by Peter Lynch
The Hydrogen Economy and Fuel Cells are in the news. As a result, I thought it was appropriate to focus an article in these areas. What is the Hydrogen Economy? What are fuel cells? How they are used? What are the different types of fuel cells and what is an estimate of the timing for commercialization of the various fuel cell applications?
What is The Hydrogen Economy?
The Hydrogen Economy is the term that is used to describe the world's economy in the future (hopefully) in which Hydrogen will be the primary medium of energy storage. This is in contrast to today, in which fossil fuels (oil, natural gas and coal) are the primary natural form of energy storage before it is consumed.
"Yes, my friends, I believe that water will one day be employed as fuel, that hydrogen and oxygen which constitute it, used singly or together, will furnish an inexhaustible source of heat and light, of an intensity of which coal is not capable….water will be the coal of the future".
Jules Verne - Mysterious Island 1874.
What are Fuel Cells?
A fuel cell is an electrochemical energy conversation device. It converts hydrogen and oxygen into water, producing electricity and heat in the process.
Fuel cells are silent, efficient, compact and can be used for many different power applications. There are many different types of fuel cells and each has its optimal uses.
How do Fuel Cells work?
A fuel cell (like a battery) has a positive and a negative side.
Hydrogen is injected into the negative side creating a direct current. Oxygen is injected into the positive side conducting electrons from the negative side and combining them with the hydrogen ions and oxygen to form pure water.
This is why everyone is so excited about fuel cells…you can get pollution free electricity by combining the most abundant element in the universe (hydrogen) with ordinary air (oxygen) and the only other byproduct is 100% pure water.
The real key to understanding where the fuel cell fits in is to first understand where the hydrogen will come from and how it will be extracted.
The number one problem with energy is storage. How do you store it for when it is needed?
Currently we receive the majority of our power from large centralized power plants that are always running, so there is always electricity available in your home when you plug something into the wall. The vast majority of these power plants are fueled by coal and natural gas, so in effect, the energy is stored in the coal, oil or natural gas until it is burned to create electricity. The problem is that we will run out of coal, natural gas and oil (or for environmental reasons be unable to use more) and we will need to have another source of "energy storage".
It is my opinion that the next global source of energy storage will be hydrogen.
Two Key Problems with Hydrogen - Availability and Storage
Availability: even though hydrogen is the most abundant element in the universe it is NOT readily available. Hydrogen normally exists as part of something else (water, natural gas, methanol etc.) as a result, it must be extracted from these other substances and that requires energy. Here in lies the dilemma. If we use fossil fuels (oil, natural gas, propane, methanol etc.) to extract the hydrogen, we are NOT really addressing the problem. We are still burning fossil fuels, polluting the atmosphere and delaying the transition to the hydrogen economy. The optimal solution is for the energy needed to extract hydrogen to come from a renewable source of energy (wind power, photovoltaic solar cells or possibly Fusion in the distant future). A fairly bright fellow once said:
"We are like tenant farmers chopping down the fence around our house for fuel when we should be using Nature's inexhaustible sources of energy-sun, wind and tide. I'd put my money on the sun and solar energy. What a source of power! I hope we don't have to wait until oil and coal run out before we tackle that". - Thomas Alva Edison (1847-1931)
Storage: the second problem is, once we have the hydrogen, how to you store it until you need it to generate power? Some form of solid storage, a liquid or a compressed gas? This will be another whole subset of investment opportunities relating to the hydrogen economy. At this time, the mostly likely (for the near term) appears to be storage as a compressed gas.
Types and Uses of Fuel Cells
The type of electrolyte that is utilized in each fuel cell classifies the type of fuel cell. Some types of fuel cells show promise for use in larger stationary power generation and others may be useful for small portable application or for powering cars. There are 6 main types of fuel cells:
Alkaline - One of the oldest designs. It was used in the U.S. space program in the 1960's. It is very expensive and can only use pure hydrogen and oxygen. It is unlikely to be commercialized for terrestrial applications.
Direct Methanol - these cells run directly on methanol (a liquid fuel that has similar properties to gasoline) without the need for a device (a reformer) that converts various hydrocarbon fuels (natural gas, propane) into hydrogen for use in the fuel cell.
Molten Carbonate - These cells operate at high temperature (1,100 degrees F) and are best suited for a large stationary power application (a building or a power plant). Because of their high operating temperature they also produce steam that can be used for heating, thereby dramatically increasing overall system efficiency.
Phosphoric Acid - The most commercially advance fuel cell. They generally run on natural gas or propane and are best for small stationary power applications. There are several hundred applications of this type of fuel cell in operation around the world.
Proton Exchange Membrane - this fuel cell is getting the most attention in the press. It operates at relatively low temperatures (176 degrees F) and, as a result, can start up quickly. This makes it the leading candidate to replace the internal combustion engine and ideal for other applications that requires some degree of portability.
Solid Oxide - these cells operate at very high temperature (1,800 degrees F) and are best suited for a large stationary power application (a building or a power plant). Because of their high operating temperature they also produce steam that can be used for heating and which also dramatically increases overall system efficiency.
Timing of Fuel Cell Industry Development
The industry is in its early stages now, I don't think anyone needs to rush out and buy fuel cell stocks tomorrow. However, I think this is the ideal time to start a "watch list". This list will consist of companies that you keep an eye on and be ready to buy the appropriate ones when the timing is right and they are mature enough to be stable investments.
There are a number of things that I think the potential investor should keep in mind before creating a "watch list".
The fuel cell industry is just starting and not all the current companies are going to survive. Some will survive and perhaps become market leaders, but others will fall by the wayside.
It is important to understand the "likely" order in which fuel cell applications will become commercial (see below - Likely Order of Commercialization). This should be very helpful in timing when a company is emerging as a potential investment.
The cost of most fuel cells must come down considerably (4 to 6 fold) for fuel cells to be used throughout the economy. A number of technical developments must occur and the industry must scale up production in order to get the cost benefits of mass production.
Even though many fuel cell related stocks are down 70 to 90 percent from their peak in early 2000 they still have fairly large market caps and therefore could still be judged to be overvalued. In addition, most of them have no earnings.
Look for the companies that have at least enough cash on hand to get them through 2 to 3 years of operations without running out of money. At this stage of development, this is a critical screen that MUST BE passed. Compare their quarterly burn rate with cash plus short term investments to determine how many quarters of cash they have on hand.
Likely Order of Commercialization:
1. Micro applications
Many of these applications for fuel cells are cost effective now. Conventional batteries are VERY expensive and many applications of fuel cells are cheaper than batteries now. Some examples that you will be seeing very soon are: Cell phones, laptop computers, PDA's etc. these applications will give devices approximately 5 to 10 times greater time between "charges". You will probably "re-charge" your fuel cell with a little portable direct methanol cell (similar to the old fountain pen ink cartridges) that will inject methanol to re-power your cell.
2. Stationary Power for special high value uses
Applications where the need for highly reliable uninterrupted power is GREATER than any extra cost associated with fuel cells. For example, if a large computer data center lost power (for even a few seconds) that could result in a loss of millions of dollars. Fuel cells are very reliable (more reliable than the current electricity grid) and will be used as backup to make sure that power is never lost. In fact, many high tech silicon valley firms and a number of transaction related companies (credit card processors) currently utilize fuel cells because of their higher reliability.
3. Portable Applications
First applications in this area will probably be small portable generators for emergency uses or remote locations. For example, Coleman is currently selling a small portable unit (1 kilowatt) that runs on either cylinders in which the hydrogen is stored in solid form or on compressed hydrogen gas.
4. Stationary Power
As the price of fuel cells comes down they will begin powering whole buildings and also providing heat for heating and air conditioning. These will most likely be the kind of fuel cells that also give off a lot of heat. These are much more efficient (in this application) because in addition to providing electricity, the fuel cell can also provide heat for a building thereby dramatically increasing the systems overall efficiency.
The most well known area of fuel cells, thanks to the press and President Bush. But in my opinion, it may be the LAST area to be fully commercialized. There are a number of problems that must be solved involving storing the hydrogen effectively (cost, weight, space and safety) to fit in an automobile that are not factors in a building or home. In addition, there is a lack of a nationwide (or local) hydrogen infrastructure i.e. hydrogen (gas stations) stations where people can stop and get their vehicles re-fueled.
Bottom Line - Fuel Cells are coming and they will be everywhere
Fuel cells will be one of the key components in the hydrogen economy. They will replace the internal combustion engine and will convert the future main store of energy (hydrogen) to power when it is needed. But hybrid cars (part electric and part gasoline), such as the new Toyota Prius will be available in your local showroom many years before a fuel cell car. Eventually, fuel cells will be everywhere throughout the economy, they will power cities, buildings, homes, portable computers, cell phones, vending machines and vehicles of every type.
In general, I do think there are some "technical" breakthroughs necessary to allow fuel cells take their place as one of the key elements in the world's future Hydrogen Economy. Numerous governments, research laboratories and private and public corporations worldwide are working to solve these technical problems as soon as possible.
I feel confident that these problems will be overcome in time. It will certainly be a very interesting and profitable area for investors as we get closer and closer to the point of full-scale commercialization.
Mr. Lynch has worked, for 26 years as an investment analyst and investor in small emerging technology companies. He has been actively involved in following developments in the renewable energy sector since 1977 and is regarded as an expert in this field. He was the contributing editor for the past 17 years to the Photovoltaic Insider Report, the leading publication in PV that was directed at industrial subscribers, such as major energy companies, utilities and governments around the world. He is currently a consultant to a number of companies, among them DayStar Technologies (www.daystartech.com), a company developing the next generation of Photovoltaic Solar Cells. He can be reached via e-mail at: email@example.com.