Fuel cell makers are in overdrive trying to deliver efficient and environmentally friendly technologies. If their enterprises are to succeed, they must illustrate clearly that their ideas are practical and will "change the world."
But economic doldrums are dampening energy demand and affecting the level of investment in emerging technologies. In due course, however, that will change. As the demand for power resumes, regulatory bodies around the globe will insist on greater efficiencies and less pollution. And therein lay the possibilities for fuel cells, which have matured and may soon be ready for prime time.
"The time is now," says Harol Koyama, chief executive of IdaTech, at the Fuel Cell Seminar and Exposition in Phoenix. "The financial issues will go away in 18 months. We will see mass commercialization and consolidation will occur."
Unlike power sources that use fossil fuels, the by-products from a hydrogen-based fuel cell are heat and water. Such a fuel cell converts hydrogen and oxygen into water, and in the process it produces electricity. They have an electrical efficiency rate of 47 percent compared to 30-35 percent for legacy combustion systems, says FuelCell Energy. In combined heat and power applications, where the heat is captured and used, the result is an overall energy efficiency of up to 80 percent, it adds.
According to the U.S. Fuel Cell Council, global sales for all types of fuel cells were reported to be up by 10 percent and had reached $387 million in 2006, the latest year for which such information is available. Spending on research is also up 4 percent to $829 million. Its base case assumption is that stationary fuel cells used to generate electricity will supply 1 percent of the energy consumed in this country in 2020.
Despite the hope, frustration exists. For starters, such technologies have been around for a couple decades and with the exception of some niche applications, they have yet to become widespread. Profitability is therefore elusive. Now the industry must contend with a global recession that is bound to affect capital formation and sales.
The technology does compete with conventional forms of power and automotive generation, which have broader applications and which are considered safer havens for investors. In a market-based economy, capital will flow to where risk takers perceive the most opportunities. Public policy is instrumental in the process, creating the tax incentives and regulatory mandates that can give emerging technologies the boost they need to break into the mainstream.
Indeed, fuel cell makers are beneficiaries of the newly implemented tax breaks, which will be passed on to customers or which will be used to secure financing. All industrialized countries, meanwhile, have strict environmental rules that necessitate finding cleaner ways to burn energy.
"Failure is not an indication that something is wrong," says Gary Flood, chief executive of ReliOn. "Companies are growing and we need to look to their strengths."
"This is typically the time to batten down the hatches," adds Henri Winand, chief executive of Intelligent Energy. "But the good companies are investing."
Pathway to Profitability
What will it take to get fuel cell technologies over the hump and then firmly rooted into the market? Interestingly, the chieftains at some of the world's foremost fuel cell companies said that the recently passed tax credits are helpful but not the key ingredient. The consensus is that such financial incentives are necessary in the short run but over time, the industry must be able to thrive in free markets. Favorable legislation and regulation is more long lasting, they concur, because it embeds consumer behaviors.
Most of all, it's about developing products that customers need. It's about adding value. Many fuel cell makers expect to turn a profit in two to five years. The industry as a whole says that by 2015, it will have turned a corner.
The challenge is daunting but the pay off could be huge. Fuel cells, for example, are used to create back up power for those businesses that cannot afford even a momentary loss of electricity. In other cases, they may be used to provide peak power while in certain instances they may be a primary energy source. To fulfill this promise, though, the technologies must be reliable and affordable.
"What do our investors expect -- a pathway to profitability," says Andy Marsh, chief executive of Plug Power. "We have to work closely with customers to give them a greater value than the alternatives."
Besides the economy, the fuel cell industry must still cope with the fact that hydrogen is produced mainly from natural gas using steam reformation. That method does nothing to limit reliance on fossil fuels or the infrastructure that must carry them.
The transition will no doubt be difficult. Nearly all experts say more investment in gas distribution lines is necessary. For now, though, Intelligent Energy's Winand suggest that the industry must capitalize on existing natural gas distribution pipes and hydrogen reformation centers, preferably located near larger cities. That would ease the reliance on utility-provided power and limit the cost of switching to fuel cells that are powered on site and that do not connect to the grid. It's tantamount to how the mobile phone industry emerged and ultimately captured consumers.
"In the energy sector, the goal has been to produce cheap energy," says Byron McCormick, executive director of fuel cell activities for GM Powertrain. "Governments and others have to think about other, external factors. We have to paint a picture that you can have jobs and that you can change the world."
Fuel cells makers have planted the seeds to what could become sprouting businesses. But the industry faces enduring pressures and must therefore persevere. For their part, national governments will continue to craft policies that favor clean and efficient energy production. In the end, though, it will be the free market that determines which innovative ideas rise or fall.
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