A GRADUAL EVOLUTION

Which fuel cell areas continue to excite the financial movers and shakers?

Many observers believe that fuel cells lie at the heart of any post-fossil fuel energy architecture. Although they have been around for 150 years and their performance is not in doubt, high manufacturing costs and low levels of reliability mean that they have so far failed to capture a commercial market. If, as recent developments suggest, genuine progress is being made, which technologies and what applications are worth watching?

Prospective investors in the fuel cell market could be forgiven for feeling frustration at its apparently sluggish rate of development, and for forming the view that mainstream market acceptance of fuel cell products is perpetually “just a few years away.” Nevertheless, progress is being made, and certain fuel cell technologies and applications are now more promising than ever before.

A number of fuel cell companies now have prototype products in trial use. US company Medis Technologies is producing
hundreds of its ‘24/7’ fuel cell power packs per month, which it hoped to place in strategic retail outlets by the end of 2006. The units are produced in a semi-automated manufacturing process, and are for use in small portable electronic applications. Canadian fuel cell system manufacturer Hydrogenics received more than five orders for fuel cell power modules between January and August 2006. The units will be
integrated into forklift trucks and auxiliary power units. And Dutch fuel cell company Nedstack, German firm SFC Smart Fuel Cell and, again, Medis Technologies are all scaling up their
operations for volume manufacturing.

The first fully commercial fuel cell products – i.e. those that can be sold competitively against competing technologies at a positive variable margin – are likely to be portable fuel cell applications.

One major reason for this is that portable applications – laptops, cell phones, PDAs – are replaced every year or so.

This is a much shorter cycle than transport applications such as cars and trucks, which are replaced about every five years, and stationary fuel cell applications such as power stations, which are replaced about every 30 years. Fuel cell applications with short market cycles carry lower levels of investment risk, and are therefore more acceptable to the consumer.

The technology most likely to prevail in the consumer electronics market is the direct methanol fuel cell (DMFC). In
late 2005, the International Civil Aviation Organisation’s Dangerous Goods Panel gave the technology a major boost when it overturned a ban on the carriage of micro fuel cells and methanol fuel cartridges onboard aircraft in the passenger cabin.

Dell’s recall of 4.1 million lithium-ion batteries due to overheating in mid- August 2006 gave DMFC manufacturers
a gift-wrapped opportunity to expound the benefits of fuel cell power for laptops.

MTI MicroFuel Cells, a developer of fuel cells for laptops, for instance, claims its power packs are safer – and deliver more power for longer – than incumbent laptop batteries.

Another portable fuel cell application to have made significant progress recently is infantry power packs. In May 2006, Massachusetts-based protonexchange membrane fuel cell (PEMFC) systems developer Protonex Technology Corporation, delivered an advanced prototypes of its P2 soldier power system to the US Air Force, marking the end of a two-year Air Force Research Laboratory (AFRL) grant programme. AFRL intends to award Protonex and its partner Millennium Cell, a New Jersey-based developer of hydrogen storage technology,
an additional US$1m to focus on P2 enhancements and manufacturability– and plans to procure additional fuel cell
systems for performance and reliability testing.

PEMFC technology appears most likely to dominate the fuel cell-powered transport market. The greatest barrier to widespread uptake of these hydrogenpowered fuel cells is the cost and time needed to establish a fully-developed hydrogen infrastructure. Although in its very earliest stages, the world’s hydrogen infrastructure is growing. There are now approximately 140 hydrogen fuelling stations around the world, 15 of which were new in the first half of 2006. The
majority are in the US and Canada, but stations have also opened in Germany, Norway, China and Singapore in the last
year. There have also been a number of announcements over the last 12 months regarding plans for integrated projects, following in the footsteps of the ‘hydrogen highways’ in California and British Columbia.

In the absence of a well developed hydrogen infrastructure, the earliest PEMFC-powered vehicles are likely to be introduced by fleet operators such as bus companies and logistics companies with large numbers of forklift trucks. A company could service its entire fleet using a hydrogen generator and fuelling station at a central depot.

There are already subsidised fleets of PEMFC-powered public buses operating in Europe, Canada and China.

In the forklift market, Wal-Mart and FedEx are trialling fleets of PEMFCpowered vehicles in the US, and in July 2006, Canadian fuel cell developer Hydrogenics received orders for five of
its HyPM fuel cell power packs to be integrated into forklift trucks. Despite the many advantages of PEMFCs over conventional batteries for powering forklifts, advances in battery chemistry could potentially reduce the cost of conventional batteries, rendering PEMFC powered forklifts uncompetitive. There is a growing consensus that hybrid battery-PEMFC forklifts will dominate the future forklift market.

Perhaps the most exciting potential market for fuel cell-powered transport is China. Despite its serious environmental
problems, the country is encouraging increased vehicle use among its massive population. Although China’s general
automotive industry is at a relatively early stage of development, it is clear that the government is keen to see rapid growth of the country’s electric, hybrid and fuel cell vehicle industry.

China will undoubtedly make an important contribution to the fuel cell industry. Attracted by its capability in low-cost, volume manufacturing, overseas fuel cell companies will seek to invest in China to reduce costs, while local investment in the development of fuel cell technology and fuel cell vehicle
demonstration projects, will likely see Chinese companies at the forefront of any fuel cell vehicle revolution.

Using fuel cells to generate power on an industrial scale is currently very expensive, costing between US$3m and US$4m per MW of capacity, compared with US$1.2m per MW of wind
capacity. This means that, despite big names such as Rolls-Royce working on the application of fuel cells to on-grid power generation, stationary fuel cell power generators are currently unviable.

US-based FuelCell Energy and its German partner MTU CFC Solutions have pre-commercial molten carbonate fuel cell systems at the demonstration stage. The Direct FuelCell (from FCE) and HotModule (from MTU) systems have been doing well in quite a few field trials in the US and in Europe, as well as some installations in Japan with local partner Marubeni Corporation. MCFC systems can take advantage of the high
temperatures generated in operation for combined heat and power applications, as with solid oxide fuel cells.

There are subsidised programmes in countries such as Germany – involving the trialing of smaller-scale domestic fuel cell power generators. Solid oxide fuel cells (SOFCs) will probably be the most widely used technology for domestic power generation, because they run on natural gas and can therefore take advantage of the existing gas distribution infrastructure in countries such as Germany and the UK. In Japan, however, PEMFC generators are being used in homes.

Between March 2006 and March 2007, Nippon Oil Corporation will install up to 100 1 kW residential fuel cell cogeneration
units. The units incorporate a Mark 1030 PEMFC stack produced by Canadian company Ballard Power Systems.
There is also activity in domestic fuel cell power generation in the UK. In August 2005, energy group Centrica and British SOFC developer Ceres Power launched a project to determine
how fuel cells could be incorporated into a domestic combined heat and power (CHP) unit. These units provide household electricity as well as heat for hot water and central heating. Any new fuel cell CHP unit that results from the project will be marketed by Centrica’s subsidiary British Gas, which will also
provide the natural gas to power the Ceres SOFC stack inside the unit.

PEMFCs hold particular appeal for light industry power generation, because many factories produce hydrogen as a
by-product. This ‘waste’ hydrogen could be used to produce electricity using on-site PEMFC systems. Two examples of systems running on by-product hydrogen are Nuvera Fuel Cells, which is operating one of its Forza units in a demonstration project with UhdeNora at a chlorate plant in Italy, and NedStack, which is running a PEMFC unit at an Akzo Nobel chemical plant in the Netherlands.

Hydrogenics also has some involvement in the stationary fuel cell applications sector. In August 2006, the Canadian firm entered into an agreement with American Power Conversion
Corporation (APC) to manufacture and supply 500 PEMFC power modules– to be integrated into a group of APC’s backup power systems. If MW-scale fuel cell power production is ever to become widespread, it will have to compete with other clean technologies such as wind, solar, tidal power, and with
fossil fuel and nuclear power generation.

Looking ahead, the principal challenges facing the fuel cell industry as a whole will be the implementation of reliable
supply-chain mechanisms and industrial manufacturing processes as production is scaled up.

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