From the ECONOMIST
BUSINESS
Fuel cells meet big
business
R E Y K J A V I K
A device that has been a technological
curiosity for a century and a half has
suddenly become the centre of attention
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“THE stone age did not end because the world
ran out of stones, and the oil age will not end
because we run out of oil.” Thus Don Huberts,
who is convinced that fuel cells, which generate
clean energy from hydrogen, will soon begin
replacing power stations and cars that mostly
burn coal, oil or natural gas.
Such dreamy talk would mean little coming from
an environmentalist or an academic. Although
such people have long been praising fuel cells,
technical and commercial obstacles have largely
kept the technology in the laboratory, barring the
odd foray into space and the oceans. But Mr
Huberts works for an oil company. And as head
of Shell Hydrogen, a new division of Royal
Dutch/Shell, his conviction reflects a dramatic
shift in the thinking of big business.
The moment when an experimental technology
becomes a commercial one is hard to define, but
the new interest of oil companies, car makers,
and power-engineering firms—almost all the
industries that have a stake in the business, in
fact—is a sign that fuel cells are crossing the line.
Now that the energy business thinks that fuel
cells are coming, they probably will.
To catch a glimpse of the fuel cell's future,
consider Iceland. Even though Iceland gets
nearly all of its heat and electricity from clean
hydro-electric and geothermal sources, its
vehicles still use petrol and diesel. Look across
Reykjavik's spectacular waterfront at midnight in
July, and you may see the smog dimming the
bright, arctic sky. Bragi Arnason, a wizened
academic known to his countrymen as
“Professor Hydrogen”, has been trying to
change that for two decades. Earlier this year he
got his way, when the country pledged to
become the world's first hydrogen-powered
economy.
This attracted Shell, DaimlerChrysler, a
German-American car giant, and Norsk Hydro,
a Norwegian energy firm experienced in making
hydrogen. With local partners, they have set up
a joint venture in the country. The project's first
phase, which kicks off later this year, will
introduce Daimler's fuel-cell buses, powered by
hydrogen made using renewable energy. After
that, predicts Mr Arnason, Iceland will start
replacing all its cars and buses, as well as its
fishing fleet, with fuel-cell-powered transport.
Ultimately, Iceland sees itself exporting both
hydrogen and its fuel-cell expertise.
But the companies have another objective too.
Philip Mok, in charge of Daimler's entry into
Iceland, explains that the car maker wants to
learn how to work with the oil companies. Car
companies know that their plans to introduce
fuel-cell vehicles will succeed only if a fuel is
available. And that means persuading oil bosses
that fuel cells are both a serious technology and
a potentially profitable one.
There is some urgency. Car makers have been
unveiling increasingly sophisticated prototypes in
the past few years. In 2004 or 2005 Daimler
and several rivals plan to launch commercial
fuel-cell cars in America and Europe. Billy Ford
Jr, head of Ford and the great-grandson of the
car firm's founder, even proclaims that fuel cells
are “the only clean propulsion system”, and
believes they will be the driving force behind his
company in the next century.
Power mad
Fuel-cell technology has been around for 150
years, so why is it attracting attention now? The
reason is that a happy coincidence of greenery,
market liberalisation and technology is finally
making fuel cells cheap.
The first push came from politicians. Car makers
began to take fuel cells seriously after California
decreed that, by 2004, a tenth of all cars they
sold in the state must not produce emissions, on
pain of being barred from the market. The
Californian edict was a boon to fuel-cell
research. Car firms and fuel-cell specialists, such
as Ballard, will have spent some $1.5 billion on
R&D by next year.
Their results have been so promising that oil
companies could not ignore the technology. One
oil boss says they produced more technological
breakthroughs in five years than battery research
has in the past thirty. Such have been the
advances that market incentives, not mere
regulation, are now motivating firms.
Research into proton-exchange membrane
(PEM) fuel cells, the most promising variety (see
article), has reduced the amount of platinum
needed, and made the electronics cheaper. Five
years ago, for example, the amount of platinum
required by a stack of PEM fuel cells for a car
cost $30,000; now, it needs about $500-worth.
Thanks to such advances, the cost of a fuel cell
has already fallen from the stratosphere to only a
few thousand dollars per kilowatt of generating
capacity. Car firms still have a lot to do: for
fuel-cell systems to compete against the
internal-combustion engine, their costs must
come down to about $50-100 per kilowatt. Car
makers are betting that mass production will help
them close the gap after 2004.
By then, power-generation companies hope to
be well established. Market research by Arthur
D. Little, a consultancy, suggests that consumers
will spend $1,000 per kilowatt for the benefits
offered by small combined-heat-and-power
units. Power generation is already “riding the
coat-tails of the car companies' cost
reductions,” says Barry Glickman of GE Power
Systems, part of the American conglomerate. He
expects the cost of PEM fuel cells soon to be
competitive with a range of alternative
technologies, from coal to gas-fired generation.
Although the first generating products are
already on the market, most are pricey and
specialised. Within two years, consumers will be
able to buy the first mass-market fuel cell. GE,
working with America's Plug Power, says it has
developed a PEM fuel cell the size of a
washing-machine, designed to provide electricity
and, eventually, heat for a house or small office.
The firm intends to start selling such generators
in 2001 for $7,500 (dropping to half that price
by 2005). Insiders believe this will become a
billion-dollar industry within five years of its
launch.
Firoz Rasul, Ballard's chief executive, thinks that
GE's numbers are optimistic, but even he agrees
that the eventual market for power generation
will be enormous. John Loughhead of Alstom, a
French firm that is Ballard's partner in power
generation, reckons that, if fuel cells really take
off, they could account for as much as a tenth of
the $50 billion a year global market for
power-generation equipment ten years from
now.
Two other forces are helping fuel cells in power
generation. Energy deregulation in Europe and
America allows new firms to set up cheap,
efficient power sources (such as fuel cells) close
to the consumer. Meanwhile, there is a
proliferation of electronic devices in houses and
offices, which would benefit from the
high-quality power promised by fuel-cell
generators.
Fuelling up
Although people think the fuel cell is coming, not
everyone agrees what fuel it will use. Despite
Iceland's enthusiasm, there is unlikely to be a
market for hydrogen for some time. The lack of
infrastructure and the difficulty of storage mean
that other, dirtier ways of delivering hydrogen to
fuel cells will almost certainly come first. The
favourites are methanol or petrol in cars, and
natural gas or propane for power generation.
Each could be “reformed” to make hydrogen,
without sacrificing all the fuel cell's benefits.
One reason for the uncertainty is the tension
between those, such as car firms and fuel-cell
researchers, who see the direct use of hydrogen
as the cleanest and most elegant use of the
technology, and oil bosses, who worry that
going direct to hydrogen is expensive and
impractical, given current technology. Some fret
that, if consumers get their hydrogen from their
suppliers of natural gas, oil companies may even
start to lose business.
But not all oilmen agree. BP's Bernie Bulkin
worries about gearing up to supply a
less-than-ideal fuel such as methanol, only to find
that a few years later everything has to be
switched again to supply hydrogen. And some
fuel-cell people, such as Ballard's Mr Rasul,
think that forging ahead with interim fuels would
allow fuel cells to penetrate the market while the
glitches in hydrogen storage and distribution are
sorted out.
And there is yet another possibility. Exxon, one
of the world's biggest oil companies, has been
cool toward fuel cells over the years. Its boss,
Lee Raymond, is no environmentalist, and he
maintains that the idea of man-made global
warming is rubbish. Yet the firm decided
recently to enter fuel-cell partnerships with
General Motors and Toyota. The consortium is
developing fuel-cell cars that will use cleaner
petrol, to be distributed at its existing stations.
Exxon hopes this will make consumers readier to
accept the new technology. Although fuel cells
using petrol would produce carbon dioxide, the
main greenhouse gas, they would nevertheless
be more efficient than the internal-combustion
engine and produce none of the particles that
cause pollution in cities.
This heterodoxy will probably rankle both
idealistic Icelanders and the hydrogen experts at
the car companies. However, they should take
comfort. As Texaco's Graham Batcheler
explains: “We came around late to fuel cells, but
we now recognise that the oil and gas business is
going to change...whatever fuel emerges
eventually as the choice for fuel cells, we want
our consumers to fill up at a Texaco station.” In
other words, even the traditional purveyors of
fossil fuels, realists to a fault, now believe in fuel
cells. For a technology that has depended on
visionaries for 150 years, that is quite a
breakthrough.
LINKS
Shell has issued several press releases with
details about Shell Hydrogen's activities. The
Icelandic joint venture has been followed by
the Hydrogen & Fuel Cell Letter. Fuel
Cells 2000 offers “everything you always
wanted to know about fuel cells”. An
animated explanation of fuel cell technology is
available from Ballard Power Systems. The
US Fuel Cell Council is an organisation
dedicated to publicising the commercial
possibilities of fuel cell technology. The
attitude of the governments of the US,
Germany and Japan are examined by
HyWeb. The domestic benefits of fuel cell
technology are outlined by Plug Power.
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