To Ballard newbies: Here is a basic primer on fuel cells, and a suggestion of another way to play the fuel cell concept.
The tremendous publicity that Ballard and fuel cells have gotten in the last month, from the Wired article, to the Morgan Stanley report, to the NY Times article, has given most investors the impression that Ballard is the technology and commercial leader in fuel cells. That is partially true, partially not. What Ballard is, is the leader in a particular type of fuel cell. But there are other types, with other companies as leaders, that have vast potential as well. Here are the types and the players:
PEM Cells: Proton Exchange Membrane cells are Ballard's specialty. They are very powerful for their size and appear efficient and long lasting when fed 100% pure hydrogen. This makes them ideal for transportation applications, particularly
local transit buses, which can operate on hydrogen and be refueled from a central depot. PEM's greatest hurdle involves the non-existence of a hydrogen infrastructure. A PEM fuel cell car running on methanol, or a PEM stationary power plant running on natural gas, need, in effect, a small chemical plant attached to them to take the fuel and "reform" it; i.e., extract pure hydrogen out of the fuel and deliver that to the PEM cell. I say "pure" hydrogen, because PEM cells are poisoned by more than minuscule amounts of carbon monoxide; the reforming process is therefore complex and expensive, in terms of the equipment and number of steps required, as well as the consumption of power from the fuel cell to run those processes. One other characteristic of note: PEM cells run very cool, at about 140 degrees F. This is good, in terms of their safety in vehicle applications, but bad in terms of the cost of reforming fuels since, for example, natural gas must be raised to around 800F to extract the hydrogen.
Phosphoric Acid Fuel Cells: The leader in this type is International Fuel Cells (also known by its subsidiary's name, ONSI). IFC is a small division of United Technologies. PAFCs have been on the market a number of years for stationary power applications and IFC has sold over $100,000,000 of them. The problem is that at $3000 per kilowatt they are too expensive for there to be much of a market without government subsidies. What makes them expensive is not so much the fuel cell itself, but the cost of reforming the natural gas to create the hydrogen. Yet PAFCs can handle a lot more carbon monoxide in the hydrogen stream than PEM cells, which is why, despite what you may have read, the odds are not good for Ballard to come up with a product that is price competitive for stationary power applications, even if it could produce fuel cells at a cost of zero. PAFCs run hotter than PEMs, which also helps keep its cost of reforming the fuel lower.
Molten Carbonate Fuel Cells: The leader here is Energy Research Corp. of Danbury CT, which trades on the ASE (ERC.- $17 or so). MCFC will never power your cars, but they are superior for utility power applications. They operate at 1200 degrees F and thus don't need any separate reforming equipment - natural gas can be pumped into the fuel cell directly, and CO has no harmful effects. Because they run so hot they are ideal for cogeneration applications, which increases the base efficiency level from 50% up to the 80% range. (PEM cells won't get beyond 40%, when the power needs of the reforming equipment are taken into account.) ERC has been around for about 20 years; its first commercial model will be ready for sale within three years.
Solid Oxide Fuel Cells: The leader here is Westinghouse. Like all non-PEM cells, this technology is physically too big to have vehicle potential. It could be a contender in the stationary power market someday, but is considered at least three years behind molten carbonate in its commercialization efforts.
For investors there are only two plausible plays in fuel cells, Ballard and ERC. Interestingly, the two companies have one thing in common - both are partially owned by Daimler Benz. Although DB is thought of as a car company, it is actually a huge industrial conglomerate, and it is making a major financial commitment to being a player in utility power using ERC's technology. DB's literature states clearly its conviction that PEM is best for vehicles and molten carbonate best for stationary power. The two markets are of similar size.
But there are differences between the two companies, all favoring ERC as the better investment.
1. Market cap: Ballard, with 23 million shares has a market cap of US$1.6 billion; ERC, with 4 million shares, has a market cap of only $70 million.
2 Timing: ERC's products will be on the market in three years; although Ballard should sell some buses sooner, the first cars won't be launched for seven years, and that operation will probably be in the red for a few years after that.
3. Dilution: ERC has never lost money and has had no share dilution for five years. It can get to a very respectable sales volume using its existing resources. Ballard always loses money and regularly issues more shares.
4. Technology Risk: Although neither company is home free yet on this front, ERC's task is much easier. If it can get sell its fuel cells for $2000 per kW or under, it will be facing a large market from utilities and industrial companies who want clean power in a small package. If the price of energy rises, then the extra efficiency will pay off at even higher selling prices for the fuel cell. Competing with internal combustion engines, which Ballard must do, is much tougher, because they are so cheap. If Ballard charged $2000 per kW, then the fuel cell part of the engine alone would be many tens of thousands of dollars, so it must get its costs much lower than ERC does to create a commercial product.
Right now Ballard is getting all the publicity, but if you want a lower risk, higher potential return play on fuel cells, ERC is much better. In addition, ERC has an impressive looking rechargeable battery technology that Corning, Inc., has licensed, and the latter is spending substantial sums to make that a commercial success. ERC's website is ercc.com |
