WTMHouston,
Nice article on those ever-so-precious metals. Gives one thoughts to ponder.
Plug Power's market cap was up about $1 billion today alone. That is about 1.5x Catalytica's market cap. Quick review: CTAL annual revenues a bit over $400 million, compared to PLUG revs of about $ 12 million. Let's see, that is a price to sales of 2 for CTAL and 380 for PLUG.
I agree with that prior post that fuel cells and Xonon turbines will not directly compete, for now, in the clean power generation market. Fuel cells may prove useful for smaller and very specific power applications, but for now have no role in nearly all new power needs for nearly all people. The question is, Why does CTAL not participate from a valuation standpoint along with PLUG and the other clean-energy technology companies?
As far as execution, PLUG has nothing on CTAL. Both have products in development; CTAL's Xonon is probably closer to affordable commercialization. Profit margin on Xonon will be significantly higher than any Plug Power product ever will. Plug Power's fuel cell is designed to go into people's homes allowing them to disconnect from the electric grid or serve as a back-up power source. Very, very few people in metroplitan regions are likely to do this. It's just not cost effective when you look at capital costs and very miniscule electricity savings for those few areas where rates get very high during peak summer months. So there are those in more remote areas where electricity is less stable. These rural areas tend to be in areas where clean energy will not be mandated by law. Again, even here, economics will still favor other procucts, such as gas generators; although, those who truly want or need to be disconnected from the grid may find the efficiency of fuel cell's appealing.
However, electric utilities and independent power producers (IPP's) are under ever increasing regulation by state and federal laws. Many now use selective catalytic reduction (SCR) to reach low emission levels for both existing and new natural gas turbines. Xonon is on the threshold of making SCR, and even not-ready-for-prime-time SCONOX, obsolete. Yes, obsolete. The reasons for this are cost (both initial capital cost and ongoing cost) and improved turbine lifespan, which also figures into cost. For review, both SCR and SCONOX require dry low NOx on the front-end of the turbine to achieve ultra-low emissions. Dry low NOx involves burning a lean fuel mixture which causes significant turbine vibration, shortening turbine life. (Now I understand why CTAL makes mention of vibration readings when discussing Xonon performance! catalytica-inc.com ) Then you add on SCR or SCONOX to the tailpipe and you have significant reductions in emissions, but also substantial increased costs, plus new environmental hazards; significant ammonia storage and usage with SCR. Xonon could be retrofitted on existing turbines with no control technology or on turbines with SCR, achieve ultra-low emissions, reduce costs and prolong turbine life.
The management mentioned on an earlier conferance call that no significant capital costs will be incurred by CTAL to ramp-up large-scale production of Xonon units; unlike the $350 million Ballard Power announced will be necessary to build a manufacturing plant to produce 300,000 fuel cells per year for vehicles starting in 2004. I suspect Plug Power will experience similar costs. The only way these units will ever reach a mass market is with heavy subsidies to encourage their use. They are just too expensive to be practical, even with recent improvements. Plug Power and Ballard Power fuel cells use the Proton Exchange Membrane technology, which requires platinum or palladium in the fuel cell stack. This is the type of fuel cell that will be used in small power applications, such as homes or autos. Other forms of fuel cells exist that do not use platinum or palladium, such as molton carbonate, which may find a market at electric utilities, but these are very expensive. Fuel Cell Energy is piloting a plant with the LA electric municipality (announced 12/99) to produce 250kw of power at a total plant cost of $2.45 million. That's $9,800 per kw!!! fuelcellenergy.com New gas turbine power plants with Xonon cost about $300 per kw.
There is even a more powerful reason to believe in CTAL and Xonon. In the final analysis, overall efficiency, silent operation and no moving parts may not be a significant advantage for fuel cells. It may come down to the economics and efficiencies of using the precious metals, platinum and palladium. Platinum and palladium appear to be critical for both fuel cells and Xonon. I am no chemist, but there may be similarities between the two systems in regards to combusting hydrocarbon fuels without emissions. Remember, PEM fuel cells currently work only with hydrogen as a fuel. The source of hydrogen for usable fuel cells will require a gas reformer to produce hydrogen from the methane (natural gas, CH4) or methanol (CH3-OH) to use in the fuel cell. (Interesting side note, I just saw on Plug Power's website that their fuel cell gas reformer emits 50 ppm of carbon monoxide!) plugpower.com (click on fuel processor) Xonon has produced CO < 2 ppm!) If you want more kilowatts from a fuel cell you can add more stacks, each one with precious metal electrodes. Acording to the fuel cell article supplied by WTMHouston, every 50 kilowatts of electricity from a fuel cell requires about one ounce of platinum and palladium. (I don't know if this means the fuel cell requires one ounce of each metal, or just one or the other. Plug Power's website supports this estimate, stating it uses $50 of platinum per 7 kw.) That's about 300,000 ounces of precious metal for Ballard's automotive application each year. Of course, investors are certain that fuel cells will replace the internal combustion engine, and will power every home in the world. Well, there are 60 million cars produced every year. That equates to 60 million ounces of precious metal. But wait, the world's supply is only about 6 million ounces, according to the article, and new supply and use are currently about balanced. So what about the 140 million homes in the US? And all those other fuel cell applications? I am sure platinum and palladium mining could extract more, but how much more?
Xonon requires palladium, as well. So, I think it is worth looking at the efficiency of palladium usage to kilowatts produced between the two technologies. Unfortunately, I have no idea how much palladium each Xonon combustor uses, but some guesses can be made.
I remember hearing not so long ago, that a Xonon combustor for a large GE-type turbine would cost the end-user about $1 million initially, and about $200,000 for replacement units each year. This charge includes a large profit margin. I am not sure what "large" means. But let's say the material, primarily palladium, costs $100,000 per combustor. At most that equates to $100,000/$420 (the price of palladium) = 238 ounces of palladium. With a GE F-series turbine producing 300 Megawatts of electricity, that is 1.26 Megawatts of power per ounce of palladium. Compare that to fuel cells making 50 kilowatts per ounce of palladium or platinum. 1,260 kw per ounce of palladium for Xonon versus 50 kw per ounce of palladium or platinum for the best fuel cells. Therefore, Xonon produces at least 25x the electricity per ounce of palladium/platinum than fuel cells do. I will bet this is a very conservative estimate. Of course CTAL's business plan involves replacing the unit each year, not necessarily because that is how long it lasts, but for recurring revenue on their proprietary technology. An important question: can CTAL recapture the palladium in spent Xonon units or is it lost? If the palladium cannot be recycled then this comparison is not quite as powerful.
I cannot find a source now, but I remember people talking about the life-span of a fuel cell is about 40,000 hours. I do not know if this is hours of operation or if some materials degenerate over time. If it is operational time, then fuel cells for vehicles makes sense. For home use, however, not necessarily so. 40,000 hours/ (365*24) = 4.5 years lifespan for a device working continuously at home. Can the precious metals be recycled from spent fuel cells?
If not, we may be looking at using astronomical amounts of platinum and palladium if these technologies ever enter the mainstream. Inadequate supply will invariably lead to higher costs of these metals. Ballard and Plug Power fuel cells will produce a low margin per unit because they must be priced to compete with existing technologies (internal combustion engine and remaining connected to the grid), and the individual consumer has little tolerance for paying more just because a technology is cool or environmentally friendly. Because Xonon has such a large profit margin built in, with most of the charge for its proprietary patents, Xonon is much better positioned to absorb the higher cost of these precious metals, making their product more attractive from a cost standpoint of generating electricity cleanly. Not only can CTAL absorb the higher metals prices more easily, I suspect they use much, much less precious metal for their product than fuel cells per kw of electricity, making Xonon-equiped turbines the clear choice for the increased clean electricity generation needed going forward. The higher prices for precious metals could completely derail the viability of PEM fuel cells, as these higher platinum/palladium prices erode the profit margin.
Just some thoughts,
Erik |
