Publication date: 19-December-2003 
Source: UtiliPoint

Are fuel cells ready to rev up? It depends on who is asked but some
indications have surfaced that suggest the market for the technology could
accelerate. The science will undoubtedly advance and the associated costs with
drop. And that could have a dramatic effect on the environment and global
energy markets sooner than many think. 

Fuel cells were the toast of the venture capital world in the late 1990s. But
investors soured on them after taking huge losses on the devices, which could
potentially be used to power everything from laptop computers to manufacturing
plants. The stock prices of those in the sector had nosedived by 2001 and fuel
cell makers have struggled to find the needed financing to grow. In 2001, for
example, only three such companies were able to attract $8.7 million, says
VentureWire. 

But that may be changing. In January, President Bush called for $1.7 billion
over five years to research and develop fuel cells. And now that the economy
and the stock market are a little brighter, venture capital firms say that
they are ready to listen once again to pitches. This year, fuel cell
manufacturers have raised $25 million, VentureWire says. While small, it's a
start. 

“We are very bullish about this sector,” says Raj Alturu, managing
director of Draper Fisher Jurvetson, an information technology venture capital
firm in Redwood City, Calif. “The level of innovation is enormous. A lot
of core technologies that have been developed in laboratories over the past 10
years are now ready to come to market,” which doesn't just include fuel
cells but also micro-turbines and solar cells. 

The market for stationary fuel cells used in the production of electricity is
expected to grow from $21.4 million to $1.3 billion by 2009, says Frost &
Sullivan. But, that will only happen if technological advances can bring down
costs even more. And, the firm has some concerns, noting that the industry has
difficulty getting the needed economies of scale because it is fragmented.
Still, the group says that more trials are in the offing and the activity
could spawn more investment and new developments. 

Commercially available fuel cells produce electricity from hydrogen through a
non-combustion chemical reaction rather that direct firing. As a result, they
are quiet, clean and efficient—and produce energy in the form of
electricity and heat when fuel is supplied, discharging benign byproducts like
water. Residential fuel cells supply between 2-5 kilowatts of power and are
mostly in the experimental stage. Meanwhile, those used for commercial
enterprises can generate 200-plus kilowatts and are implemented if businesses
need uninterruptible power or where access to the transmission grid is
limited. 

While nearly all fuel cells are currently utilizing natural gas as their fuel
source, other companies are looking for alternatives. A California-based
company, Scientific Applications & Research Associates, Inc. (SARA), has
successfully tested a fuel cell that runs on carbon, which is derived from one
of the Unites States' most abundant natural resources, coal. To progress the
technology, SARA and American Electric Power (AEP) have formed a Joint
Industry Program (JIP) to enable the scale-up of the Direct Carbon Fuel Cell
to commercial viability. 

“Markets for their products are developing and the technologies are
progressing,” says Nancy Floyd, co-founder of Nth Power, a venture
capital firm in San Francisco. “So we are now getting serious traction
and a good flow of deals.” 

Future Promise 

Fuel cell demonstration projects have shown promise. The technology has helped
power city buses and local hospitals. But developers are concerned that
investors might construe the hype surrounding them as similar to that of
dot.com businesses that made such a splash before they drowned. The difference
between the two concepts is profound: One used a dubious business model for
unproven markets while the other has real products that are used for life's
essential needs, say fuel cell advocates. 

Unlike the dot.coms that are clustered in Silicon Valley and a few other
hotspots, the energy start-ups are globally dispersed. Moreover, the early
markets for many new energy generation storage and management products are
expected to be outside the United States. The markets that are driving the
demand for all types of fuel cells and particularly stationary ones are in
Asia where electricity prices run high. 

Hoku Scientific, for example, plans to introduce its first innovation to Asia
in 2005. The company says that it is developing a high-efficiency fuel cell
that will generate electricity and hot water for the family home. Similarly,
Vancouver, Canada-based Ballard Power Systems recently launched a
pre-commercial one kilowatt combined heat and power fuel cell generator to be
used in the residential market in Japan. Currently, more than 200 phosphoric
acid fuel cells using hydrogen as a fuel source are operating worldwide, says
the U.S. Department of Energy. 

The delay with unveiling fuel cells on a massive scale is both technological
and economical. Right now, hydrogen is produced mainly from natural gas using
steam reformation—a method that does nothing to limit the reliance on
fossil fuels or the infrastructure that must carry them. 

Running electricity through water can also create hydrogen. But this requires
burning more natural gas or coal—an inefficient process that not only
pollutes but also may not make enough hydrogen to justify the added fuel
consumption. Other renewable sources could create the electricity to produce
hydrogen but may not be as reliable or cost effective. Proponents of nuclear
say that it could be an ideal power form to generate the hydrogen needed to
power fuel cells. 

Worst Fears 

Critics say that because hydrogen is hazardous, any leakage could be highly
explosive and might possibly accumulate in the atmosphere and harm parts of
the ozone layer. Moreover, the amount of energy used to make hydrogen is more
than the amount of power produced by fuel cells. If fossil fuels are extracted
to make the hydrogen, then more pollutants would be released. A more effective
tack to cleaning the environment, some say, is to mandate increased car
mileage and to close down dirty power plants. 

“Only conservation, renewables and nuclear can reduce our dependency on
fossil fuels,” says William Dunlay, with Control Technologies in Cape
Elizabeth, Maine. “Hydrogen has its place, most notably as a fuel for
vehicles in a sustainable economy.” 

The will does exist to make the hydrogen economy a reality. Every major
automaker is investing in fuel cells, not to mention the major fuel cell
makers: Ballard, FuelCell Energy, Siemens-Westinghouse and International Fuel
Cells. And this past summer, Dow Chemical Co. and General Motors Corp.
partnered to foster the development of fuel cells—a deal which could
lead to the buying or leasing of 500 more units by 2010. 

As far as stationary fuel cells go, the electricity efficiency rate for
commercially available units is about 40 percent but can be as high as 92
percent if the heat can be captured and re-used. By comparison, modern
combined cycle power plants have a 50-55 percent efficiency rate while
coal-fired plants are about 30-40 percent. “The time is finally right
for new energy technologies to be commercialized,” says Matt Horton,
director of Garage Venture Technologies. 

Fuel cells hold lots of potential and will eventually play a key role in
helping to build a diversified economy and to create a cleaner environment. To
get there, more investment is needed. And now that the general economy is
improving, venture capitalists are once again studying the technology. That
will spur additional research and bring the concept closer to fruition.