (1,042      | )   
|Net proceeds on issuance
      of share capital from underwritten Offering      |  | 20      |  |      | -           |     
|Net proceeds on issuance of share capital
      from private placement          |  | 20      |  |      | 28,199      |     
|Net proceeds on issuance
      of share capital from stock option exercises     |  | 20      |  |      | 496         |     
|Net proceeds on issuance of share capital
      from warrant exercises          |  | 20      |  |      | -           |     
|Cash provided by financing
      activities                                     |  |         |  |      | 31,000      |     
|                                                                               
|Effect of exchange rate fluctuations on cash
      and cash equivalents held    |  |         |  |      | 291         |     
|                                                                               
|Increase (decrease) in cash and cash
equivalents                                |  |         |  |      | 32,579      |     
|Cash and cash
      equivalents, beginning of year                              |  |         |  |      | 40,049      |     
|Cash and cash equivalents, end of year                                          |  |         |  | $    | 72,628      |     

Supplemental disclosure of cash flow
information (note 31).

See accompanying notes to consolidated financial
statements.

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|1.     | Reporting
      entity:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | The principal business of Ballard
      Power Systems Inc. (the Corporation) is the design, development,
      manufacture, sale and service of proton exchange membrane (PEM) fuel
      cell products for a variety of applications, focusing on the power product
      markets of Heavy-Duty Motive (consisting of bus and tram applications),
      Portable Power, Material Handling and Backup Power, as well as the
      delivery of Technology Solutions, including engineering services,
      technology transfer and the license and sale of the Corporations
      extensive intellectual property portfolio and fundamental knowledge for a
      variety of fuel cell applications. A fuel cell is an environmentally clean
      electrochemical device that combines hydrogen fuel with oxygen (from the
      air) to produce electricity.
      The Corporation is a company
      domiciled in Canada and its registered office is located at 9000 Glenlyon
      Parkway, Burnaby, British Columbia, Canada, V5J 5J8. The consolidated
      financial statements of the Corporation as at and for the year ended
      December 31, 2016 comprise the Corporation and its subsidiaries (note
      4(a)).
|**2.** | **Basis of
      preparation:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(a)    | Statement of
      compliance:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|       | These consolidated financial
      statements of the Corporation have been prepared in accordance with
      International Financial Reporting Standards (IFRS) as issued by the
      International Accounting Standards Board (IASB).
      The consolidated financial
      statements were authorized for issue by the Board of Directors on March 1,
      2017.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(b)    | Basis of
      measurement:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|       | The consolidated
      financial statements have been prepared on the historical cost basis
      except for the following material items in the statement of financial
      position:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|       | ●Financial instruments
      classified as fair value through profit or loss and available-for-sale are
      measured at fair value;
      ●Derivative financial
      instruments are measured at fair value; and
      ●Employee future benefits
      liability is recognized as the net of the present value of the defined
      benefit obligation, less the fair value of plan assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(c)    | Functional and
      presentation currency:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|       | These consolidated
      financial statements are presented in U.S. dollars, which is the
      Corporations functional currency.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

10

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|2.     | Basis of preparation
      (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(d)    | Use of
      estimates:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|       | The preparation of the
      consolidated financial statements in conformity with IFRS requires the
      Corporations management to make estimates and assumptions that affect the
      application of accounting policies and the reported amounts of assets,
      liabilities, income and expenses. Actual results may differ from these
      estimates.
      Estimates and underlying
      assumptions are reviewed on an ongoing basis. Revisions to accounting
      estimates are recognized in the period in which the estimates are revised
      and in any future periods affected.
      Significant areas having
      estimation uncertainty include revenue recognition, asset impairment,
      warranty provision, inventory provision, impairment loss (recoveries) on
      trade receivables, employee future benefits, and income taxes. These
      estimates and judgments are discussed further in note
      5.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(e)    | Future
      operations:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|       | The Corporation is required to
      assess its ability to continue as a going concern or whether substantial
      doubt exists as to the Corporations ability to continue as a going
      concern into the foreseeable future. The Corporation has forecast its cash
      flows for the foreseeable future and despite the ongoing volatility and
      uncertainties inherent in the business, the Corporation believes it has
      adequate liquidity in cash and working capital to finance its operations.
      The Corporations ability to continue as a going concern and realize its
      assets and discharge its liabilities and commitments in the normal course
      of business is dependent upon the Corporation having adequate liquidity
      and achieving profitable operations that are sustainable. There are
      various risks and uncertainties affecting the Corporation including, but
      not limited to, the market acceptance and rate of commercialization of the
      Corporations products, the ability of the Corporation to successfully
      execute its business plan, and general global economic conditions, certain
      of which are beyond the Corporations control.
      The Corporations strategy to
      mitigate these risks and uncertainties is to execute a business plan aimed
      at continued focus on revenue growth, improving overall gross margins, and
      managing operating expenses and working capital requirements. Failure to
      implement this plan could have a material adverse effect on the
      Corporations financial condition and or results of
      operations.
|**3.** | **Changes in
      accounting policies:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|       | The Corporation has
      consistently applied the accounting policies set out in note 4 to all
      periods presented in these consolidated financial statements. The
      Corporation did not adopt any new accounting standard changes or
      amendments during the year ended  December 31, 2016 that had a material impact on these
      consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

11

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|4.  | Significant
      accounting policies:                                                                                                                                                                                                                                                               
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                      
|    | The accounting
      policies set out below have been applied consistently to all periods
      presented in these consolidated financial statements, unless otherwise
      indicated. Certain prior year comparative figures have been reclassified
      to comply with current year presentation.
|    |                                                                                                                                                                                                                                                                                                      
|(a) | Basis
      of consolidation:                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                      
|    | The consolidated
      financial statements include the accounts of the Corporation and its
      principal subsidiaries as follows:                                                                                                                                                                 

| |                                     |  |      |   |      | Percentage ownership
| | ----------------------------------- |  | ---- | - | ---- | --------------------
| |                                     |  | 2016 |   | 2015
| | Ballard Fuel Cell Systems Inc.      |  | 100  | % |      | 100                 
| | Ballard Power
      Corporation     |  | 100  | % |      | 100                 
| | Ballard Services Inc.               |  | 100  | % |      | 100                 
| | Ballard Hong
      Kong Ltd.        |  | 100  | % |      | N/A                 
| | Ballard Power Systems Europe A/S    |  | 57   | % |      | 57                  
| | Protonex Technology
    Corporation |  | 100  | % |      | 100                 

| | Subsidiaries are entities
      controlled by the Corporation. The Corporation controls an entity when it
      is exposed to, or has rights to, variable returns from its involvement
      with the entity and has the ability to affect those returns though its
      power over the entity. The financial statements of subsidiaries are
      included in the consolidated financial statements from the date that
      control commences until the date that control ceases. Intercompany
      balances and transactions are eliminated in the consolidated financial
      statements.
      On July 19, 2016, the Corporation
      incorporated Ballard Hong Kong Ltd (BHKL), a 100% owned holding company
      in Hong Kong, China.
      On September 26, 2016, the
      Corporation, through BHKL, entered into a joint venture agreement with
      Guangdong Nation Synergy Hydrogen Power Technology Co., Ltd (Synergy) to
      create a new limited liability company based in China called Guangdong
      Synergy Ballard Hydrogen Power Co., Ltd (Synergy JVCo). The purpose of
      Synergy JVCo is to carry out the Mk9 SSL fuel cell stack technology
      transfer transaction that was contemplated in the Mk 9 SSL Manufacturing
      Master Agreement (and subsequent definitive signed agreements) to
      establish Mk9 SSL fuel cell stack manufacturing capabilities in
      China.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

12

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|4.  | Significant
      accounting policies (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(a) | Basis of consolidation
      (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    | In setting up the
      joint venture, as specified in the Equity Joint Venture Agreement (EJV)
      dated September 26, 2016, Synergy will contribute RMB 60,300,000
      (approximately $9,000,000) and the Corporation will contribute RMB
      6,700,000, (approximately $1,000,000) by March 25, 2017 which represents
      90% and 10% of the registered capital in Synergy JVCo, respectively. The
      parties will make their contributions in cash and are not obligated to
      contribute any additional capital in excess of the amounts noted above.
      Synergy JVCo is not controlled by the Corporation and therefore is not
      consolidated. The Corporations 10% investment in Synergy JVCo will
      instead be accounted for using the equity method of accounting. Although
      the Corporation is not obligated to pay for its 10% investment in Synergy
      JVCo until March 25, 2017, it obtained ownership of the 10% investment as
      of the date of the EJV. This RMB 6,700,000 payable has been accrued by the
      Corporation as of December 31, 2016.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    | On October 1, 2015,
      the Corporation acquired Protonex Technology Corporation (note 7), a
      leading designer and manufacturer of advanced power management products
      and portable fuel cell solutions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    | On January 18, 2010,
      the Corporation acquired a controlling 45% interest in Ballard Power
      Systems Europe A/S (BPSE). BPSE has been consolidated since acquisition.
      Acquisitions of non-controlling interest are accounted as transactions
      with equity holders in their capacity as equity holders; therefore no gain
      or loss is recognized as a result of such transactions. In August 2010,
      the Corporation acquired an additional 7% interest in BPSE and a further
      5% interest in December 2012. On March 31, 2013, Azure Hydrogen Energy
      Science and Technology Corporation (Azure) acquired a 10% ownership
      interest in BPSE, which reduced the Corporations interest from 57% to
      51.3%. On June 8, 2015, the Corporation agreed to a mutual release with
      Azure whereby each party mutually released and forever discharged each
      other from any and all liability arising from the prior years licensing
      agreements. Pursuant to the Azure Mutual Release Agreement, Azure returned
      its 10% ownership position in BPSE for $nil proceeds, upon which the
      shares were cancelled by BPSE on June 17, 2015. Following the Azure Mutual
      Release Agreement, the Corporations controlling ownership position in
      BPSE was increased from 52% to 57%. The remaining 43% interest was held by
      Dansk Industri Invest A/S (previously Dantherm A/S). On January 5, 2017,
      the Corporation purchased all of the shares in its European subsidiary
      held by Dansk Industri Invest A/S for a nominal value of $43,000 (note
      34).

13

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|**4.** | Significant accounting
      policies (contd):
|------ | -----------------------------------------------
|       |                                                
|(b)    | Foreign
    currency:                          
|      
|       | (i)                                            
|      
|       |                                                
|      
|       | (ii)                                           
|      
|       |                                                
|      
|(c)    | Financial
      instruments:                   
|      
|       | (i)                                            
|      
|       |                                                
|      
|       |                                                
|      
|       |                                                

14

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|**4.** | Significant accounting
      policies (contd):
|------ | -----------------------------------------------
|       |                                                
|(c)    | Financial instruments
      (contd):          
|      
|       | (i)                                            
|      
|       |                                                
|      
|       |                                                
|      
|       |                                                
|      
|       |                                                
|      
|       |                                                
|      
|       |                                                
|      
|       |                                                
|      
|       |                                                
|      
|       |                                                

15

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|**4.** | Significant accounting
      policies (contd):
|------ | -----------------------------------------------
|       |                                                
|(c)    | Financial instruments
      (contd):          
|      
|       | (ii)                                           
|      
|       |                                                
|      
|       | (iii)                                          
|      
|       |                                                
|      
|       | (iv)                                           
|      
|       |                                                
|      
|       |                                                
|      
|       |                                                
|      
|       |                                                

16

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|**4.** | Significant accounting
      policies (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(c)    | Financial instruments
      (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|      
|       | (iv)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|      
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|      
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|      
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|      
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|      
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|      
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|      
|(d)    | Inventories:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|      
|       | Inventories are
      recorded at the lower of cost and net realizable value. The cost of
      inventories is based on the first-in first-out principle, and includes
      expenditures incurred in acquiring the inventories, production or
      conversion costs and other costs incurred in bringing them to their
      existing location and condition. In the case of manufactured inventories
      and work in progress, cost includes materials, labor and appropriate share
      of production overhead based on normal operating capacity. Costs of
      materials are determined on an average per unit
basis.

17

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|**4.** | Significant accounting
      policies (contd):                                                                                                                                                                                                                                                                                                                                                                                 
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(d)    | Inventories
      (contd):                                                                                                                                                                                                                                                                                                                                                                                                     
|      
|       | Net realizable value is
      the estimated selling price in the ordinary course of business, less the
      estimated costs of completion and selling expenses. In establishing any
      impairment of inventory, management estimates the likelihood that
      inventory carrying values will be affected by changes in market demand,
      technology and design, which would impair the value of inventory on
      hand.
|      
|(e)    | Property, plant and
      equipment:                                                                                                                                                                                                                                                                                                                                                                                            
|      
|       | (i)                                                                                                                                                                                                                                                                                                                                                                                                                             
|      
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|      
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|      
|       | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                            
|      
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|      
|       | (iii)                                                                                                                                                                                                                                                                                                                                                                                                                           
|      
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|      
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|      

| | Building under finance lease                      | 15 years                                                     
| | ------------------------------------------------- | -------------------------------------------------------------
| | Computer equipment                                | 3 to 7 years                                                 
| | Furniture and
      fixtures                      | 5 to 14 years                                                
| | Furniture and fixtures under finance
      lease  | 5 years                                                      
| | Leasehold
      improvements                      | The shorter of initial
      term of the respective lease and
| |                                                   | estimated useful
      life                                  
| | Production and test equipment                     | 4 to 15 years                                                
| | Production and test equipment under finance lease | 5 years                                                      

18

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|**4.** | Significant accounting policies (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(e)    | Property, plant and equipment
      (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|       | Depreciation methods, useful
      lives and residual values are reviewed at each reporting date and adjusted
      if appropriate.                                                                                                                                                                                                                                                                                                                                                                                                                             
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(f)    | Leases:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|      
|       | Leases where the
      Corporation assumes substantially all the risks and rewards of ownership
      are classified as finance leases. Upon initial recognition the leased
      asset is measured at an amount equal to the lower of its fair value and
      the present value of the minimum lease payments. Subsequent to initial
      recognition, the asset is accounted for in accordance with the accounting
      policy applicable to that asset. Other leases are operating leases and not
      recognized in the statement of financial position.
|      
|       | Minimum lease payments
      made under finance leases are apportioned between finance expense and the
      reduction of the outstanding liability. Finance expense is allocated to
      each period during the lease term so as to produce a constant periodic
      rate of interest on the remaining balance of the liability.                                                                                                                                                                                                                             
|      
|       | Payments made under
      operating leases are recognized in income on a straight-line basis over
      the term of the lease. Lease incentives received are recognized as a
      reduction to the lease expense over the term of the lease.                                                                                                                                                                                                                                                                                                                   
|      
|(g)    | Goodwill and intangible
      assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|      
|       | (i)      Recognition and
    measurement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|      

| | Goodwill                 | Goodwill arising on the acquisition of
      subsidiaries is measured at cost less accumulated impairment
    losses.                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Research and development | Expenditure on research activities is recognized in
      profit or loss as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                          | Development expenditure is capitalized only if the
      expenditure can be measured reliably, the product or process is
      technically and commercially feasible, future economic benefits are
      probable and the Corporation intends to and has sufficient resources to
      complete development and to use or sell the asset. Otherwise, it is
      recognized in profit or loss as incurred. Subsequent to initial
      recognition, development expenditure is measured at cost less accumulated
      amortization and any accumulated impairment losses.
| | Intangible assets        | Intangible assets, including patents, know-how,
      in-process research and development, trademarks and service marks and
      software systems that are acquired or developed by the Corporation and
      have finite useful lives are measured at cost less accumulated
      amortization and any accumulated impairment
losses.                                                                                                                                                                                                                                   

19

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|**4.** | Significant accounting
      policies (contd):
|------ | -----------------------------------------------
|       |                                                
|(g)    | Goodwill and intangible
      assets (contd): 
|      
|       | (ii)                                           
|      
|       |                                                
|      
|       | (iii)                                          
|      
|       |                                                
|      
|       |                                                
|      

| | Internally generated fuel cell intangible
assets              | 5 years      
| | ------------------------------------------------------------- | -------------
| | Patents, know-how and in-process research
      & development | 5 to 20 years
| | ERP management reporting
      software system                | 7 years      
| | Trademarks and service marks                                  | 15 years     
| | Domain names                                                  | 15 years     
| | Customer base and relationships                               | 10 years     
| | Acquired non-compete agreements                               | 1 year       

|    |             | Amortization
      methods, useful lives and residual values are reviewed at each reporting
      date and adjusted if appropriate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(h) | Impairment:
|   
|    | (i)         | Financial assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    |             | Financial assets not carried at
      fair value through profit or loss are assessed for impairment at each
      reporting date by determining whether there is objective evidence that
      indicates that a loss event has occurred after the initial recognition of
      the asset, and that the loss event had a negative effect on the estimated
      future cash flows of that asset that can be estimated
  reliably.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    |             | Impairment losses on
      available-for-sale investment securities are recognized by transferring
      the cumulative loss that has been recognized in other comprehensive income
      and presented in accumulated other comprehensive loss in equity, to net
      loss. The cumulative loss that is removed from other comprehensive income
      and recognized in net loss is the difference between the acquisition cost,
      net of any principal repayment and amortization, and the current fair
      value less any impairment loss previously recognized in net loss. If
      subsequently the fair value of an impaired available-for-sale security
      increases, then the impairment loss is reversed, with the amount of the
      reversal recognized in net loss. However, any subsequent recovery in the
      fair value of an impaired available for sale equity security is recognized
      in other comprehensive income.

20

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|**4.** | Significant accounting
      policies (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(h)    | Impairment
      (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|      
|       | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|      
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|      
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|      
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|      
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|      
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|      
|(i)    | Provisions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|      
|       | A provision is
      recognized if, as a result of a past event, the Corporation has a present
      legal or constructive obligation that can be estimated reliably, and it is
      probable that an outflow of economic benefits will be required to settle
      the obligation. Provisions are determined by discounting the expected
      future cash flows at a pre-tax rate that reflects current market
      assessments of the time value of money and the risk specific to the
      liability. The unwinding of the discount is recognized as a finance
      expense.

21

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|**4.** | Significant accounting
      policies (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(i)    | Provisions (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|      
|       | Warranty
    provision                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|      
|       | A provision for warranty costs is
      recorded on product sales at the time the sale is recognized. In
      establishing the warranty provision, management estimates the likelihood
      that products sold will experience warranty claims and the estimated cost
      to resolve claims received, taking into account the nature of the contract
      and past and projected experience with the products.                                                                                                                                                                                                                                                                                                                                                                                                    
|      
|       | Decommissioning
      liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|      
|       | Legal obligations to retire
      tangible long-lived assets are recorded at the net present value of the
      expected costs of settlement at acquisition with a corresponding increase
      in asset value. These include assets leased under operating leases. The
      liability is accreted over the life of the asset to the ultimate
      settlement amount and the increase in asset value is depreciated over the
      remaining useful life of the asset.                                                                                                                                                                                                                                                                                                                                               
|      
|(j)    | Revenue recognition:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|      
|       | The Corporation generates
      revenues primarily from product sales and services, the license and sale
      of intellectual property and fundamental knowledge, and the provision of
      engineering services and technology transfer services. Product and service
      revenues are derived primarily from standard equipment and material sales
      contracts and from long-term fixed price contracts. Intellectual property
      and fundamental knowledge license and sale revenues are derived primarily
      from licensing and sale and technology transfer agreements and from
      long-term fixed price contracts. Engineering service and technology
      transfer services revenue is derived primarily from cost-plus reimbursable
      contracts and from long-term fixed price contracts.
|      
|       | On standard equipment and
      material sales contracts, revenues are recognized when (i) significant
      risks and rewards of ownership of the goods has been transferred to the
      buyer; (ii) the Corporation retains neither continuing managerial
      involvement to the degree usually associated with ownership nor effective
      control over the goods sold; (iii) the amount of revenue can be measured
      reliably; (iv) it is probable that the economic benefits associated with
      the sale will accrue to the Corporation; and (v) the costs incurred, or to
      be incurred, in respect of the transaction can be measured reliably.
      Provisions are made at the time of sale for warranties.                                                                                   
|      
|       | On standard licensing and sale
      and technology transfer agreements, revenues are recognized on the
      transfer of rights to the licensee if: (i) the rights to the assets are
      assigned to the licensee in return for a fixed fee or a non-refundable
      guarantee; (ii) the contract is non-cancellable; (iii) the licensee is
      able to exploit its rights to the asset freely; and (iv) the Corporation
      has no remaining obligations to perform. In other cases, the proceeds are
      considered to relate to the right to use the asset over the license period
      and the revenue is recognized over that period.                                                                                                                                                                  

22

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|**4.** | **Significant accounting policies (contd):**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(j)    | Revenue recognition (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|      
|       | On cost-plus reimbursable contracts, revenues are
      recognized as costs are incurred, and include applicable fees earned as
      services are provided.                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|      
|       | On
      long-term fixed price contracts, revenues are recognized on the
      percentage-of-completion basis over the duration of the contract, which
      consists of recognizing revenue on a given contract proportionately with
      its percentage of completion at any given time. The percentage of
      completion is determined by dividing the cumulative costs incurred as at
      the balance sheet date by the sum of incurred and anticipated costs for
      completing a contract.                                                                                                                   
|      
|       | The
      cumulative effect of changes to anticipated revenues and anticipated costs
      for completing a contract are recognized in the period in which the
      revisions are identified. In the event that the anticipated costs exceed
      the anticipated revenues on a contract, such loss is recognized in its
      entirety in the period it becomes known.                                                                                                                                                                                                                                                 
|      
|       | Deferred revenue represents cash received from customers
      in excess of revenue recognized on uncompleted contracts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|      
|(k)    | Finance income and expense:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|      
|       | Finance income comprises interest income on funds
      invested, gains on the disposal of available-for-sale financial assets and
      changes in the fair value of financial assets at fair value through profit
      or loss. Interest income is recognized as it accrues in income, using the
      effective interest method.                                                                                                                                                                                                                                                                                      
|      
|       | Finance expense comprise interest expense on capital
      leases, unwinding of the discount on provisions, changes in the fair value
      of financial assets at fair value through profit or loss and impairment
      losses recognized on financial assets.                                                                                                                                                                                                                                                                                                                                                          
|      
|       | Foreign currency gains and losses are reported on a net
      basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|      
|(l)    | Income taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|      
|       | The
      Corporation follows the asset and liability method of accounting for
      income taxes. Under this method, deferred income taxes are recognized for
      the deferred income tax consequences attributable to differences between
      the financial statement carrying values of assets and liabilities and
      their respective income tax bases (temporary differences) and for loss
      carry-forwards. The resulting changes in the net deferred tax asset or
      liability are included in income.                                                                                               
|      
|       | Deferred tax assets and liabilities are measured using
      enacted, or substantively enacted, tax rates expected to apply to taxable
      income in the years in which temporary differences are expected to be
      recovered or settled. The effect on deferred income tax assets and
      liabilities, of a change in tax rates, is included in income in the period
      that includes the substantive enactment date. Deferred income tax assets
      are reviewed at each reporting date and are reduced to the extent that it
      is no longer probable that the related tax benefit will be
    realized.

23

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|**4.** | **Significant accounting
      policies (contd):**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(m)    | Employee benefits:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       | Defined contribution
      plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       | A defined contribution plan is a
      post-employment benefit plan under which an entity pays fixed
      contributions into a separate entity and will have no legal or
      constructive obligation to pay further amounts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       | Obligations for contributions to defined
      contribution pension plans are recognized as an employee benefit expense
      in profit or loss in the periods during which services are rendered by
      employees. Prepaid contributions are recognized as an asset to the extent
      that a cash refund or a reduction in future payments is available.
      Contributions to a defined contribution plan that are due more than 12
      months after the end of the period in which the employees render the
      service are discounted to their present value.                                                                                                                                                                                                                                                                                                                                                                           
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       | Defined benefit
      plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       | A defined benefit plan is a post-employment
      pension plan other than a defined contribution plan. The Corporations net
      obligation in respect of defined benefit pension plans is calculated
      separately for each plan by estimating the amount of future benefit that
      employees have earned in return for their service in the current and prior
      periods; that benefit is discounted to determine its present value. Any
      unrecognized past service costs and the fair value of any plan assets are
      deducted. The discount rate is the yield at the reporting date on AA
      credit-rated bonds that have maturity dates approximating the terms of the
      Corporations obligations and that are denominated in the same currency in
      which the benefits are expected to be paid. The calculation is performed
      annually by a qualified actuary using the projected unit credit
      method.
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       | When the calculation results in a benefit to
      the Corporation, the recognized asset is limited to the total of any
      unrecognized past service costs and the present value of economic benefits
      available in the form of any future refunds from the plan or reductions in
      future contributions to the plan. In order to calculate the present value
      of economic benefits, consideration is given to any minimum funding
      requirements that apply to any plan in the Corporation. An economic
      benefit is available to the Corporation if it is realizable during the
      life of the plan, or on settlement of the plan liabilities.                                                                                                                                                                                                                                                                         
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       | The Corporation recognizes all
      remeasurements arising from defined benefit plans, which comprise
      actuarial gains and losses, immediately in other comprehensive income.
      Remeasurements recognized in other comprehensive income are not recycled
      through profit or loss in subsequent
periods.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

24

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|**4.** | **Significant accounting
      policies (contd):**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      
|(m)    | Employee benefits (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|      
|       | Other long-term
      employee benefits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|      
|       | The Corporations net obligation in respect
      of long-term employee benefits other than pension plans is the amount of
      future benefit that employees have earned in return for their service in
      the current and prior periods; that benefit is discounted to determine its
      present value, and the fair value of any related assets is deducted. The
      discount rate is the yield at the reporting date on AA credit-rated bonds
      that have maturity dates approximating the terms of the Corporations
      obligations. The calculation is performed using the projected unit credit
      method. Any actuarial gains and losses are recognized in other
      comprehensive income or loss in the period in which they
  arise.                                                                                      
|      
|       | Termination
      benefits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|      
|       | Termination benefits are recognized as an
      expense (restructuring expense recorded in other operating expense) when
      the Corporation is committed demonstrably, without realistic possibility
      of withdrawal, to a formal detailed plan to either terminate employment
      before the normal retirement date, or to provide termination benefits as a
      result of an offer made to encourage voluntary redundancy.
      Termination benefits for voluntary redundancies are recognized as an
      expense if the Corporation has made an offer of voluntary redundancy, it
      is probable that the offer will be accepted, and the number of acceptances
      can be estimated reliably. If benefits are payable more than 12 months
      after the reporting period, then they are discounted to their present
      value.
|      
|       | Short-term employee
      benefits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|      
|       | Short-term employee benefit obligations are
      measured on an undiscounted basis and are expensed as the related service
      is provided.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|      
|       | A liability is recognized for the amount
      expected to be paid under short-term cash bonus or profit sharing plans if
      the Corporation has a present legal or constructive obligation to pay this
      amount as a result of past service provided by the employee, and the
      obligation can be estimated reliably.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|      
|(n)    | Share-based compensation plans:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|      
|       | The Corporation uses the fair-value based
      method of accounting for share-based compensation for all awards of shares
      and share options granted. The resulting compensation expense, based on
      the fair value of the awards granted, excluding the impact of any
      non-market service and performance vesting conditions, is charged to
      income over the period that the employees unconditionally become entitled
      to the award, with a corresponding increase to contributed
    surplus.                                                                                                                                                                                                                                                                                                                               

25

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|**4.** | **Significant accounting
      policies (contd):**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(n)    | Share-based compensation plans
      (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|      
|       | Fair values of share options are calculated
      using the Black-Scholes valuation method as of the grant date and adjusted
      for estimated forfeitures. For awards with graded vesting, the fair value
      of each tranche is calculated separately and recognized over its
      respective vesting period. Non-market vesting conditions are considered in
      making assumptions about the number of awards that are expected to vest.
      At each reporting date, the Corporation reassesses its estimates of the
      number of awards that are expected to vest and recognizes the impact of
      any revision in the income statement with a corresponding adjustment to
      contributed surplus.
|      
|       | The Corporation issues shares and share
      options under its share-based compensation plans as described in note 20.
      Any consideration paid by employees on exercise of share options or
      purchase of shares, together with the amount initially recorded in
      contributed surplus, is credited to share capital.                                                                                                                                                                                                                                                                                                                                                                                     
|      
|(o)    | Earnings (loss) per
  share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|      
|       | Basic earnings (loss) per share is computed
      using the weighted average number of common shares outstanding during the
      period, adjusted for treasury shares. Diluted earnings per share is
      calculated using the treasury stock method.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|      
|       | Under the treasury stock method, the
      dilution is calculated based upon the number of common shares issued
      should deferred share units (DSUs), restricted share units (RSUs), and
      in the money options, if any, be exercised. When the effects of
      outstanding stock-based compensation arrangements would be anti-dilutive,
      diluted loss per share is not calculated.                                                                                                                                                                                                                                                                                                                
|      
|(p)    | Government assistance and investment
      tax credits:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|      
|       | Government assistance and investment tax
      credits are recorded as either a reduction of the cost of the applicable
      assets, or credited against the related expense incurred in the statement
      of comprehensive loss, as determined by the terms and conditions of the
      agreements under which the assistance is provided to the Corporation or
      the nature of the expenditures which gave rise to the credits. Government
      assistance and investment tax credit receivables are recorded when their
      receipt is reasonably assured.                                                                                                                                                 
|      
|(q)    | Segment reporting:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|      
|       | An operating segment is a component of the
      Corporation that engages in business activities from which it may earn
      revenues and incur expenses, including revenues and expenses that relate
      to transactions with any of the Corporations other components. Segment
      results include items directly attributable to a segment as well as those
      that can be allocated on a reasonable basis. Unallocated items comprise
      mainly corporate assets, head office expenses, and income tax assets and
      liabilities.                                                                                                                                                                    

26

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|5.  | Critical judgments in applying accounting policies and
      key sources of estimation uncertainty:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | Critical judgments in applying accounting
      policies:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    | Critical judgments that
      management has made in the process of applying the Corporations
      accounting policies and that have the most significant effect on the
      amounts recognized in the consolidated financial statements are limited to
      managements assessment of the Corporations ability to continue as a
      going concern (note 2(e)).                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    | Key sources of estimation uncertainty:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    | The following are key
      assumptions concerning the future and other key sources of estimation
      uncertainty that have significant risk of resulting in a material
      adjustment to the reported amount of assets, liabilities, income and
      expenses within the next fiscal year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(a) | Revenue recognition:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    | On long-term fixed price
      contracts, revenues are recorded on the percentage-of-completion basis
      over the duration of the contract, which consists of recognizing revenue
      on a given contract proportionately with its percentage of completion at
      any given time. The percentage of completion is determined by dividing the
      cumulative costs incurred as at the balance sheet date by the sum of
      incurred and anticipated costs for completing a contract.                                                                                                                                                                                                                                                                                                                                 
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | Estimates used to
      determine revenues and costs of long-term fixed price contracts involve
      uncertainties that ultimately depend on the outcome of future events and
      are periodically revised as projects progress. There is a risk that a
      customer may ultimately disagree with managements assessment of the
      progress achieved against milestones, or that our estimates of the work
      required to complete a contract may change. The cumulative effect of
      changes to anticipated revenues and anticipated costs for completing a
      contract are recognized in the period in which the revisions are
      identified. If the anticipated costs exceed the anticipated revenues on a
      contract, such loss is recognized in its entirety in the period it becomes
      known.

27

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|5.  | Critical judgments in
      applying accounting policies and key sources of estimation uncertainty
      (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) | Asset impairment:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    | The recoverable amount of an asset or cash-generating unit is the greater of its value in use and
its fair value less costs to sell. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. In assessing fair value
less costs to sell, the price that would be received on the sale of an asset in an orderly transaction
between market participants at the measurement date is estimated. For the purposes of
impairment testing, assets that cannot be tested individually are grouped together into the
smallest group of assets that generates cash inflows from continuing use that are largely
independent of the cash inflows of other groups of assets. The allocation of goodwill to cashgenerating
units reflects the lowest level at which goodwill is monitored for internal reporting
purposes. Many of the factors used in assessing fair value are outside the control of management
and it is reasonably likely that assumptions and estimates will change from period to period.
|   
|    | These changes may result in future
      impairments. For example, the revenue growth rate could be lower than
      projected due to economic, industry or competitive factors, or the
      discount rate used in the value in use model could increase due to a
      change in market interest rates. In addition, future goodwill impairment
      charges may be necessary if the market capitalization decreased due to a
      decline in the trading price of the Corporations common stock, which
      could negatively impact the fair value of the Corporations operating
      segments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(c) | Warranty
      provision:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    | A provision for warranty costs is recorded
      on product sales at the time of shipment. In establishing the warranty
      provision, management estimates the likelihood that products sold will
      experience warranty claims and the cost to resolve claims received. In
      making such determinations, the Corporation uses estimates based on the
      nature of the contract and past and projected experience with the
      products. Should these estimates prove to be incorrect, the Corporation
      may incur costs different from those provided for in the warranty
      provision. Management reviews warranty assumptions and makes adjustments
      to the provision at each reporting date based on the latest information
      available, including the expiry of contractual obligations. Adjustments to
      the warranty provision are recorded in cost of product and service
      revenues.                                                                                                                                                                                                                                                

28

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|5.  | Critical judgments in
      applying accounting policies and key sources of estimation uncertainty
      (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(d) | Inventory provision:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    | In determining the lower of cost and net
      realizable value of inventory and in establishing the appropriate
      provision for inventory obsolescence, management estimates the likelihood
      that inventory carrying values will be affected by changes in market
      pricing or demand for the products and by changes in technology or design
      which could make inventory on hand obsolete or recoverable at less than
      the recorded value. Management performs regular reviews to assess the
      impact of changes in technology and design, sales trends and other changes
      on the carrying value of inventory. Where it is determined that such
      changes have occurred and will have an negative impact on the value of
      inventory on hand, appropriate provision are made.                                                                                                                                                                                                                                                                                                                                                        
|   
|    | If there is a subsequent increase in the
      value of inventory on hand, reversals of previous write-downs to net
      realizable value are made. Unforeseen changes in these factors could
      result in additional inventory provisions, or reversals of previous
      provisions, being required.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(e) | Impairment loss (recoveries) on trade
      receivables:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    | Trade and other receivables are recognized
      initially at fair value and subsequently at amortized cost using the
      effective interest method, less any impairment losses. Fair value is
      estimated as the present value of future cash flows, discounted at the
      market rate of interest at the reporting date. In determining the fair
      value of trade and other receivables and establishing the appropriate
      provision for doubtful accounts, management performs regular reviews to
      estimate the likelihood that trade and other receivables will ultimately
      be collected in a timely manner. Where management determines that customer
      collectability issues have occurred and will have a negative impact on the
      value of trade and other receivables, appropriate provisions are made. If
      there is a subsequent recovery in the value of trade and other
      receivables, reversals of previous write-downs to fair value are made.
      Unforeseen changes in these factors could result in additional impairment
      provisions, or reversals of previous impairment provisions, being
      required.
|   
|(f) | Employee future benefits:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    | The present value of the defined benefit
      obligation is determined by discounting the estimated future cash outflows
      using interest rates of high-quality corporate bonds that have terms to
      maturity approximating the terms of the related pension liability.
      Determination of benefit expense requires assumptions such as the discount
      rate to measure obligations, expected plan investment performance,
      expected healthcare cost trend rate, and retirement ages of employees.
      Actual results will differ from the recorded amounts based on these
      estimates and assumptions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

29

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|5.  | Critical judgments in applying accounting policies and
      key sources of estimation uncertainty (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(g) | Income taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    | Deferred tax assets and liabilities are measured using
      enacted, or substantively enacted, tax rates expected to apply to taxable
      income in the years in which temporary differences are expected to be
      recovered or settled. The effect on deferred income tax assets and
      liabilities of a change in tax rates is included in income in the period
      that includes the substantive enactment date. Management reviews the
      deferred income tax assets at each reporting period and records
      adjustments to the extent that it is no longer probable that the related
      tax benefit will be realized.
|   
|6.  | Recent accounting pronouncements and future accounting
      policy changes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    | The Corporation did not adopt any new accounting
      standard changes or amendments in 2016 that had a material impact on the
      Corporations financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    | The following is an overview of accounting standard
      changes that the Corporation will be required to adopt in future
      years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(a) | IFRS 2 Share-based
      payments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    | On June 20, 2016, the IASB issued amendments toIFRS 2 Share-based
      Payment, clarifying how to account for
      certain types of share-based payment transactions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    | The amendments provide requirements on the accounting
      for:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    | The amendments apply for annual periods beginning on or
      after January 1, 2018. As a practical simplification, the amendments can
      be applied prospectively. Retrospective, or early, application is
      permitted if information is available without the use of hindsight. The
      Corporation intends to adopt the amendments to IFRS 2 in its financial
      statements for the fiscal year beginning on January 1, 2018. The extent of
      the impact of adoption of the standard has not yet been
    determined.                                                                                                      
|   
|(b) | IFRS 15 Revenue from
      Contracts with Customers                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    | On May 28, 2014, the IASB issuedIFRS 15 Revenue from Contracts with
      Customers. IFRS 15 will replace *IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC
      13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction
      of Real Estate*,*IFRIC 18 Transfer of Assets from Customers*, and*SIC 31 Revenue  Barter
      Transactions Involving Advertising Services*. On April 12, 2016, the IASB issued Clarifications to IFRS 15, Revenue from Contracts with
      Customers, which is effective at the
      same time as IFRS
15.                                                                           

30

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|6.  | Recent accounting
      pronouncements and future accounting policy changes
  (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) | IFRS 15 Revenue from Contracts with
      Customers (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    | IFRS 15 contains a single model that applies
      to contracts with customers and two approaches to recognizing revenue: at
      a point in time or over time. The model features a contract-based
      five-step analysis of transactions to determine whether, how much, and
      when revenue is recognized. New estimates and judgmental thresholds have
      been introduced, which may affect the amount and/or timing of revenue
      recognized. The new standard applies to contracts with customers. It does
      not apply to insurance contracts, financial instruments or lease
      contracts, which fall in the scope of other IFRSs. The clarifications to
      IFRS 15 provide additional guidance with respect to the five-step
      analysis, transition, and the application of the Standard to licenses of
      intellectual property.
|   
|    | The new standard is effective for annual
      periods beginning on or after January 1, 2018 and is available for early
      adoption. The Corporation intends to adopt IFRS 15 in its financial
      statements for the fiscal year beginning on January 1, 2018. The extent of
      the impact of adoption of the standard has not yet been
    determined.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(c) | IFRS 9 Financial
      Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    | On July 24, 2014, the IASB issued the
      completeIFRS 9 Financial Instruments(IFRS 9 (2014)). IFRS 9 (2014)
      introduces new requirements for the classification and measurement of
      financial assets. Under IFRS 9 (2014), financial assets are classified and
      measured based on the business model in which they are held and the
      characteristics of their contractual cash flows.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    | The standard introduces additional changes
      relating to financial liabilities. It also amends the impairment model by
      introducing a new expected credit loss model for calculating
      impairment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    | IFRS 9 (2014) also includes a new general
      hedge accounting standard which aligns hedge accounting more closely with
      risk management. This new standard does not fundamentally change the types
      of hedging relationships or the requirement to measure and recognize
      ineffectiveness; however it will provide more hedging strategies that are
      used for risk management to qualify for hedge accounting and introduce
      more judgment to assess the effectiveness of a hedging relationship.
      Special transitional requirements have been set for the application of the
      new general hedging model.                                                                                                                                                                                                                       
|   
|    | The mandatory effective date of IFRS 9
      (2014) is for annual periods beginning on or after January 1, 2018 and
      must be applied retrospectively with some exemptions. Early adoption is
      permitted. The restatement of prior periods is not required and is only
      permitted if information is available without the use of hindsight. The
      Corporation intends to adopt IFRS 9 (2014) in its financial statements for
      the fiscal year beginning on January 1, 2018. The extent of the impact of
      adoption of the standard has not yet been
determined.                                                                                                                                                                                                                                                                            

31

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|6.  | Recent accounting
      pronouncements and future accounting policy changes
  (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(d) | IFRS 16 Leases                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    | On January 13, 2016, the IASB issued IFRS 16
      Leases. IFRS 16 introduces a single lessee accounting model and requires a
      lessee to recognize assets and liabilities for all leases with a term of
      more than 12 months, unless the underlying asset is of low value. A lessee
      is required to recognize a right-of-use asset representing its right to
      use the underlying asset and a lease liability representing its obligation
      to make lease payments.                                                                                                                                                                                                                                                                                                   
|   
|    | This standard substantially carries forward
      the lessor accounting requirements of IAS 17, while requiring enhanced
      disclosures to be provided by lessors. Other areas of the lease accounting
      model have been impacted, including the definition of a lease.
      Transitional provisions have been provided.                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    | The new standard is effective for annual
      periods beginning on or after January 1, 2019. Early adoption is permitted
      for entities that apply IFRS 15 Revenue from Contracts with Customersas at or
      before the date of initial adoption of IFRS 16. IFRS 16 will replace
      IAS 17 Leases.The Corporation intends to adopt IFRS 16 in
      its financial statements for the fiscal year beginning on January 1, 2019.
      The extent of the impact of adoption of the standard has not yet been
      determined.                                                                                                                                                                                                                                                      
|   
|7.  | Acquisition:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    | On October 1, 2015, the Corporation
      completed the acquisition of Protonex, a leading designer and manufacturer
      of advanced power management products and portable fuel cell solutions. As
      consideration for the transaction, the Corporation assumed and paid
      certain of Protonex debt obligations and transaction costs on closing of
      $3,772,000, and issued 11,415,704 of Ballard shares at fair value of $1.20
      per share at a total value of $13,699,000, for total purchase
      consideration of $17,471,000. The fair value of the Corporations
      11,415,704 common shares has been measured for accounting purposes using
      the closing price of the Ballard common shares on the day immediately
      preceding the acquisition date.
|   
|    | The acquisition has been accounted for as a
      business combination using the acquisition method of accounting in
      accordance with IFRS 3 Business Combinations. As such, consideration
      given by the Corporation to acquire Protonex has been allocated to the
      assets acquired, and the liabilities assumed, based on their fair values
      as of the acquisition date of October 1,
2015.                                                                                                                                                                                                                                                                                                                                                                             

32

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|7. | Acquisition
      (contd):                                  
|-- | -------------------------------------------------------------
|   |                                                              
|   | The fair value of purchase
      consideration is as follows:

| | Total Ballard shares issued on
      closing                         |  |   | 11,415,704
| | -------------------------------------------------------------------- |  | - | ----------
| | Ballard Share Price
    pre-closing                                  |  | $ | 1.20      
| | Fair value of Ballard
    shares                                     |  | $ | 13,699    
| | Cash paid to
      Protonex for transaction costs assumed            |  |   | 1,397     
| | Cash paid direct to lender to
      settle Protonex debt obligations |  |   | 2,375     
| | Total cash paid                                                      |  |   | 3,772     
| | Total purchase
    consideration                                     |  | $ | 17,471    

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In accordance with IFRS 3, the
      identifiable assets acquired and liabilities assumed as part of a business
      combination are recognized separately from goodwill at the acquisition
      date if they meet the definition of an asset or liability and are
      exchanged as part of the business combination. The identifiable assets
      acquired and liabilities assumed are then measured at their acquisition
      date fair values based on the contractual terms, economic conditions, the
      Corporations operating and accounting policies and other pertinent
      conditions as of the acquisition date. The fair value review of Protonex
      assets and liabilities commenced with a review of the carrying amount of
      each respective asset and liability. The carrying amounts of all assets
      and liabilities were audited as of September 30, 2015 (the former fiscal
      year-end of Protonex) and included confirmation of existence and a review
      of potential impairment of all significant assets and a review for
      completeness of all liabilities. Each asset and liability was then
      reviewed and measured for potential fair value adjustments from carrying
      cost to arrive at each asset and liabilitys preliminary fair value as of
      the acquisition date of October 1, 2015.
      The fair values of assets
      acquired and liabilities assumed are as follows:

| | Net
      assets acquired:                     |  |   |        |  
| | ---------------------------------------------- |  | - | ------ | -
| | Cash and cash
      equivalents                |  | $ | 1,464  |  
| | Accounts receivable                            |  |   | 558    |  
| | Inventory                                      |  |   | 2,330  |  
| | Other current assets                           |  |   | 167    |  
| | Property, plant
      and equipment            |  |   | 1,223  |  
| | Intangible assets                              |  |   | 11,138 |  
| | Goodwill                                       |  |   | 4,272  |  
| | Other long-term assets                         |  |   | 22     |  
| | Accounts payable
      and accrued liabilities |  |   | (2,676 | )
| | Deferred revenue                               |  |   | (275   | )
| | Accrued warranty
      obligations             |  |   | (47    | )
| | Payable to Ballard Power                       |  |   | (703   | )
| | Other long-term liabilities                    |  |   | (2     | )
| | Total purchase
    consideration               |  | $ | 17,471 |  

33

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|7. | Acquisition
      (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The goodwill of $4,272,000
      resulting from the acquisition consists largely of the expectation that
      the acquisition will complement the Corporations Fuel Cell Products and
      Services growth platform by delivering strategic benefits in
      diversification, growth, scale, and profitability.
      Identified intangible assets of
      $11,138,000 consist of the following and are being amortized based on the
      following useful lives:

| |                                                             |  |   |        |  | Estimated   
| | ----------------------------------------------------------- |  | - | ------ |  | ------------
| | Fair value of Identified
      Intangible Assets            |  |   |        |  | Useful Life 
| | Patents, know-how and in-process research &
    development |  | $ | 8,973  |  | 20 years    
| | Customer base
      and relationships                       |  |   | 986    |  | 10
    years
| | Trademarks and service marks                                |  |   | 1,135  |  | 15 years    
| | Domain
      names                                          |  |   | 17     |  | 15
    years
| | Non-compete agreements                                      |  |   | 27     |  | 1 year      
| |                                                             |  | $ | 11,138 |  |             

|       | Acquisition and integration costs
      of $43,000 (2015 - $1,542,000) were incurred in 2016 as a result of the
      transaction, and are recognized in other operating expense (note 25).
|------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                            
|**8.** | Trade and other receivables:                                                                                                                                                               

| |                   |  | December 31, |        | December 31,
| | ----------------- |  | ------------ | ------ | ------------
| |                   |  | 2016         |        | 2015        
| | Trade receivables |  | $            | 11,026 |             
| | Other             |  |              | 3,898  |             
| |                   |  | $            | 14,924 |             

|       |             
|------ | ------------
|**9.** | Inventories:

| |                               |  | December 31, |        | December 31,
| | ----------------------------- |  | ------------ | ------ | ------------
| |                               |  | 2016         |        | 2015        
| | Raw materials and consumables |  | $            | 13,039 |             
| | Work-in-progress              |  |              | 1,879  |             
| | Finished goods                |  |              | 654    |             
| | Service inventory             |  |              | 1,656  |             
| |                               |  | $            | 17,228 |             

| | In 2016, changes in raw materials
      and consumables, finished goods and work-in-progress recognized as cost of
      product and service revenues amounted to $40,172,000 (2015 - $17,905,000).
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

34

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|9.      | Inventories
      (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | In 2016, the write-down of
      inventories to net realizable value amounted to $879,000 (2015 - $855,000)
      and the reversal of previously recorded write-downs amounted to $273,000
      (2015 - $239,000), resulting in a net write-down of $606,000 (2015 -
      $616,000). Write-downs and reversals are included in either cost of
      product and service revenues, or research and product development expense,
      depending on the nature of inventory.
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|**10.** | **Property, plant
      and equipment:**                                                                                                                                                                                                                                                                                                                                                                                                                                    

| |                                                         |  | December 31, |        | December 31,
| | ------------------------------------------------------- |  | ------------ | ------ | ------------
| | Net carrying amounts                                    |  | 2016         |        | 2015        
| | Building under finance lease                            |  | $            | 6,631  |             
| | Computer
      equipment                                |  |              | 1,049  |             
| | Furniture and fixtures                                  |  |              | 185    |             
| | Furniture and
      fixtures under finance lease        |  |              | -      |             
| | Leasehold improvements                                  |  |              | 2,188  |             
| | Production and
      test equipment                     |  |              | 5,013  |             
| | Production and test equipment
      under finance lease |  |              | 635    |             
| |                                                         |  | $            | 15,701 |             

| |                                                  |  |              |        |           |   |           |  |           |        |                |  |      |              |   |              | Effect of |     |  
| | ------------------------------------------------ |  | ------------ | ------ | --------- | - | --------- |  | --------- | ------ | -------------- |  | ---- | ------------ | - | ------------ | --------- | --- | -
| |                                                  |  | December 31, |        |           |   |           |  |           |        |                |  |      | movements in |   | December 31,
| | Cost                                             |  | 2015         |        | Additions |   | Disposals |  | Transfers |        | exchange rates |  | 2016
| | Building under finance lease                     |  | $            | 12,180 |           | $ | -         |  | $         | -      |                |  | $    | -            |   |              | $         | -   |  
| | Computer
      equipment                         |  |              | 5,133  |           |   | 566       |  |           | (1,090 | )              |  |      | -            |   |              |           | (2  | )
| | Furniture and fixtures                           |  |              | 891    |           |   | 20        |  |           | (63    | )              |  |      | 317          |   |              |           | (2  | )
| | Furniture and
      fixtures under finance lease |  |              | 317    |           |   | -         |  |           | -      |                |  |      | (317         | ) |              |           | -   |  
| | Leasehold improvements                           |  |              | 9,079  |           |   | 89        |  |           | (366   | )              |  |      | -            |   |              |           | (8  | )
| | Production and
      test equipment              |  |              | 31,182 |           |   | 2,103     |  |           | (1,623 | )              |  |      | 1,393        |   |              |           | (2  | )
| | Production and test equipment under              |  |              | 3,667  |           |   | -         |  |           | (196   | )              |  |      | (1,393       | ) |              |           | -   |  
| | finance lease                                    |  |              |        |           |   |           |  |           |        |                |  |      |              |   |              |           |     |  
| |                                                  |  | $            | 62,449 |           | $ | 2,778     |  | $         | (3,338 | )              |  | $    | -            |   |              | $         | (14 | )

| |                                     |  |              |        |              |   |       |            |           |     |           |   |                |   |      |   |        |              |  | Effect of    |     |   | 
| | ----------------------------------- |  | ------------ | ------ | ------------ | - | ----- | ---------- | --------- | --- | --------- | - | -------------- | - | ---- | - | ------ | ------------ |  | ------------ | --- | - | 
| | Accumulated
      depreciation and  |  | December 31, |        |              |   |       | Impairment |           |     |           |   |                |   |      |   |        | movements in |  | December 31,
| | impairment loss                     |  | 2015         |        | Depreciation |   | loss  |            | Disposals |     | Transfers |   | exchange rates |   | 2016
| | Building under finance lease        |  | $            | 4,737  |              | $ | 812   |            | $         | -   |           | $ | -              |   |      | $ | -      |              |  | $            | -   |   | 
| | Computer
      equipment            |  |              | 4,307  |              |   | 329   |            |           | 14  |           |   | (1,090         | ) |      |   | -      |              |  |              | (2  | ) | 
| | Furniture and fixtures              |  |              | 662    |              |   | 62    |            |           | 3   |           |   | (64            | ) |      |   | 317    |              |  |              | (2  | ) | 
| | Furniture and
      fixtures under  |  |              | 291    |              |   | 26    |            |           | -   |           |   | -              |   |      |   | (317   | )            |  |              | -   |   | 
| | finance lease                       |  |              |        |              |   |       |            |           |     |           |   |                |   |      |   |        |              |  |              |     |   | 
| | Leasehold improvements              |  |              | 6,338  |              |   | 617   |            |           | 24  |           |   | (365           | ) |      |   | -      |              |  |              | (8  | ) | 
| | Production and
      test equipment |  |              | 26,676 |              |   | 1,231 |            |           | 340 |           |   | (1,598         | ) |      |   | 1,393  |              |  |              | (2  | ) | 
| | Production and test equipment       |  |              | 2,713  |              |   | 319   |            |           | -   |           |   | (196           | ) |      |   | (1,393 | )            |  |              | -   |   | 
| | under finance lease                 |  |              |        |              |   |       |            |           |     |           |   |                |   |      |   |        |              |  |              |     |   | 
| |                                     |  | $            | 45,724 |              | $ | 3,396 |            | $         | 381 |           | $ | (3,313         | ) |      | $ | -      |              |  | $            | (14 | ) | 

| | Transfers in 2016 relate to the
      buy-out of certain leased production and test equipment which were
      transferred back into property, plant, and equipment.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

35

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|10. | Property, plant and equipment
      (contd):
|--- | ---------------------------------------------
|    |                                              

| |                                     |  |              |        |             | Additions |           |  |           |       |                |   |      |              | Effect of |              |     |  
| | ----------------------------------- |  | ------------ | ------ | ----------- | --------- | --------- |  | --------- | ----- | -------------- | - | ---- | ------------ | --------- | ------------ | --- | -
| |                                     |  | December 31, |        | through     |           |           |  |           |       |                |   |      | movements in |           | December 31,
| | Cost                                |  | 2014         |        | Acquisition |           | Additions |  | Disposals |       | exchange rates |   | 2015
| | Building under finance lease        |  | $            | 12,180 |             | $         | -         |  | $         | -     |                | $ | -    |              |           | $            | -   |  
| | Computer
      equipment            |  |              | 4,600  |             |           | 165       |  |           | 428   |                |   | (49  | )            |           |              | (11 | )
| | Furniture and fixtures              |  |              | 685    |             |           | 83        |  |           | 137   |                |   | (3   | )            |           |              | (11 | )
| | Furniture and
      fixtures under  |  |              | 317    |             |           | -         |  |           | -     |                |   | -    |              |           |              | -   |  
| | finance lease                       |  |              |        |             |           |           |  |           |       |                |   |      |              |           |              |     |  
| | Leasehold improvements              |  |              | 8,779  |             |           | 350       |  |           | 95    |                |   | (105 | )            |           |              | (40 | )
| | Production and
      test equipment |  |              | 29,308 |             |           | 625       |  |           | 1,622 |                |   | (364 | )            |           |              | (9  | )
| | Production and test equipment       |  |              | 3,667  |             |           | -         |  |           | -     |                |   | -    |              |           |              | -   |  
| | under finance lease                 |  |              |        |             |           |           |  |           |       |                |   |      |              |           |              |     |  
| |                                     |  | $            | 59,536 |             | $         | 1,223     |  | $         | 2,282 |                | $ | (521 | )            |           | $            | (71 | )

| | During 2015, additions through
      acquisition of property, plant and equipment relate to the acquisition of
      Protonex on October 1, 2015 (note 7).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                  |  |              |        |              |   |           |  |                |      |      |              | Effect of |              |   | 
| | ------------------------------------------------ |  | ------------ | ------ | ------------ | - | --------- |  | -------------- | ---- | ---- | ------------ | --------- | ------------ | - | 
| | Accumulated
      depreciation and               |  | December 31, |        |              |   |           |  |                |      |      | movements in |           | December 31,
| | impairment loss                                  |  | 2014         |        | Depreciation |   | Disposals |  | exchange rates |      | 2015
| | Building under finance lease                     |  | $            | 3,925  |              | $ | 812       |  | $              | -    |      |              | $         | -            |   | 
| | Computer
      equipment                         |  |              | 4,157  |              |   | 210       |  |                | (49  | )    |              |           | (11          | ) | 
| | Furniture and fixtures                           |  |              | 654    |              |   | 21        |  |                | (3   | )    |              |           | (10          | ) | 
| | Furniture and
      fixtures under finance lease |  |              | 227    |              |   | 64        |  |                | -    |      |              |           | -            |   | 
| | Leasehold improvements                           |  |              | 5,785  |              |   | 589       |  |                | -    |      |              |           | (36          | ) | 
| | Production and
      test equipment              |  |              | 25,927 |              |   | 1,123     |  |                | (365 | )    |              |           | (9           | ) | 
| | Production and test equipment under              |  |              | 2,176  |              |   | 537       |  |                | -    |      |              |           | -            |   | 
| | finance lease                                    |  |              |        |              |   |           |  |                |      |      |              |           |              |   | 
| |                                                  |  | $            | 42,851 |              | $ | 3,356     |  | $              | (417 | )    |              | $         | (66          | ) | 

| | Leased assets
      The Corporation leases certain
      assets under finance lease agreements including the Corporations head
      office building in Burnaby, British Columbia and certain machinery (note
      17).
      Impairment loss
      The Corporation recorded an
      impairment loss on property, plant and equipment of $381,000 in 2016
      related to the write-off of certain methanol Telecom Backup Power assets
      to their estimated net realizable value of $nil (note 28).
      There were no impairment losses
      or reversals of previously recorded impairment losses recognized against
      property, plant and equipment in 2015.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

36

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|11. | Intangible assets:
|--- | ------------------
|    |                   

| |                                                                      |  | December 31, |        | December 31,
| | -------------------------------------------------------------------- |  | ------------ | ------ | ------------
| |                                                                      |  | 2016         |        | 2015        
| | Intellectual property acquired from UTC                              |  | $            | 2,311  |             
| | Intellectual
      property acquired from Idatech, LLC               |  |              | -      |             
| | Intellectual property acquired from H2 Logic A/S                     |  |              | 215    |             
| | Intellectual
      property acquired from Protonex (note 7)          |  |              | 10,331 |             
| | Internally generated fuel cell intangible assets                     |  |              | 2,182  |             
| | ERP management
      reporting software system                       |  |              | 3,015  |             
| | Intellectual property acquired by
      Ballard Power Systems Europe |  |              | 29     |             
| |                                                                      |  | $            | 18,083 |             

| | Intangible assets                                       |  |      |         |              |  | Accumulated |        | Net carrying
| | ------------------------------------------------------- |  | ---- | ------- | ------------ |  | ----------- | ------ | ------------
| | Balance                                                 |  | Cost |         | amortization |  | amount     
| | At January 1, 2015                                      |  | $    | 69,528  |              |  | $           | 45,377 |             
| | Additions to and
      acquisition of intangible assets |  |      | 12,742  |              |  |             | -      |             
| | Amortization expense                                    |  |      | -       |              |  |             | 1,464  |             
| | Disposals                                               |  |      | (20,202 | )            |  |             | (1,102 | )           
| | At December 31, 2015                                    |  |      | 62,068  |              |  |             | 45,739 |             
| | Additions to and
      acquisition of intangible assets |  |      | 4,103   |              |  |             | -      |             
| | Amortization expense                                    |  |      | -       |              |  |             | 1,579  |             
| | Impairment (note 27)                                    |  |      | -       |              |  |             | 770    |             
| | At December 31, 2016                                    |  | $    | 66,171  |              |  | $           | 48,088 |             

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Amortization expense on
      intangible assets is allocated to research and product development expense
      or general and administration expense depending upon the nature of the
      underlying assets. In 2016, amortization of $1,579,000 (2015 - $1,464,000)
      was recorded. During the year ended December 31, 2016, impairment charges
      of $770,000 were recorded (note 28).
      ERP Management Reporting
      Software System
      In 2016, the Corporation
      commenced the process to replace itsincumbent financial and other resource
      systems with a fully integrated Enterprise Resource Planning (ERP)
      management reporting software system. The implementation of this
      company-wide, cloud-based ERP system is expected toprovide the Corporation with
      enhanced reporting capabilities. The Corporation has assessed its
      expenditure on the ERP implementation to be internally generated
      intangible assets. During 2016, total development expenditures of
      $3,015,000 have been capitalized at cost. The estimated useful life has
      been assessed as seven years. Amortization of the expenditures related to
      the first phase will commence upon the initial Go Live date of January 3,
      2017.

37

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|11. | Intangible assets
      (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | Internally Generated Fuel Cell
      Intangible Assets
      In 2015, the Corporation
      commenced development of two new configurations of its fuel cell module
      for heavy-duty motive applications. The Corporations initial 85kW
      configuration is typically used to power large urban transit buses. The
      two new product configurations are expected to deliver net power of 30kW
      and 60kW, respectively, with sales launched in 2016 to power smaller buses
      and to provide range extension solutions. The Corporation has assessed its
      development expenditure on these product configurations to be internally
      generated intangible assets. During 2016, total development expenditures
      of $1,053,000 (2015 - $1,395,000) have been capitalized at cost. The
      estimated useful life has been assessed as five years. In 2016,
      amortization of $253,000 (2015 - $13,000) was recorded on these assets.
      Sale of Intellectual Property
      to Volkswagen
      On February 11, 2015, the
      Corporation entered into a transaction (Volkswagen IP Agreement) with
      Volkswagen Group (Volkswagen) to transfer to Volkswagen in two separate
      transactions the automotive-related portion of the UTC Portfolio, in
      exchange for total payments of $50,000,000:

| | (i)  | On the closing of the initial
      transaction on February 23, 2015, the Corporation transferred ownership of
      the automotive-related patents and patent applications of United
      Technologies Corporation (the UTC Portfolio) in exchange for
      $40,000,000. This receipt triggered a 25%, or $10,000,000, license fee
      payment to UTC. Although ownership of the patents and patent applications
      was transferred to Volkswagen, the Corporation received a royalty-free
      back-license to all the transferred patents and patent applications for
      use in all of the Corporations non-automotive applications, in bus
      applications, and in certain limited pre-commercial automotive
      applications.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     
| | (ii) | On December 2, 2015, the
      Corporation sold a copy of the automotive-related know-how of the UTC
      Portfolio for consideration receivable of $10,000,000 which was collected
      in the three months ended March 31, 2016. This receipt triggered a 9%, or
      $900,000 license fee payment to UTC in 2016. On the closing of the sale of
      a copy of the know-how, the Corporation retained full ownership of the
      know-how, including the right to sell additional copies of the know-how to
      third parties as well as retaining the right to use the know-how in all of
      the Corporations applications.                                                                                                           

38

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|11. | Intangible assets
      (contd):                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                          
|    | On the closing of the sale of the
      automotive-related patents and patent applications of the UTC Portfolio on
      February 23, 2015, the Corporation recognized a gain on sale of
      intellectual property of $14,195,000 on net proceeds of
      $29,475,000.

| | Gross proceeds                                                                |                   | $ | 40,000  |        
| | ----------------------------------------------------------------------------- | ----------------- | - | ------- | -------
| | Less:                                                                         | License
      fee |   |         | (10,000
| |                                                                               | Disposition costs |   |         | (525   
| | Net
      proceeds received in the first three months of 2015                 |                   |   | 29,475  |        
| | Less: Net book value of
      disposed intellectual property                  |                   |   | (15,280 | )      
| | Gain on sale of intellectual property in
      the first three months of 2015 |                   | $ | 14,195  |        

| | On the closing of the sale of a
      copy of the automotive-related know-how on December 2, 2015, the
      Corporation recognized a gain on sale of intellectual property of
      $5,424,000 on net proceeds receivable of $9,244,000. The net proceeds on
      sale of $9,244,000 were collected during the three months ended March 31,
      2016.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Gross proceeds                                                               |                                    | $ | 10,000 |     
| | ---------------------------------------------------------------------------- | ---------------------------------- | - | ------ | ----
| | Less:                                                                        | License
      fee                  |   |        | (900
| |                                                                              | Disposition recovery
      (costs) |   |        | 144 
| | Net
      proceeds received in the first three months of 2016                |                                    |   | 9,244  |     
| | Less: Net book value of
      disposed intellectual property                 |                                    |   | (3,820 | )   
| | Gain on sale of intellectual property in
      the last three months of 2015 |                                    | $ | 5,424  |     

| | After the conclusion of the
      Volkswagen Agreement, the net carrying amount of the remaining intangible
      assets of the UTC Portfolio of $2,311,000 as of December 31, 2016 (2015 -
      $2,757,000) consists of certain stationary related fuel cell intellectual
      property assets and the royalty-free back-license from Volkswagen to
      utilize the entire UTC Portfolio in the Corporations bus and
      non-automotive applications and in certain limited re-commercial purposes
      for automotive applications. The estimated useful life of the remaining
      UTC Portfolio has been reassessed from approximately fourteen years to
      seven years, and is being amortized over seven years from the date of the
      Volkswagen IP Agreement.
      UTC Intellectual Property
      Acquisition
      On April 24, 2014, the
      Corporation acquired the UTC Portfolio for total consideration of
      $22,307,000. The acquired UTC Portfolio assets consist of approximately
      800 patents and patent applications, as well as patent licenses, invention
      disclosures and know-how primarily related to PEM fuel cell technology.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

39

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|11. | Intangible assets
      (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | As consideration for the UTC
      Portfolio, UTC received 5,121,507 of the Corporations common shares
      valued at $20,307,000, $2,000,000 in cash, a grant back license to use the
      patent portfolio in UTCs existing businesses, and a portion of royalties,
      typically 25%, on the Corporations future intellectual property sale or
      licensing income generated from the combined intellectual property
      portfolio for a period of 15 years to April 2029.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|12. | Goodwill:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    | For the purpose of impairment
      testing, goodwill is allocated to the Corporations cash-generating units
      which represent the lowest level within the Corporation at which the
      goodwill is monitored for internal management purposes, which is not
      higher than the Corporations operating segments (note 31).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    | Fuel Cell Products and
      Services                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    | As of December 31, 2016, the
      aggregate carrying amount of the Corporations goodwill is $40,562,000
      (2015 - $40,562,000).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    | The impairment testing requires a
      comparison of the carrying value of the asset to the higher of (i) value
      in use; and (ii) fair value less costs to sell. Value in use is defined as
      the present value of future cash flows expected to be derived from the
      asset in its current state.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    | The Corporations fair value test
      is in effect a modified market capitalization assessment, whereby the fair
      value of the Fuel Cell Products and Services segment is determined by
      first calculating the value of the Corporation at December 31, 2016 based
      on the average closing share price in the month of December, adding a
      reasonable estimated control premium to determine the Corporations
      enterprise value on a controlling basis after adjusting for excess cash
      balances, and deducting the estimated costs to sell from this enterprise
      value, arriving at the fair value of the Fuel Cell Products and Services
      segment. Based on the fair value test, the Corporation has determined that
      the fair value of the Fuel Cell Products and Services segment exceeds its
      carrying value as of December 31, 2016.                                                                                                                                                                                                                                    
|   
|    | In addition to the fair value
      test, the Corporation also performed a value in use test on the Fuel Cell
      Products and Services segment, comparing the carrying value of the segment
      to the present value of future cash flows expected to be derived from the
      segment. The principal factors used in the discounted cash flow analysis
      requiring significant estimation are the projected results of operations,
      the discount rate based on the weighted average cost of capital (WACC),
      and terminal value assumptions. The Corporations value in use test was
      based on a WACC of 15%; an average estimated compound annual growth rate
      of approximately 25% from 2017 to 2022; and a terminal year earnings
      before interest, taxes, depreciation and amortization (EBITDA)
      multiplied by a terminal value multiplier of 10. The value in use
      assessment resulted in an estimated fair value for the Fuel Cell Products
      and Services segment that is consistent with that determined under the
      fair value, less costs to sell, assessment.

40

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|12. | Goodwill
  (contd):                                                                                                                                                                              
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | As the recoverable amount of the
      Fuel Cell Products and Services segment was determined to be greater than
      its carrying amount, no impairment loss was recorded in 2016 or
      2015.
|   
|13. | Investments:                                                                                                                                                                                      
|   

| |                                     |  | December 31, |       | December 31,
| | ----------------------------------- |  | ------------ | ----- | ------------
| |                                     |  | 2016         |       | 2015        
| | Investment in Synergy JVCo (note 4) |  | $            | 1,185 |             
| | Other                               |  |              | 6     |             
| |                                     |  | $            | 1,191 |             

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|14. | Bank
  facilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    | The Corporation has certain bank
      facilities available to it, which are secured by a hypothecation of the
      Corporations cash and cash equivalents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    | Bank Operating
    Line                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    | The Corporation has a demand
      revolving facility (Bank Operating Line) in which an operating line of
      credit of up to CDN $7,000,000 is made available to be drawn upon by the
      Corporation. The Bank Operating Line can be utilized to assist in
      financing the day-to-day operating activities and short-term working
      capital requirements of the business. Outstanding amounts are charged
      interest at the banks prime rate minus 0.50% per annum and are repayable
      on demand by the bank.                                                                                                    
|   
|    | There was no activity under the
      Bank Operating Line in 2016, and there were no outstanding amounts payable
      on the Bank Operating Line as of December 31, 2016 and 2015.                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    | Leasing
  Facility                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    | The Corporation also has a CDN
      $1,830,770 capital leasing facility (Leasing Facility) which can be
      utilized to finance the acquisition and lease of operating equipment
      (notes 10 & 17). Interest is charged on outstanding amounts at the
      banks prime rate per annum and is repayable on demand by the bank in the
      event of certain conditions.                                                                                                                                                                                                                                                         
|   
|    | At December 31, 2016, a nominal
      amount (2015 - $510,000) was outstanding on the Leasing Facility which is
      included in the finance lease liability (note 17). The remaining
      $6,997,000 finance lease liability primarily relates to the lease of the
      Corporations head office building and machinery leased by its subsidiary,
      Protonex.                                                                                                                                                                                                                                                                    
|   
|    | Forward Contract
      Facility                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    | The Corporation also has a CDN
      $5,000,000 demand revolving line (Forward Contract Facility) and a CDN
      $15,000,000 credit facility (EncoreFX Facility), which are both
      available for use when the Corporation purchases forward foreign exchange
      contracts or forward platinum contracts used to hedge against currency and
      platinum price fluctuations, respectively.                                                                                                                                                                                                                                   
|   
|    | Periodically, the Corporation uses
      forward foreign exchange and forward platinum purchase contracts to manage
      exposure to currency rate fluctuations and platinum price fluctuations.
      These contracts are recorded at their fair value as either assets or
      liabilities on the balance sheet. Any changes in fair value are either (i)
      recorded in the statement of comprehensive income if formally designated
      and qualified under hedge accounting criteria; or (ii) recorded in the
      statement of operations if either not designated, or not qualified, under
      hedge accounting criteria.

41

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|14.     | Bank facilities
      (contd):                                                                                                                                                                                                                                                                                                                                                                                                                          
|------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | At December 31, 2016, the
      Corporation had outstanding foreign exchange currency contracts to
      purchase a total of CDN $10,750,000(2015  CDN $10,750,000) at an average
      rate of 1.32 CDN per U.S. dollar, resulting in an unrealized gain of CDN
      $220,000 at December 31, 2016 (2015  unrealized loss of CDN $392,000).
      The outstanding foreign exchange currency contracts are not qualified
      under hedge accounting.
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|**15.** | Trade and other
      payables:                                                                                                                                                                                                                                                                                                                                                                                                                          

| |                            |  | December 31, |        | December 31,
| | -------------------------- |  | ------------ | ------ | ------------
| |                            |  | 2016         |        | 2015        
| | Trade accounts payable     |  | $            | 5,970  |             
| | Compensation
      payable |  |              | 8,056  |             
| | Other liabilities          |  |              | 3,464  |             
| | Taxes payable              |  |              | 277    |             
| |                            |  | $            | 17,767 |             

|16. | Provisions:
|--- | -----------
|    |            

| |                                               |  | Restructuring |        | Warranty  |  | Decommissioning |        |       |  |  
| | --------------------------------------------- |  | ------------- | ------ | --------- |  | --------------- | ------ | ----- |  | -
| | Balance                                       |  | provision     |        | provision |  | liabilities     |        | Total
| | At January 1, 2015                            |  | $             | 78     |           |  | $               | 8,932  |       |  | $
| | Provisions
      acquired through acquisition |  |               | -      |           |  |                 | 47     |       |  |  
| | Provisions made during the year               |  |               | -      |           |  |                 | 1,171  |       |  |  
| | Provisions
      used/paid during the year    |  |               | (47    | )         |  |                 | (2,473 | )     |  |  
| | Provisions reversed during the year           |  |               | (24    | )         |  |                 | (1,620 | )     |  |  
| | Effect of
      movements in exchange rates   |  |               | -      |           |  |                 | (696   | )     |  |  
| | At December 31, 2015                          |  |               | 7      |           |  |                 | 5,361  |       |  |  
| | Provisions made
      during the year         |  |               | 2,323  |           |  |                 | 2,109  |       |  |  
| | Provisions used/paid during the year          |  |               | (1,501 | )         |  |                 | (3,246 | )     |  |  
| | Provisions
      reversed during the year     |  |               | (7     | )         |  |                 | (1,533 | )     |  |  
| | Effect of movements in exchange
      rates   |  |               | (9     | )         |  |                 | 64     |       |  |  
| | At December 31, 2016                          |  | $             | 813    |           |  | $               | 2,755  |       |  | $
| |                                              
| | Current                                       |  | $             | 813    |           |  | $               | 2,755  |       |  | $
| | Non-current                                   |  |               | -      |           |  |                 | -      |       |  |  
| |                                               |  | $             | 813    |           |  | $               | 2,755  |       |  | $

| | Restructuring Provision
      Restructuring charges relate to
      cost reduction initiatives that included the elimination of approximately
      50 positions including the elimination of three executive level positions.
      These cost reduction initiatives were primarily focused on reducing the
      operating cost base associated with methanol Telecom Backup Power
      activities as the Corporation continued to review strategic alternatives
      for these assets prior to the transaction with Chung-Hsin Electric &
      Machinery Manufacturing Corporation (CHEM) (note 26).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

42

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|16. | Provisions
      (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | Warranty
      provision                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    | The Corporation
      recorded $2,109,000 of warranty provisions (2015 - $1,171,000) of which
      $1,132,000 related to new product sales (2015 - $890,000) and $977,000
      related to upward warranty adjustments (2015 - $281,000). This was offset
      by warranty expenditures of $3,246,000 (2015 - $2,473,000) and downward
      warranty adjustments of $1,533,000 (2015 - $1,620,000), due primarily to
      contractual expirations and changes in estimated and actual costs to
      repair. The remaining $64,000 reduction to the warranty provision related
      to the effect of movements in exchange rates (2015  $696,000).                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    | Decommissioning
      liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    | Provisions for
      decommissioning liabilities have been recorded for the Corporations two
      leased locations in Burnaby, British Columbia, comprising the
      Corporations head office building and manufacturing facilities, and are
      related to estimated site restoration obligations at the end of their
      respective lease terms. The Corporation has made certain modifications to
      the leased buildings to facilitate the manufacturing and testing of its
      fuel cell products. Consequently, the site restoration obligations relate
      primarily to dismantling and removing various manufacturing and test
      equipment and restoring the infrastructures of the leased buildings to
      their original states of when the respective leases were entered
      into.                                                                                                                                                                                                                                                                                                           
|   
|    | Due to the long-term
      nature of the liability, the most significant uncertainty in estimating
      the provision is the costs that will be incurred. The Corporation has
      determined a range of reasonably possible outcomes of the total costs for
      the head office building and manufacturing facility. In determining the
      fair value of the decommissioning liabilities, the estimated future cash
      flows have been discounted at 2.31% per annum (2015  2.15%).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    | The Corporation
      performed an assessment of the estimated cash flows required to settle the
      obligations for the two buildings as of December 31, 2016. Based on the
      assessment, the changes in the estimated cash flows were determined to be
      nominal and as a result, no adjustment was recorded. The increase in the
      provision during 2016 was due to accretion costs of $106,000 (2015 -
      $110,000). The total undiscounted amount of the estimated cash flows
      required to settle the obligation for one of the buildings is $1,655,000
      (2015 - $1,606,000) which is expected to be settled at the end of the
      lease term in 2025. The total undiscounted amount of the estimated cash
      flows required to settle the obligation for the second building is
      $2,720,000 (2015 - $2,639,000), which is expected to be settled at the end
      of the operating lease term of 2019. The net discounted amount of
      estimated cash flows required to settle the obligations for both buildings
      is $3,864,000 as at December 31, 2016 (2015 - $3,646,000).

43

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|17. | Finance lease
      liability:                                                                                                                                                                                                      
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | The Corporation leases
      certain assets under finance lease agreements (note 14). The finance
      leases have imputed interest rates ranging from 4.2% to 7.35% per annum
      and expire between May 2021 and February 2025.
|   
|    | Finance lease
      liabilities are payable as follows:                                                                                                                                                                             

| |                            |  |                |       |          |   |          |               | Present value of
| | -------------------------- |  | -------------- | ----- | -------- | - | -------- | ------------- | ----------------
| |                            |  | Future minimum |       |          |   |          | minimum lease
| | At
      December 31, 2016 |  | lease payments |       | Interest |   | payments
| | Less than one
    year     |  | $              | 1,055 |          | $ | 486      |               | $               
| | Between one and five years |  |                | 4,524 |          |   | 1,468    |               |                 
| | More than five years       |  |                | 3,783 |          |   | 411      |               |                 
| |                            |  | $              | 9,362 |          | $ | 2,365    |               | $               
| |                           
| | Current                    |  |                |       |          |   |          |               | $               
| | Non-current                |  |                |       |          |   |          |               |                 
| |                            |  |                |       |          |   |          |               | $               

| |                            |  |                |        |          |   |          |               | Present value of
| | -------------------------- |  | -------------- | ------ | -------- | - | -------- | ------------- | ----------------
| |                            |  | Future minimum |        |          |   |          | minimum lease
| | At
      December 31, 2015 |  | lease payments |        | Interest |   | payments
| | Less than one
    year     |  | $              | 1,524  |          | $ | 513      |               | $               
| | Between one and five years |  |                | 4,181  |          |   | 1,617    |               |                 
| | More than five years       |  |                | 4,830  |          |   | 671      |               |                 
| |                            |  | $              | 10,535 |          | $ | 2,801    |               | $               
| |                           
| | Current                    |  |                |        |          |   |          |               | $               
| | Non-current                |  |                |        |          |   |          |               |                 
| |                            |  |                |        |          |   |          |               | $               

| | At December 31, 2016, a nominal
      amount (2015 - $510,000) was outstanding on the Leasing Facility which is
      included in the finance lease liability. The remaining $6,997,000 (2015-
      $7,224,000) finance lease liability primarily relates to the lease of the
      Corporations head office building, and machinery leased by its
      subsidiary, Protonex.
      Deferred gains were also recorded
      on closing of the finance lease agreements and are amortized over the
      finance lease term. At December 31, 2016, the outstanding deferred gain
      was $3,398,000 (2015  $3,829,000).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

44

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|18. | Debt to Ballard
      Power Systems Europe A/S non-controlling interests:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | BPSE has received
      financing from its non-controlling shareholder in the form of a revolving
      credit facility. The revolving credit facility makes available a revolving
      facility to BPSE of a maximum aggregate amount of DKK 2,977,975 ($423,000)
      from the non-controlling shareholder, Dansk Industri Invest A/S
      (previously Dantherm A/S). Interest is accrued at 6% and the facility
      matures on December 31, 2018. At December 31, 2016, the total principal
      and interest outstanding on the revolving credit facility was $521,000
      (2015  $504,000) (note 33).
|   
|19. | Employee future
      benefits:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

| |                                                        |  | December 31, |       | December 31,
| | ------------------------------------------------------ |  | ------------ | ----- | ------------
| |                                                        |  |              | 2016  |             
| | Net defined benefit
      pension plan liability       |  | $            | 4,971 |             
| | Net
      other post-retirement benefit plan liability |  |              | 196   |             
| | Employee future benefits                               |  | $            | 5,167 |             

| | The Corporation maintains a
      defined benefit pension plan covering existing and former employees in the
      United States. The benefits under the pension plan are based on years of
      service and salary levels accrued as of December 31, 2009. In 2009,
      amendments were made to the defined benefit pension plan to freeze
      benefits accruing to employees at their respective years of service and
      salary levels obtained as of December 31, 2009. Certain employees in the
      United States are also eligible for post-retirement healthcare, life
      insurance, and other benefits.
      The Corporation accrues the
      present value of its obligations under employee future benefit plans and
      related costs, net of the present value of plan assets.
      The measurement date used to
      determine pension and other post-retirement benefit obligations and
      expense is December 31 of each year. The most recent actuarial valuation
      of the employee future benefit plans for funding purposes was as of
      January 1, 2017. The next actuarial valuation of the employee future
      benefit plans for funding purposes is expected to be performed as of
      January 1, 2018.
      The Corporation expects
      contributions of approximately $750,000 to be paid to its defined benefit
      plans in 2017.
      The following tables reconcile
      the opening balances to the closing balances for the net defined benefit
      liability and its components for the two plans. The expense recognized in
      profit or loss is recorded in finance income (loss) and other.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

45

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|19. | Employee future
      benefits (contd):
|--- | ----------------------------------------
|    |                                         

| |                                                |  | Defined benefit obligation |        |   | Fair value of plan assets |   |        | Net defined benefit liability | 
| | ---------------------------------------------- |  | -------------------------- | ------ | - | ------------------------- | - | ------ | ----------------------------- | 
| | Defined benefit pension plan                   |  | 2016                       |        |   | 2015                      |   |        | 2016                          | 
| | Balance at January 1                           |  | $                          | 15,579 |   |                           | $ | 16,167 |                               | 
| | Included in profit or
      loss               |  |                            |        |   |                           |   |        |                               | 
| | Current service
    cost                       |  |                            | 42     |   |                           |   | 58     |                               | 
| | Interest cost (income)                         |  |                            | 678    |   |                           |   | 663    |                               | 
| | Benefits payable                               |  |                            | -      |   |                           |   | -      |                               | 
| |                                                |  |                            | 720    |   |                           |   | 721    |                               | 
| | Included in other comprehensive income         |  |                            |        |   |                           |   |        |                               | 
| | Remeasurements loss (gain):                    |  |                            |        |   |                           |   |        |                               | 
| | Actuarial loss (gain)
      arising from:      |  |                            |        |   |                           |   |        |                               | 
| | Demographic
      assumptions                  |  |                            | (186   | ) |                           |   | (212   | )                             | 
| | Financial
      assumptions                    |  |                            | 715    |   |                           |   | (620   | )                             | 
| | Experience
      adjustment                    |  |                            | 13     |   |                           |   | 116    |                               | 
| | Return on plan assets
      excluding interest |  |                            | -      |   |                           |   | -      |                               | 
| | income                                         |  |                            |        |   |                           |   |        |                               | 
| | Plan expenses                                  |  |                            | (30    | ) |                           |   | (40    | )                             | 
| |                                                |  |                            | 512    |   |                           |   | (756   | )                             | 
| | Other                                          |  |                            |        |   |                           |   |        |                               | 
| | Contributions paid by the
      employer       |  |                            | -      |   |                           |   | -      |                               | 
| | Benefits paid                                  |  |                            | (558   | ) |                           |   | (553   | )                             | 
| |                                                |  |                            | (558   | ) |                           |   | (553   | )                             | 
| | Balance at December 31                         |  | $                          | 16,253 |   |                           | $ | 15,579 |                               | 
| |                                                |  |                            |        |   |                           |   |        |                               | 
| |                                                |  |                            |        |   |                           |   |        |                               | 
| |                                                |  | Defined benefit obligation |        |   | Fair value of plan assets |   |        | Net defined benefit liability | 
| | Other post-retirement benefit plan             |  | 2016                       |        |   | 2015                      |   |        | 2016                          | 
| | Balance at January 1                           |  | $                          | 215    |   |                           | $ | 260    |                               | 
| | Included in profit or
      loss               |  |                            |        |   |                           |   |        |                               | 
| | Interest cost (income)                         |  |                            | 8      |   |                           |   | 8      |                               | 
| |                                                |  |                            | 8      |   |                           |   | 8      |                               | 
| | Included in other
      comprehensive income   |  |                            |        |   |                           |   |        |                               | 
| | Remeasurements loss
      (gain):              |  |                            |        |   |                           |   |        |                               | 
| | Actuarial loss (gain) arising
from:            |  |                            |        |   |                           |   |        |                               | 
| | Financial
      assumptions                    |  |                            | 1      |   |                           |   | (25    | )                             | 
| | Experience
      adjustment                    |  |                            | -      |   |                           |   | (15    | )                             | 
| |                                                |  |                            | 1      |   |                           |   | (40    | )                             | 
| | Other                                          |  |                            |        |   |                           |   |        |                               | 
| | Contributions paid by the
      employer       |  |                            | -      |   |                           |   | -      |                               | 
| | Benefits paid                                  |  |                            | (28    | ) |                           |   | (13    | )                             | 
| |                                                |  |                            | (28    | ) |                           |   | (13    | )                             | 
| | Balance at December 31                         |  | $                          | 196    |   |                           | $ | 215    |                               | 

Pension plan
assets comprise:

| |                                 |  | 2016 |   | 2015
| | ------------------------------- |  | ---- | - | ----
| | Cash and cash
      equivalents |  | 2    | % |     
| | Equity securities               |  | 61   | % |     
| | Debt securities                 |  | 37   | % |     
| | Total                           |  | 100  | % |     

46

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|19. | Employee future
      benefits (contd):                                                                                                    
|--- | --------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | The significant
      actuarial assumptions adopted in measuring the fair value of benefit
      obligations at December 31 were as follows:

| |                               |  |              |  | 2016               |  |              |  | 2015              
| | ----------------------------- |  | ------------ |  | ------------------ |  | ------------ |  | ------------------
| |                               |  | Pension plan |  | Other benefit plan |  | Pension plan |  | Other benefit plan
| | Discount rate                 |  | 4.13%        |  | 3.69%              |  | 4.44%        |  | 3.89%             
| | Rate of compensation increase |  | n/a          |  | n/a                |  | n/a          |  | n/a               

| | The significant actuarial
      assumptions adopted in determining net expense for the years ended
      December 31 were as follows:
| | -------------------------------------------------------------------------------------------------------------------------------------

| |                               |  |              |  | 2016               |  |              |  | 2015              
| | ----------------------------- |  | ------------ |  | ------------------ |  | ------------ |  | ------------------
| |                               |  | Pension plan |  | Other benefit plan |  | Pension plan |  | Other benefit plan
| | Discount rate                 |  | 4.44%        |  | 3.89%              |  | 4.18%        |  | 3.53%             
| | Rate of compensation increase |  | n/a          |  | n/a                |  | n/a          |  | n/a               

| | The assumed health care cost
      trend rates applicable to the other post-retirement benefit plan at
      December 31 were as follows:
| | -----------------------------------------------------------------------------------------------------------------------------------------

| |                                                                              |  | 2016 |  | 2015
| | ---------------------------------------------------------------------------- |  | ---- |  | ----
| | Initial medical/dental
      health care cost trend rate                     |  | 8.0% |  | 7.5%
| | Cost trend rate declines to medical and
      dental                         |  | 5.0% |  | 5.0%
| | Year that the medical rate
      reaches the rate it is assumed to remain at |  | 2021 |  | 2020
| | Year that the dental rate reaches the rate it is assumed to
      remain at  |  | 2016 |  | 2015

| | A one-percentage-point change in
      assumed health care cost trend rates would not have a material impact on
      the Corporations financial statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|20. | Equity:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(a) | Share
    capital:                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Authorized and issued:
      Unlimited number of common
      shares, voting, without par value.Unlimited number of preferred
      shares, issuable in series.
      Private placement:
      On August 18, 2016, the
      Corporation closed a private placement strategic equity investment with
      Zhongshan Broad-Ocean Motor Company Limited (Broad Ocean) of 17,250,000
      common shares issued from treasury at $1.64083 per share for gross
      proceeds of $28,304,000.

| | Gross Broad-Ocean Offering proceeds (17,250,000 shares at
      $1.64083 per share) |  | $ | 28,304 |  
| | ----------------------------------------------------------------------------------- |  | - | ------ | -
| | Less: Share issuance costs                                                          |  |   | (105   | )
| | Net Broad-Ocean Offering proceeds                                                   |  | $ | 28,199 |  

47

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|**20.** | **Equity
      (contd):**                                                                                                                                                                                                                                                                                                             
|------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                        
|(a)     | Share capital
      (contd):                                                                                                                                                                                                                                                                                                          
|       
|        | Offering:                                                                                                                                                                                                                                                                                                                              
|        |                                                                                                                                                                                                                                                                                                                                        
|        | On
      July 7, 2015, the Corporation closed an underwritten offering (Offering)
      of 9,343,750 common shares at a price of $1.60 per share for gross
      proceeds of $14,950,000. Net cash proceeds to Ballard were $13,389,000,
      after deducting underwriting discounts, commissions and other offering
      expenses.

| | Gross July Offering proceeds (9,343,750 shares at $1.60 per
      share) |  | $ | 14,950 |  
| | ------------------------------------------------------------------------ |  | - | ------ | -
| | Less: Underwriting expenses                                              |  |   | (1,047 | )
| | Less: Other financing expenses                                           |  |   | (514   | )
| | Net
      July Offering proceeds                                         |  | $ | 13,389 |  

|(b) | Share purchase
  warrants:
|--- | --------------------------
|    |                           

| |                            | Exercise price of |          |   | Exercise price of |   | Total     | 
| | -------------------------- | ----------------- | -------- | - | ----------------- | - | --------- | 
| | Warrants Outstanding       | $                 | 1.50     |   |                   | $ | 2.00      | 
| | At January 1,
    2015     |                   | 247,563  |   |                   |   | 1,675,000 | 
| | Warrants exercised in 2015 |                   | (125,000 | ) |                   |   | -         | 
| | At December 31,
    2015   |                   | 122,563  |   |                   |   | 1,675,000 | 
| | Warrants exercised in 2016 |                   | -        |   |                   |   | -         | 
| | At December 31, 2016       |                   | 122,563  |   |                   |   | 1,675,000 | 

|    | During 2016, nil
      warrants were exercised. During 2015, 125,000 warrants were exercised for
      an equal amount of common shares for net proceeds of
$168,000.                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | At December 31, 2016,
      1,797,563 share purchase warrants were issued and outstanding (2015 
      1,797,563).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(c) | Share
    options:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    | The Corporation has
      options outstanding under a consolidated share option plan. All directors,
      officers and employees of the Corporation, and its subsidiaries, are
      eligible to participate in the share option plans although as a matter of
      policy, options are currently not issued to directors. Option exercise
      prices are denominated in either Canadian or U.S. dollars, depending on
      the residency of the recipient. Canadian dollar denominated options have
      been converted to U.S. dollars using the year-end exchange rate for
      presentation purposes.
|   
|    | All options have a
      term of seven years from the date of grant unless otherwise determined by
      the board of directors. One-third of the options vest and may be
      exercised, at the beginning of each of the second, third, and fourth years
      after granting.                                                                                                                                                                                                                                                                                                                                

48

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|**20.** | **Equity
      (contd):**                                                                                 
|------- | -----------------------------------------------------------------------------------------------------------
|        |                                                                                                            
|(c)     | Share
options:                                                                                             
|        |                                                                                                            
|        | As
      at December 31, options outstanding from the consolidated share option
      plan were as follows:

| |                         |  | Options for   |   |  | Weighted average
| | ----------------------- |  | ------------- | - |  | ----------------
| | Balance                 |  | common shares |   |  | exercise price  
| | At January 1,
    2015  |  | 4,316,427     |   |  | $               
| | Options
      granted   |  | 2,306,635     |   |  |                 
| | Options
      exercised |  | (322,892      | ) |  |                 
| | Options
      forfeited |  | (349,336      | ) |  |                 
| | Options
      expired   |  | (445,334      | ) |  |                 
| | At December 31, 2015    |  | 5,505,500     |   |  |                 
| | Options
      granted   |  | 1,363,315     |   |  |                 
| | Options
      exercised |  | (443,589      | ) |  |                 
| | Options
      forfeited |  | (583,827      | ) |  |                 
| | Options
      expired   |  | (303,670      | ) |  |                 
| | At December 31, 2016    |  | 5,537,729     |   |  | $               

| | The following table summarizes information
      about the Corporations share options outstanding as at December 31,
      2016:
| | ---------------------------------------------------------------------------------------------------------------------------------

| |                         |  | Options outstanding |  |                  | Options exercisable
| | ----------------------- |  | ------------------- |  | ---------------- | -------------------
| |                         |  |                     |  | Weighted average |                    
| |                         |  |                     |  | remaining        |                    
| |                         |  | Number              |  | contractual life |                    
| | Range of exercise price |  | outstanding         |  | (years)          |                    
| | $0.60  $1.00           |  | 519,007             |  | 3.0              |                    
| | $1.19  $1.42           |  | 1,791,984           |  | 5.7              |                    
| | $1.56  $2.22           |  | 2,181,231           |  | 4.1              |                    
| | $2.36  $3.45           |  | 1,045,507           |  | 1.9              |                    
| |                         |  | 5,537,729           |  | 4.1              |                    

| | During 2016, 443,589 options were exercised
      for an equal amount of common shares for proceeds of $508,000. During
      2015, 322,892 options were exercised for an equal amount of common shares
      for proceeds of $388,000. 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                         
| | During 2016, options to purchase 1,363,315 common shares were
      granted with a weighted average fair value of $0.75 (2015  2,306,635
      options and $1.23 fair value). The granted options vest annually over
      three years.

49

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|**20.** | **Equity
      (contd):**                                                                                                                                  
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                             
|(c)     | Share options (contd):                                                                                                                                     
|        |                                                                                                                                                             
|        | The fair values of the options granted were
      determined using the Black-Scholes valuation model under the following
      weighted average assumptions:

| |                         | 2016    |  | 2015   
| | ----------------------- | ------- |  | -------
| | Expected life           | 4 years |  | 4 years
| | Expected dividends      | Nil     |  | Nil    
| | Expected
    volatility | 77%     |  | 78%    
| | Risk-free interest rate | 1%      |  | 1%     

|    | As at December 31,
      2016, options to purchase 5,537,729 common shares were outstanding (2015 
      5,505,500). During 2016, compensation expense of $1,414,000 (2015 
      $2,048,000) was recorded in net loss based on the grant date fair value of
      the awards recognized over the vesting period.                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(d) | Share distribution
      plan:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    | The Corporation has a
      consolidated share distribution plan that permits the issuance of common
      shares for no cash consideration to employees of the Corporation to
      recognize their past contribution and to encourage future contribution to
      the Corporation. At December 31, 2016, there were 10,553,115 (2015 
      8,748,294) shares available to be issued under this plan.                                                                                                                      
|   
|    | During 2015 and 2016,
      no shares were issued under this plan and therefore no compensation
      expense was recorded against income.                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(e) | Deferred share
      units:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    | Deferred share units
      (DSUs) are granted to the board of directors and executives. Eligible
      directors may elect to receive all or part of their annual retainers and
      executives may elect to receive all or part of their annual bonuses in
      DSUs. Each DSU is redeemable for one common share in the capital of the
      Corporation after the director or executive ceases to provide services to
      the Corporation. Shares will be issued from the Corporations share
      distribution plan.

| | Balance                  |  | DSUs for common shares |  
| | ------------------------ |  | ---------------------- | -
| | At January 1,
    2015   |  | 911,843                |  
| | DSUs
      granted       |  | 160,062                |  
| | DSUs
      exercised     |  | (154,280               | )
| | At December 31, 2015     |  | 917,625                |  
| | DSUs
      granted       |  | 481,095                |  
| | DSUs
      exercised     |  | (273,469               | )
| | At December 31,
    2016 |  | 1,125,250              |  

50

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|20. | Equity
    (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(e) | Deferred share units
      (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    | During 2016, $300,000
      of compensation expense was recorded in net loss relating to DSUs granted
      during the year.                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    | During 2015, $659,000
      of compensation expense was recorded in net loss, of which $265,000
      related to DSUs granted during the year. The remaining $394,000 related to
      compensation expense expected to be earned for DSUs not yet
    issued.                                                                                                                                                                                                                                                          
|   
|    | During 2016, 273,469
      DSUs (2015  154,280) were exercised which resulted in the issuance of
      146,211 common shares (2015  83,619).                                                                                                                                                                                                                                                                                                                                                                          
|   
|    | As at December 31,
      2016, 1,125,250 deferred share units were outstanding (2015 
      917,625).                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(f) | Restricted share
      units:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    | Restricted share units
      (RSUs) are granted to employees and executives. Each RSU is convertible
      into one common share. The RSUs vest after a specified number of years
      from the date of issuance, and under certain circumstances, are contingent
      on achieving specified performance criteria.                                                                                                                                                                                                 
|   
|    | The Corporation has
      two plans under which RSUs may be granted, the consolidated share
      distribution plan and the market purchase RSU plan. Awards under the
      consolidated share distribution plan (note 20(d)) are satisfied by the
      issuance of treasury shares on maturity. Awards granted under the market
      purchase RSU Plan are satisfied by shares purchased on the open market by
      a trust established for that purpose. No common shares were repurchased in
      2016 and 2015.

| |                          |  | RSUs for common shares |  
| | ------------------------ |  | ---------------------- | -
| |                          |  | Share                  |  
| | Balance                  |  | Distribution Plan      |  
| | At January 1,
    2015   |  | 1,923,983              |  
| | RSUs
    granted         |  | 1,036,417              |  
| | RSUs
      exercised     |  | (206,333               | )
| | RSUs
      forfeited     |  | (1,045,441             | )
| | At December 31,
    2015 |  | 1,708,626              |  
| | RSUs
    granted         |  | 820,247                |  
| | RSUs
      exercised     |  | (143,126               | )
| | RSUs
      forfeited     |  | (912,339               | )
| | At December 31, 2016     |  | 1,473,408              |  

| | During 2016, 820,247 RSUs were
      issued (2015  1,036,417). The fair value of RSU grants is measured based
      on the stock price of the shares underlying the RSU on the date of grant.
      During 2016, compensation expense of $1,310,000 (2015 - $243,000) was
      recorded against income.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

51

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|**20.** | Equity
    (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(f)     | Restricted share units (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|       
|        | During 2016, 143,126 RSUs (2015  206,333) were
      exercised which resulted in the issuance of 80,945 common shares (2015 
      119,627).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|       
|        | As at December 31, 2065, 1,473,408 RSUs were outstanding
      (2015  1,708,626).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       
|21.     | Non-dilutive equity financing:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|       
|        | In 2015, an agreement was reached and the Corporation
      signed mutual releases with Superior Plus Income Fund (Superior Plus) as
      to the full and final amount payable to the Corporation under the
      indemnification agreement (the Indemnity Agreement), originally signed
      in 2008, and received additional cash proceeds of $3,347,000 in February
      2016. The cash proceeds receivable were recorded as a credit to
      shareholders equity as of December 31, 2015 consistent with the
      accounting for the original transaction in 2008. The cash proceeds
      collected in February 2016 are presented as a non-dilutive financing in
      the 2016 statement of cash flows.
|       
|22.     | Operating leases:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|       
|        | The Corporation leases a facility at its Burnaby, Canada
      location, which has been assessed as an operating lease. The facility has
      a lease term expiring in 2019, with renewal options after that date.
      During 2016, lease payments of $2,063,000 relating to the building were
      expensed (2015 - $2,139,000).                                                                                                                                                                                                                                                                                                                                                                                   
|       
|        | At December 31, 2016, the Corporation is committed to
      payments under operating leases as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

| | Less than 1 year             |  | $ | 2,617
| | ---------------------------- |  | - | -----
| | 1-3 years                    |  |   | 4,382
| | 4-5 years                    |  |   | 1,227
| | Thereafter                   |  |   | 1,480
| | Total minimum lease payments |  | $ | 9,706

|23. | Commitments and
      contingencies:                                                                                                                                                                                                                                                                                                                                                   
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | In connection with the
      acquisition of intellectual property from UTC in April 2014, the
      Corporation retains a royalty obligation to pay UTC a portion (typically
      25%) of any future intellectual property sale and licensing income
      generated from the intellectual property portfolio acquired from UTC for a
      period of 15 years expiring in April 2029.
|   
|    | The Corporation retains a
      previous funding obligation to pay royalties of 2% of revenues, to a
      maximum of $4,613,000 (CDN $5,351,000), on sales of certain fuel cell
      products for commercial distributed utility applications. As of December
      31, 2016, no royalties have been incurred to date for this
      agreement.                                      

52

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|**23.** | Commitments
      and contingencies (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | The Corporation also retains a
      previous funding obligation to pay royalties of 2% of revenues, to a
      maximum of $1,896,000 (CDN $2,200,000), on sales of certain fuel cell
      products for commercial transit applications. As of December 31, 2016, no
      royalties have been incurred to date for this agreement.
      On December 31, 2008, the
      Corporation completed a restructuring agreement (Arrangement) with
      Superior Plus Income Fund (Superior Plus), whereby the Corporation
      caused its entire business and operations, including all assets and
      liabilities, to be transferred to a new corporate entity, such that the
      new corporate entity held all of the same assets, liabilities, directors,
      management and employees as the Corporation formerly had under its old
      corporate entity, except for its tax attributes. The Arrangement included
      an indemnification agreement (the "Indemnity Agreement") which set out
      each partys continuing obligations to the other including a provision for
      adjustments to be paid by the Corporation, or to the Corporation,
      depending on the final determination of the amount of the Corporations
      Canadian non-capital losses, scientific research and development
      expenditures and investment tax credits generated to December 31, 2008, to
      the extent that such amounts are more or less than the amounts estimated
      at the time the Arrangement was executed. In 2015, an agreement was
      reached and the Corporation signed mutual releases with Superior Plus as
      to the full and final amount payable to the Corporation under the
      Indemnity Agreement and received additional cash proceeds of $3,347,000 in
      February 2016 (note 20). The cash proceeds receivable have been recorded
      as a credit to shareholders equity as of December 31, 2015 consistent
      with the accounting for the original transaction in 2008.
      At December 31, 2016, the
      Corporation has outstanding commitments aggregating up to a maximum of
      $3,863,000 (2015 - $432,000) relating primarily to the ongoing
      implementation of an ERP management reporting software system and for
      purchases of property, plant and equipment.
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|**24.** | Personnel
      expenses:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | Personnel expenses are included
      in cost of product and service revenues, research and product development
      expense, general and administrative expense, sales and marketing expense,
      and other expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

| |                                      |  | December 31, |        | December 31,
| | ------------------------------------ |  | ------------ | ------ | ------------
| |                                      |  | 2016         |        | 2015        
| | Salaries and employee
      benefits |  | $            | 57,735 |             
| | Share-based compensation (note 20)   |  |              | 3,024  |             
| |                                      |  | $            | 60,759 |             

53

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|**25.** | Other operating
      expense:
|------- | ------------------------------
|        |                               

| |                                                           |  | December 31, |       |   | December 31, |  
| | --------------------------------------------------------- |  | ------------ | ----- | - | ------------ | -
| |                                                           |  | 2016         |       |   | 2015         |  
| | Net impairment loss
      (recovery) on trade receivables |  | $            | (63   | ) |              | $
| | Restructuring costs (recovery)                            |  |              | 2,318 |   |              |  
| | Acquisition costs (note 7)                                |  |              | 43    |   |              |  
| |                                                           |  | $            | 2,298 |   |              | $

|****    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        | In 2016, the Corporation recorded
      net impairment recoveries of ($63,000) consisting of new impairment
      charges of $390,000 primarily due to impairment of certain individually
      insignificant past due receivables from a variety of customers as a result
      of continued non-payment, offset by cash collected of $453,000 on
      previously impaired accounts. In the event that the Corporation recovers
      any amounts previously recorded as impairment losses, the recovered amount
      will be recognized as a reversal of the impairment loss in the period of
      recovery.
      In 2015, net impairment
      recoveries on trade receivables of ($899,000) consists of recoveries of
      ($1,355,000) as the Corporation collected on certain trade receivables
      principally in Asia that were previously impaired, partially offset by new
      impairment charges of $456,000.
      Restructuringcharges of
      $2,318,000 incurred during 2016 relate to cost reduction initiatives that
      included the elimination of approximately 50 positions including the
      elimination of three executive level positions and costs associated with
      the closure of the contract manufacturing facility in Tijuana, Mexico.
      These cost reduction initiatives were primarily focused on reducing the
      operating cost base associated with methanol Telecom Backup Power
      activities as the Corporation continued to review strategic alternatives
      for these assets prior to the transaction with Chung-Hsin Electric &
      Machinery Manufacturing Corporation (note 27).
      Further acquisition integration
      costs of $43,000 were incurred in 2016 related to the 2015 acquisition of
      Protonex.
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|**26.** | **Finance income and
expense:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

| |                                                                    |  | 2016 |      |   | 2015 |  
| | ------------------------------------------------------------------ |  | ---- | ---- | - | ---- | -
| | Employee future benefit
      plan expense (note 19)               |  | $    | (263 | ) |      | $
| | Pension administration expense                                     |  |      | (103 | ) |      |  
| | Investment and other
      income                                  |  |      | 164  |   |      |  
| | Unrealized gain (loss) on forward foreign
      exchange contracts |  |      | 151  |   |      |  
| | Other income
    (loss)                                            |  |      | (52  | ) |      |  
| | Foreign exchange gain (loss)                                       |  |      | (674 | ) |      |  
| | Finance (loss) and other                                           |  | $    | (777 | ) |      | $
| | Finance expense                                                    |  | $    | (686 | ) |      | $

54

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|**27.** | Loss on sale of
      assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | During the year ended December
      31, 2016, the Corporation completed the sale of certain of its methanol
      Telecom Backup Power business assets to CHEM, a Taiwanese power equipment
      company, for a purchase price of up to $6,100,000 of which $3,000,000 was
      received on closing. The remaining potential purchase price of up to
      $3,100,000 consists of an earn-out arising from sales of methanol Telecom
      Backup Power systems by CHEM during the 18-month earn-out period to
      November 2017 derived from the sales pipeline transferred to CHEM on
      closing.
      During the year ended December
      31, 2016, the Corporation recorded a loss on sale of these assets of
      $632,000 based on the estimated fair value of the earn-out payments of
      approximately $1,838,000. The final gain (loss) on sale arising from the
      CHEM transaction is subject to change depending upon the final earn-out
      amount actually received by the Corporation through November 2017. On the
      closing of this transaction, CHEM received assets related to the methanol
      Telecom Backup Power line of the business including intellectual property
      rights and physical assets such as inventory and related product
      brands.

| | Cash proceeds received                                    | $ | 3,000  |  
| | --------------------------------------------------------- | - | ------ | -
| | Proceeds receivable (fair value of earn-out
    payments) |   | 1,838  |  
| | Total proceeds                                            |   | 4,838  |  
| | Less: Disposition costs                                   |   | (88    | )
| | Net proceeds                                              |   | 4,750  |  
| | Less: Net book value of disposed assets                   |   | (5,382 | )
| | Loss on sale of assets                                    | $ | (632   | )

|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|****    | Various miscellaneous disposals
      also occurred in the year ended December 31, 2016, resulting in a gain on
      sale of property, plant, and equipment of $9,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|**28.** | **Impairment charges on intangible assets and property,
      plant and equipment:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | During the year ended December
      31, 2016, the Corporation recorded total impairment losses of $1,151,000,
      consisting of a $770,000 impairment charge on intangible assets and a
      $381,000 impairment charge on property, plant and equipment as the
      Corporation wrote-off certain methanol Telecom Backup Power assets to
      their estimated net realizable value of $nil. The impairment charges were
      incurred while the Corporation was reviewing strategic alternatives for
      the Corporations methanol Telecom Backup Power assets prior to concluding
      the transaction with CHEM (note 27).

55

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|**29.** | Income
    taxes:                                                                                                                                      
|------- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                        
|(a)     | Current tax expense:                                                                                                                                   
|        |                                                                                                                                                        
|        | The components of income tax
      benefit / (expense) included in the determination of the profit (loss)
      from continuing operations comprise of:

| |                                                             | 2016 |         |   | 2015 |  
| | ----------------------------------------------------------- | ---- | ------- | - | ---- | -
| | Current tax expense                                         |      |         |   |      |  
| | Current period income tax                                   | $    | 3       |   |      | $
| | Withholding tax                                             |      | 378     |   |      |  
| | Adjustment for prior periods                                |      | -       |   |      |  
| | Total current tax expense                                   | $    | 381     |   |      | $
| |                                                            
| | Deferred tax
      expense                                  |      |         |   |      |  
| | Origination and reversal
      of temporary differences     | $    | (10,002 | ) |      | $
| | Adjustments for prior periods                               |      | 395     |   |      |  
| | Change in unrecognized deductible temporary
    differences |      | 9,607   |   |      |  
| | Total deferred tax expense                                  | $    | -       |   |      | $
| |                                                            
| | Total income tax expense                                    | $    | 381     |   |      | $

| |                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Corporations effective
      income tax rate differs from the combined Canadian federal and provincial
      statutory income tax rate for companies. The principal factors causing the
      difference are as follows:

| |                                                               |  | 2016 |         |   | 2015 |  
| | ------------------------------------------------------------- |  | ---- | ------- | - | ---- | -
| | Net loss before income taxes                                  |  | $    | (21,306 | ) |      | $
| | Expected tax recovery at 26.00% (2015 
      26.00%)         |  | $    | (5,540  | ) |      | $
| | Increase (reduction) in
      income taxes resulting from:    |  |      |         |   |      |  
| | Non-taxable portion
      of capital gain                     |  |      | 11      |   |      |  
| | Non-deductible
      expenses                                 |  |      | 926     |   |      |  
| | Expiry of losses
      and investment tax credits             |  |      | 86      |   |      |  
| | Investment tax
      credits earned                           |  |      | (3,153  | ) |      |  
| | Foreign tax rate
      differences                            |  |      | (633    | ) |      |  
| | Change in
      unrecognized deductible temporary differences |  |      | 8,684   |   |      |  
| | Income taxes                                                  |  | $    | 381     |   |      | $

|(b) | Unrecognized deferred tax liabilities:                                                                                                                                                               
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                      
|    | At December 31, 2016, the
      Corporation has not recognized any deferred tax liabilities resulting from
      taxable temporary differences for financial statement and income tax
      purposes.

56

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|**29.** | Income taxes
      (contd):                                                                                                                                                                               
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                            
|(c)     | Unrecognized deferred tax
asset:                                                                                                                                                                           
|        |                                                                                                                                                                                                            
|        | At December 31, 2016, the
      Corporation did not have any deferred tax assets resulting from the
      following deductible temporary differences for financial statement and
      income tax purposes.

| |                                                           | 2016 |         | 2015
| | --------------------------------------------------------- | ---- | ------- | ----
| | Scientific research expenditures                          | $    | 69,157  |     
| | Accrued warranty provision                                |      | 14,064  |     
| | Share issuance costs                                      |      | 2,000   |     
| | Losses from operations carried forward                    |      | 101,129 |     
| | Investment tax credits                                    |      | 27,586  |     
| | Property, plant and
      equipment and intangible assets |      | 154,485 |     
| |                                                           | $    | 368,421 |     

| |                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Deferred tax assets have not been
      recognized in respect of these deductible temporary differences because it
      is not currently probable that future taxable profit will be available
      against which the Corporation can utilize the benefits.
      The Corporation has available to
      carry forward the following as at December 31:

| |                                                                |  | 2016 |        | 2015
| | -------------------------------------------------------------- |  | ---- | ------ | ----
| | Canadian scientific research
      expenditures                |  | $    | 69,157 |     
| | Canadian losses from operations                                |  |      | 39,634 |     
| | Canadian investment tax credits                                |  |      | 27,586 |     
| | German losses from operations for corporate tax
      purposes |  |      | 555    |     
| | U.S. federal losses from
operations                            |  |      | 34,329 |     
| | Denmark losses from operations                                 |  |      | 26,603 |     
| | Hong Kong losses from operations                               |  |      | 7      |     

| | The Canadian scientific research
      expenditures may be carried forward indefinitely. The Canadian losses from
      operations may be used to offset future Canadian taxable income and expire
      over the period from 2028 to 2036.
      The German and Denmark losses
      from operations may be used to offset future taxable income in Germany and
      Denmark for corporate tax and trade tax purposes and may be carried
      forward indefinitely.
      The U.S. federal losses from
      operations may be used to offset future U.S. taxable income and expire
      over the period from 2019 to 2036.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

57

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|**29.** | **Income taxes
      (contd):**                                                                                                           
|------- | -------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                            
|(c)     | Unrecognized deferred tax asset
      (contd):                                                                                            
|        |                                                                                                                                            
|        | The Canadian investment tax
      credits may be used to offset future Canadian income taxes otherwise
      payable and expire as follows:

| | 2019 | $ | 1,756 
| | ---- | - | ------
| | 2020 |   | 1,426 
| | 2021 |   | 1,344 
| | 2022 |   | 1,078 
| | 2023 |   | 762   
| | 2024 |   | 940   
| | 2025 |   | 1,349 
| | 2026 |   | 1,578 
| | 2029 |   | 3,529 
| | 2030 |   | 2,417 
| | 2031 |   | 2,246 
| | 2032 |   | 1,954 
| | 2033 |   | 1,714 
| | 2034 |   | 1,619 
| | 2035 |   | 1,746 
| | 2036 |   | 2,128 
| |      | $ | 27,586

|**30.** | **Related party
      transactions:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | Related parties include
      shareholders with a significant ownership interest in the Corporation,
      including its subsidiaries and affiliates, and the Corporations
      equity accounted investee. The revenue and costs recognized from such
      transactions reflect the prices and terms of sale and purchase
      transactions with related parties, which are in accordance with normal
      trade practices at fair value. For the year ended December 31, 2016 and
      2015, related party transactions and balances were limited to transactions
      with our 10% equity accounted investee, Synergy JVCo as
    follows:

| | Balances with related parties:                           |  | 2016 |        | 2015
| | -------------------------------------------------------- |  | ---- | ------ | ----
| | Investments                                              |  | $    | 1,185  |     
| | Trade and other payables                                 |  |      | 1,005  |     
| | Deferred
      revenue                                   |  |      | 15,501 |     
| |                                                         
| | Transactions during the year with related
      parties: |  |      | 2016   |     
| | Revenues                                                 |  | $    | 4,389  |     
| | Purchases                                                |  |      | -      |     

58

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|**30.** | **Related party transactions (contd):**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | The Corporation provides key
      management personnel, being board directors and executive officers,
      certain benefits, in addition to their salaries. Key management personnel
      also participate in the Corporations share-based compensation plans (note
      19).
      In addition to cash and equity
      compensation, the Corporation provides the executive officers with certain
      personal benefits, including car allowance, medical benefit program, long
      and short-term disability coverage, life insurance and an annual medical,
      financial planning allowance and relocation allowances and services as
      necessary.
      The employment agreements for the
      executive officers vary by individual. The maximum obligation that is
      required to be provided in the event of termination is notice of 12 months
      plus one month for every year of employment completed with the
      Corporation, to a maximum of 24 months, or payment in lieu of such notice,
      consisting of the salary, bonus and other benefits that would have been
      earned during such notice period. If there is a change of control, and if
      the executive officers employment is terminated, including a constructive
      dismissal, within 2 years following the date of a change of control, the
      executive officer is entitled to a payment equivalent to payment in lieu
      of a 24 month notice period. The minimum obligation that is required is
      limited to that required by employment standards legislation plus one day
      for every full month of employment since hire date, with no distinction
      made for a change of control situation.
      Key management personnel
      compensation is comprised of:

| |                                      |  | 2016 |       | 2015
| | ------------------------------------ |  | ---- | ----- | ----
| | Salaries and employee
      benefits |  | $    | 3,026 |     
| | Post-employment retirement
benefits  |  |      | 74    |     
| | Termination benefits                 |  |      | 1,982 |     
| | Share-based compensation (note 20)   |  |      | 1,184 |     
| |                                      |  | $    | 6,266 |     

|        |                                                        
|------- | -------------------------------------------------------
|**31.** | **Supplemental disclosure of cash flow
  information:**

| | Non-cash financing and investing
      activities:                 |  | 2016 |       | 2015
| | ------------------------------------------------------------------ |  | ---- | ----- | ----
| | Compensatory
    shares                                            |  | $    | 459   |     
| | Shares issued for acquisition of intangible
      assets (note 11) |  | $    | -     |     
| | Earn-out receivable on sale of assets                              |  | $    | 1,838 |     

59

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|**32.** | **Operating segments:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | The Corporation operates in a
      single segment, Fuel Cell Products and Services, which consists of the
      design, development, manufacture, sale and service of PEM fuel cell
      products for a variety of applications, focusing on the power product
      markets of Heavy-Duty Motive (consisting of bus and tram applications),
      Portable Power, Material Handling and Backup Power, as well as the
      delivery of Technology Solutions, including engineering services,
      technology transfer and the licensing and sale of the Corporations
      extensive intellectual property portfolio and fundamental knowledge for a
      variety of fuel cell applications.

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In 2016, revenues included sales
      to three individual customers of $27,785,000, $13,916,000 and $12,775,000,
      respectively, which each exceeded 10% of total revenue.
      In 2015, revenues included sales
      to three individual customers of $14,517,000, $12,674,000 and $8,605,000,
      respectively, which each exceeded 10% of total revenue.
      Revenues from continuing
      operations by geographic area, which are attributed to countries based on
      customer location for the years ended December 31, is as
      follows:

| | Revenues        |  | 2016 |        | 2015
| | --------------- |  | ---- | ------ | ----
| | China           |  | $    | 33,440 |     
| | U.S.            |  |      | 27,547 |     
| | Germany         |  |      | 14,318 |     
| | India           |  |      | -      |     
| | Taiwan          |  |      | 1,777  |     
| | Japan           |  |      | 1,508  |     
| | France          |  |      | 1,201  |     
| | Denmark         |  |      | 1,005  |     
| | Nepal           |  |      | 918    |     
| | Belgium         |  |      | 812    |     
| | Canada          |  |      | 680    |     
| | Other countries |  |      | 2,064  |     
| |                 |  | $    | 85,270 |     

| | Non-current assets by geographic
      area are as follows:
| | -----------------------------------------------------------

| |                        |  | December 31, |        | December 31,
| | ---------------------- |  | ------------ | ------ | ------------
| | Non-current
    assets |  | 2016         |        | 2015        
| | Canada                 |  | $            | 58,649 |             
| | U.S.                   |  |              | 15,698 |             
| | China                  |  |              | 180    |             
| | Denmark                |  |              | 82     |             
| | Mexico                 |  |              | -      |             
| |                        |  | $            | 74,609 |             

60

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|**33.** | **Financial
      instruments:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(a)     | Fair value:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | The Corporations financial
      instruments consist of cash and cash equivalents, trade and other
      receivables, investments, trade and other payables, debt to
      non-controlling interests, and finance lease liability. The fair values of
      cash and cash equivalents, trade and other receivables, and trade and
      other payables approximate their carrying values because of the short-term
      nature of these instruments. The interest rates applied to the finance
      lease liability are not considered to be materially different from market
      rates, thus the carrying value of the finance lease liability approximates
      fair value.

| |                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------
| | Fair value measurements
      recognized in the statement of financial position must be categorized in
      accordance with the following levels:

|    | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Level 1: Quoted prices
      (unadjusted) in active markets for identical assets or
    liabilities;                                                                                                     
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                          
|    | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Level 2: Inputs other than quoted
      prices included in Level 1 that are observable for the asset or liability,
      either directly (i.e. as prices) or indirectly (i.e. derived from
      prices);
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | (iii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Level 3: Inputs for the asset or
      liability that are not based on observable market data (unobservable
      inputs).                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(b) | Financial risk
      management:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The Corporation
      primarily has exposure to foreign currency exchange rate risk, commodity
      risk, interest rate risk, and credit risk.
      Foreign currency exchange rate
      risk
      Foreign currency exchange rate
      risk is the risk that the fair value of deferred cash flows of a financial
      instrument will fluctuate because of changes in foreign exchange rates.
      The Corporation is exposed to currency risks primarily due to its holdings
      of Canadian dollar denominated cash equivalents and its Canadian dollar
      denominated purchases and accounts payable. Substantially all receivables
      are denominated in U.S. dollars.
      The Corporation limits its
      exposure to foreign currency risk by holding Canadian denominated cash and
      cash equivalents in amounts up to 100% of forecasted twelve month Canadian
      dollar net expenditures and up to 50% of the following twelve months of
      forecasted Canadian dollar net expenditures, thereby creating an economic
      hedge. Periodically, the Corporation also enters into forward foreign
      exchange contracts to further limit its exposure. At December 31, 2016,
      the Corporation held Canadian dollar denominated cash and cash equivalents
      of CDN $16,132,000 and outstanding forward foreign exchange contracts to
      sell a total of CDN $ 10,750,000 in 2017 at an average rate of CDN $1.32
      to US $1.00.

61

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|**33.** | **Financial instruments
      (contd):**                                          
|------- | -----------------------------------------------------------------------------------
|        |                                                                                    
|(b)     | Financial risk management
      (contd):                                          
|        |                                                                                    
|        | The following exchange rates
      applied during the year ended December 31, 2016:

| |                                |  | $U.S. to $1.00 CDN |  | $CDN to $1.00 U.S.
| | ------------------------------ |  | ------------------ |  | ------------------
| | January 1, 2016 Opening rate   |  | $     0.723        |  |                   
| | December 31, 2016 Closing rate |  | $    0.745         |  |                   
| | Fiscal 2016 Average rate       |  | $    0.754         |  |                   

| | Based on cash and cash
      equivalents and forward foreign exchange contracts held at December 31,
      2016, a 10% increase in the Canadian dollar against the U.S. dollar, with
      all other variables held constant, would result in an increase in foreign
      exchange gains of approximately $2,002,000 recorded against net income.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | If the Canadian dollar weakened
      10% against the U.S. dollar, there would be an equal, and opposite impact,
      on net income. This sensitivity analysis includes foreign currency
      denominated monetary items, and adjusts their translation at year-end, for
      a 10% change in foreign currency rates.
      Commodity risk
      Commodity risk is the risk of
      financial loss due to fluctuations in commodity prices, in particular, for
      the price of platinum and palladium, which are key components of the
      Corporations fuel cell products. Platinum and palladium are scarce
      natural resources and therefore the Corporation is dependent upon a
      sufficient supply of these commodities. To manage its exposure to
      commodity price fluctuations, the Corporation may include platinum and or
      palladium pricing adjustments directly into certain significant customer
      contracts, and may also periodically enter into platinum and or palladium
      forward contracts. At December 31, 2016, there were no outstanding forward
      platinum contracts under the Forward Contract Facility.
      Interest rate risk
      Interest rate risk is the risk
      that the fair value of deferred cash flows of a financial instrument will
      fluctuate because of changes in market interest rates. The Corporation is
      exposed to interest rate risk arising primarily from fluctuations in
      interest rates on its cash and cash equivalents. The Corporation limits
      its exposure to interest rate risk by continually monitoring and adjusting
      portfolio duration to align to forecasted cash requirements and
      anticipated changes in interest rates.
      Based on cash and cash
      equivalents at December 31, 2016, a 0.25% decline in interest rates, with
      all other variables held constant, would result in a decrease in
      investment income of $182,000. If interest rates had been 0.25% higher,
      there would be an equal and opposite impact on net income.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

62

---



|BALLARD
      POWER SYSTEMS INC.                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|Notes to
      Consolidated Financial Statements                                                                   
|Years ended
      December 31, 2016, and 2015                                                                      
|(Tabular
      amounts expressed in thousands of U.S. dollars, except per share amounts
      and number of shares)
|                                                                                                                   

|**33.** | **Financial instruments
      (contd):**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(b)     | Financial risk management
      (contd):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | Credit risk
      Credit risk is the risk of
      financial loss to the Corporation if a counterparty to a financial
      instrument fails to meet its contractual obligations and arises
      principally from the Corporations accounts receivable. The Corporation
      manages its exposure to credit risk on accounts receivable by assessing
      the ability of counterparties to fulfill their obligations under the
      related contracts prior to entering into such contracts, and continuously
      monitors these exposures.

|**34.** | **Subsequent
      events:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | Change in ownership in Ballard
      Power Systems Europe
      On January 5, 2017, the
      Corporation purchased all of the shares in its European subsidiary held by
      Dansk Industri Invest A/S (previously Dantherm A/S). As a result, the Corporation now owns 100% of its subsidiary in
      Europe, BPSE (formerly Dantherm Power A/S) effective as of January 5,
      2017. The Corporation previously held 57% of the shares in BPSE before
      purchasing the remaining 43% of shares from Dansk Industri Invest
      A/S.
      For a nominal payment of $43,000,
      the Corporation acquired the remaining shares and obtained the
      cancellation of debt owed by BPSE to Dansk Industri Invest A/S of
      $521,000.

63

---