Thursday 9th November 2000
|Text too small?|
By Fiona Rotherham
Bob Thomson is the last person you'd consider a revolutionary. The chief executive of electricity grid company Trans-power looks like your standard conservative, grey-haired, suited businessman. He is, of course, but he's also a convert to the most exciting new technology to hit the electricity industry since the lights went on. Ironically his company is also the biggest potential New Zealand casualty from this same technology.
The revolution is fuel cells - standalone power generation units that could conceivably replace the internal combustion engine in your car, the power lines to your house and even that irritatingly short-lived battery in your cellphone.
This is no futuristic science fiction story. Thomson says fuel cells will be powering the first New Zealand buildings within three to five years, and believes the value of the New Zealand national grid will drop from $2.3 billion now to around $400 million in the next 10 years. Worldwide, all the major automotive car manufacturers are involved in fuel cell research and most have either launched prototype fuel cell cars or announced plans to do so. The first commercial models should roll off production lines in 2004. DaimlerChrysler, a major shareholder in fuel cell market leader Ballard Corporation, will spend nearly $US1.5 billion over the next few years commercialising fuel cells for next-generation electric vehicles.
In addition, there is growing interest in microfuel cells as portable generators to replace rechargeable batteries. Compared to batteries, these miniature fuel cells are quick and easy to refuel and last longer at lower operating cost. They could replace batteries in cellphones, laptop computers, video cameras, electronic games - you name it - though it is expected to be a few years before the technology will be ready for market.
Putting the grid on the rack
So what are these magical things?
Fuel cells produce electricity through a chemical reaction between hydrogen and oxygen. Encased in an innocuous-looking box, a fuel cell is two to three times more efficient than your average car engine, produces little noise and, when fed pure hydrogen, has only heat and water as by-products. The voltage from a single cell might only be enough to power a light bulb, but stack them together and whammo!
Fuel cells have the potential to impact on large power stations and electricity grid systems in the same way the PC attacked the IBM mainframe, says Auckland businessman John Blundell, who is something of an armchair expert on fuel cells after investigating them in his former job with Fletcher Challenge Energy.
It doesn't mean existing transmission and distribution networks will be torn down, but they could gradually become obsolete. "Just as there was no discernible date when one could wake up and pronounce the death of the mainframe, the advent of a revolutionary, as distinct from evolutionary, technology, has the potential over time to change the paradigm of the way we think about energy services into the future," Blundell says.
Some industry experts predict fuel cells will become the dominant power source for the future. The Fuel Cell Industry Review, a newsletter published by US technology market research firm Business Communications, estimated the value of the US fuel cell market at $US355 million in 1998. It forecasts the market will grow nearly 30% a year to reach $US1.3 billion by 2003. Others see less challenge to the mainstream power generation market, at least in the medium term, but predict fuel cells will comprise a large chunk of the alternative fuel pie, expected by many to reach $US320 billion over the next 20 years.
As with all technological revolutions, it's sometimes hard to know where the reality ends and the hype begins. Fuel cell manufac-turers are notorious for over-promising and under-delivering.
Take ONSI Corporation, a subsidiary of US-based Fortune 30 company United Technologies Corporation, currently selling the only commercial fuel cell power plant. In 1997 ONSI forecast the installed cost of its 200kW fuel cell plant would have dropped to $US3000/kW by 1999, and by 2000 would be just $US2000/kW. Last year the quoted price actually increased to $US4000/kW. (The installed cost is the amount of money per kilowatt required to buy and set up a power system.)
With $US1 billion already spent in fuel cell research, and with the US having been joined by countries such as Canada, Japan and Germany in aggressively using tax credits, low-interest loans and grants to promote fuel cell development, the competition is fierce. Hundreds of manufacturers worldwide have produced or are developing different types of fuel cells - some as small as a few square centimetres - for a host of applications. Each has different properties and claimed benefits. The race is definitely on.
Where there's exciting technology, hype is never far away. Fuel cell stocks soared last year, before hitting a reality check in March, then selectively recovering.
Take Nasdaq-listed Ballard Power Systems, quoted by American share analyst Brian Robinson as among the sector's leaders, with a relatively strong share price and good prospects for early commercialisation. Its stock price has ranged from $US0.23 to $US1.45 in the past year and is currently trading around $US1.10. Or consider New York-based Plug Power, another dominant player according to Robinson.
Also Nasdaq listed, it has seen its price range from $US0.15 to $US1.56 during the year, and is now trading down around $US0.37. The promise is there, Robinson says, but there are still cost and technological challenges to be overcome.
Heard that somewhere before?
In New Zealand Transpower is probably the company most threatened by fuels cells and their main competition, microturbines - small, gas-fired generators about the size of your average refrigerator. A Transpower paper released in June estimates domestic fuel cells could be widely used in New Zealand within about a decade. Thomson predicts three to five years. Larger, industrial-scale fuel cells are likely to come well before ones in people's houses - say, somewhere between next year and 2005.
The question is no longer whether fuel cells are coming, but when?
Although the Transpower paper projects the combined consumption of "early adopters" in New Zealand at no more than 1000GWh, compared with total New Zealand electricity generation of 32,029GWh annually, it has already scaled back annual spending on new transmission lines from around $300 million to $70 million, based partly on the fuel cells threat.
In a classic know-thine-enemy strategy, Thomson says he is considering investments in fuel cell-related stocks and pilot projects here. This is the only way forward, say the experts. Smart incumbents, they say, will have a foot in both camps, using cash flow from the old to develop the new.
Executives at UnitedNetworks, the country's largest privately owned power network company, headquartered on Auckland's North Shore, believe that in the long term - say, another 20 years - fuel cells will be the preferred alternative to new power lines in areas where demand exceeds available transmission capacity, for example, on the North Shore. The US-based Electric Power Research Institute projects between 5% and 40% of new electricity capacity in the US will be so-called distributed generation (fuel cells or microturbines) by 2010.
The earliest take-up, however, is likely to be in developing countries, particularly in areas where there are no existing power grids. Just as cellular phone technology can make it unnecessary to stretch expensive telephone lines to previously unconnected villages, so distributed generation has the potential to allow some regions of the world to leapfrog the power station/power line model entirely.
Fuel cells have several advantages over the traditional power station/transmission grid system. Smaller, cleaner and more efficient, they will be easier to install and less hampered by resource consents. Hybrid systems, linking fuel cells with microturbines, for example, offer even greater efficiencies - up to 75% in some cases. They also avoid the huge transmission losses when sending power to homes.
Fuel cells should also provide a highly reliable resource for companies with critical power requirements, such as computer centres and hospitals. In the US, where brownouts and blackouts are increasingly common, these businesses are looking to control their own power supply.
A number of the leading fuel cell players are already trialling competitive small-scale generation in American houses and commercial buildings. For Thomson, the threat is that these buildings aren't connec-ted to the wires at all.
But perhaps the biggest selling point for fuel cells worldwide is in the growing environmental movement. In their purest form, fuel cells are an environmentalist's dream, making electricity out of hydrogen and spewing out nothing but heat and water.
Europe has been getting tough in forcing industry to adopt cleaner ways of generating power and transport. The Kyoto Accord (1997) requires greenhouse gas emissions to return to levels below those of 1990 by 2008, pushing the case for more efficient electricity generation.
But it's in the car industry where fuel cells' environmental potential is considered most exciting.
Credit Suisse First Boston upgraded Ballard, whose fuel cells are being adopted by many car makers, to a "strong buy" recently after California maintained its zero emission vehicle mandate to improve air quality. Under this legislation, 10% of automakers' car sales must qualify as zero emission vehicles by 2003. Other states are considering me-too laws. The US Department of Energy projects that if just 10% of the country's cars were fuel cell powered, regulated air pollutants would drop by one million tonnes a year and greenhouse gas carbon dioxide would be eliminated. It would also cut oil imports by 13%.
"It's one of the few areas where economics and environmentalism can both be pulling you in the same direction", says Mark Allard, director of fuel cell market deve-lopment for Canada-based Methanex, a methanol production company. "Fuel cell technology has the potential to become economically competitive while also reducing greenhouse emissions and urban smog from what's coming out of your tailpipe."
Many believe the hydrogen fuel cell will make the internal combustion engine a thing of the past.
Fare-paying passengers in Chicago and Vancouver already board fuel cell buses. You can ride around London in a fuel cell taxi. There are even prototype fuel cell bicycles, scooters and wheelchairs.
A recent report from New York technology research think-tank Allied Business Intelligence forecasts there will be millions of fuel cell vehicles by 2010. Others have estimated they will have a 4% market share in the US by the same year.
Too expensive, guys
But there are potholes on the revolutionary road, some of them deal breakers. The most critical is cost. Today all fuel cells cost more than similar existing products. For successful commercialisation, the price of fuel cells for stationary power generation needs to more than halve - to below $US1500. Only then, says a study by global consulting firm Arthur D Little, will the fuel cell achieve market penetration throughout the US.
Despite high installation costs, fuel cells have successfully entered niche markets where electricity prices are high and natural gas prices low because of their economic operating cost. High efficiency allows fuel cells to pay for their high installation cost over time through fuel conservation. Having no moving parts, maintenance and repair time for fuel cells is less than that required for combustion systems.
Costs in the automotive sector need to be around $US50/kW to be competitive, reflecting the fact these engines don't last as long and operate differently to stationary fuel cells. Sounds a tough ask, but conventional car engines cost about $US3000 to manufacture, and studies by General Motors and Ford have stated that fuel cell car engines could be built for about the same price as an internal combustion engine.
Some of the cost problem stems from the fact that most fuel cell manufacturing so far has come out of the laboratory rather than off the factory floor. As the Yanks love to say, the Model T Ford was very expensive when it was first introduced, but mass production made it affordable over time. Fuel cell industry players argue mass production of vehicle fuel cells will spin off on the costs of similar technology for stationary power (though there are significant differences, including the fact that vehicles use direct current (DC) power and a typical household uses alternating current (AC)).
But lack of mass production isn't the only issue.
Fuel cells contain some high-priced materials, in particular platinum, which is needed to catalyse internal fuel cell reactions. Then there's the cost of the raw material, hydrogen.
Hydrogen is one of the world's most plentiful elements. It is also expensive. The price could drop but only if the energy companies spend billions of dollars creating the infrastructure needed to support the so-called hydrogen economy - new processing plants, ways to transport and store the unstable chemical and a network of hydrogen service stations. Also, safety is a big issue with passenger fuel cell cars. Having highly flammable hydrogen stored on board gets tricky if there's an accident. Some manufacturers are using hydrides, compounds that stockpile the gas safely, but they are heavy and difficult to handle.
Methanex's Allard reckons methanol is becoming the fuel of choice to produce hydrogen in fuel cell vehicles because of its price and storage capabilities. His company's interest is evident. If just 1% of the vehicles worldwide converted to methanol fuel cells, that would require some nine million tonnes of methanol, around a third of current production. We're talking big dollars, and that's not considering methanol used in other types of fuel cells.
Obviously, how clean and green the cell is depends on the fuel used to produce the hydrogen. Environmentalists want to go the whole hog and create hydrogen from water, avoiding pollutants. Oil companies, surprise, surprise, want to make hydrogen from other hydrocarbon fuels such as natural gas, a process that still creates greenhouse gas by-products. They're slowly shifting their revenue streams from crude oil to natural gas, based on it being the potential fuel source for electricity fuel cells, according to Allied Business Intelligence.
An early indicator of the way things may go is the power unit Bal-lard is developing with Tokyo Gas, a utility company supplying Japanese homes with natural gas. That unit reforms the natural gas first, by reacting it with steam to release the hydrogen. While the fuel cell then produces carbon dio-xide, the whole process is cheaper than supplying pure hydrogen.
The talent war
There is fuel cell research going on in New Zealand - but not much any more. Last year a Waikato University team carrying out world-leading research on solid oxide fuel cells was headhunted to the US. The perpetrators of this dastardly deed, much touted in the New Zealand press as proving the failure of the science funding establishment in this country, was US-based power technology company Acumentrics. The company backed its belief in fuel cells with cash, reportedly offering British-born Professor Nigel Sammes and his five top research students double their salaries to bring their work on tubular solid oxide fuel cells to Massachussetts. Acumentrics also bought the patent rights to the technology from Waikato University for an undisclosed sum. Sammes' nine years of research in New Zealand had originally been sponsored by Fletcher Challenge Energy and then partly financed by the government to the tune of around $250,000 a year.
Acumentrics announced in June this year it was starting manufacture of the gas-fed fuel cells. The cells, combined with the company's existing power inverter designs, will allow it to build a complete integrated product for electricity users at low cost, it said. For now, the only research into fuel cells under way here is by Crown Research Institute Industrial Research (IRL).
After deciding it was too far behind the game to develop its own fuel cell, IRL was given an alkaline fuel cell by UK-based Zetek Power for research purposes. It is investigating how to integrate stationary fuel cells into New Zealand's electricity infrastructure so when the technology eventually arrives here we'll be ready to turn the switch.
"Overseas they're gung-ho about making these things. The last thing they think about is how they're going to connect it up and make it function with what they have already," says IRL's energy division manager, Kevin Duckworth.
Hoping to commercialise the technology IRL develops is Simon Arnold, acting chief executive of the Wellington Regional Chamber of Commerce and former Manfed boss. He's setting up a consortium of investors to provide the capital needed to take any products to market.
While not directly involved in research, hydrogenerator Meridian Energy, the largest of the three state-owned enterprises formed from the split of the Electricity Corporation, is one of several energy companies looking at fuel cells as an opportunity instead of a threat. It has made several investments in companies developing new technology, including a small stake it inherited from ECNZ in Australian fuel cell developer Ceramic Fuel Cells. Ceramic is hoping to commercialise a solid oxide fuel cell, aimed at small to medium-sized industrial customers wanting a more reliable power supply. Its backers include several government-owned utilities, BHP and Wood-side Petroleum. Around $A70 million has been spent to date, with research still at the product development phase. The beauty of Ceramic's higher temperature fuel cells is that they reform the fuel into hydrogen internally rather than requiring an expensive reformer as Ballard's low temperature proton-exchange membrane (PEM) cells do. The Australian company built a 25kW testing system that operated earlier this year in Victoria before shutting down due to technical problems. It hopes to have a prototype up and running by late 2002. The waste heat from the fuel cell can be used to run a building's air conditioning or heating systems.
Commercial manager Dinah Rowe-Roberts says it will be a "long way down the track" before Australasians see no more transmission lines or centralised power stations. The main barrier to the new technology in this part of the world, she says, is getting sufficient venture capital to continue research and development. Other hurdles include ironing out interconnection issues and updating standards to allow for the new technologies.
Consumers are unlikely to want to rely solely on distributed generation, but then how do you work out what a transmission company should charge them to remain connected to the national grid? The lines still have to be maintained even if they carry little or no power. Transpower's Thomson says only, "people will have to pay for that". As those who suffered in Auckland's 1998 power crisis know only too well, maintaining security of supply is a big issue - but not cheap.
Bill butts in
Not only are fuel cell companies battling fiercely against each other, they are also facing competition from another standalone generator: micro-turbines. So far, microturbines have the jump on fuel cells. Last year microturbines targeted at the commercial/small industrial market moved from demonstration to commercial production. California-based Capstone Turbine Corporation sold over 200 units in 1999 and recently announced orders for another 350. Its new automated factory has a capacity of 20,000 units a year. And it has some weighty backers: current investors include Microsoft founders Bill Gates and Paul Allen. Fletcher Energy also has a 10% stake. These microturbines are already being trialled on buses in Christchurch.
UnitedNetworks is considering microturbines as a short-term alternative to new transmission lines, though it reckons fuel cell technology will win in the end. John Blundell, the man attributed with getting Fletchers into Capstone, says General Motors and Daimler-Chrysler considered the Capstone turbine for their next-generation electric vehicles and opted instead for fuel cells.
A relatively new development on the fuel cell scene follows almost a decade of research by National Power in the UK. It has developed a Regenesys fuel cell capable of storing power. The first utility scale plant is due to be built later this year with sufficient capacity to power a small town almost instantaneously if the grid fails.
Being able to store electricity could ultimately end the need for a centrally operated national power grid. It also makes other localised generating plants such as solar or wind power more economical because all their capacity could be used all the time. Ope-rators could stockpile power surplus to their needs when gene-rating conditions are good, and sell during peak demand. Closer to home it has the potential to end a situation where North Island line constraints have gleaned some New Zealand generators bumper profits during peak demand, at the expense of customers.
After researching the UK project, Transpower rated storage fuel cells as an acceptable alternative to new transmission investment. It was keen on a pilot project on Auckland's North Shore using the Regenesys cells, instead of spending an estimated $300 million on new transmission links across the Waitemata Harbour. However, it has now opted for different technology that allows better use of the existing network.
Another recent exciting research breakthrough is the potential for miniature fuel cells to replace rechargable batteries in equipment like cellphones and laptops. Scientists at Motorola recently demonstrated a prototype fuel cell using a reservoir of inexpensive methanol which, when combined with oxygen in the air, produces electricity at room temperature. The new technology allows for significantly scaled-down system components to be built into the actual fuel cell. It will be a few more years before Motorola's technology can be brought to market, but the latest breakthrough will be used to build a prototype 100mW direct methanol fuel cell with five times the energy density of conventional rechargeable batteries. Some industry players reckon these smaller applications could be the ones to hit our shores first, rather than the more talked-about electricity and transport uses.
The market's competitive out there, but these are early days and it is hard to pick the fuel cell winners and losers. For all players there is still a long, bumpy road ahead before they can translate revolutionary zeal into market success.
Blundell's pick in the stationary (rather than mobile) market is the tubular solid oxide fuel cell Siemens-Westinghouse has been working on for the past 20 years. A test 250kW fuel cell is operating in California, combined with a microturbine to recover the waste heat and pressurise the cell. It is achieving over 55% electrical output, though costs are still too high to threaten local generators.
The National Fuel Cell Research Centre, where the Siemens-Westinghouse unit is installed, says wide commercial use of fuel cell power is just around the corner. The centre at the University of California, Irvine, was set up as a non-profit organisation to promote fuel cell technology. It claims that fuel cell power plants for commercial users will be first to break into the mainstream in the next couple of years, as their costs are closest to what customers are willing to pay. Fuel cell cars are likely to follow a year or two later.
"The world is at the precipice of another major technology revolution in which fuel cells will dramatically change how electricity is generated and distributed throughout the world," says Gary Mook, president and chief executive of Acumentrics.
But then he would say that. He makes them.
Fiona Rotherham is Unlimited's business editor. Contact her at firstname.lastname@example.org
A fuel cell is an electrochemical device that efficiently converts a fuel's chemical energy directly into electrical energy. It works much like a continuous battery, never running down or requiring recharging. It consists of an anode and a cathode sandwiched around an electrolyte. In most fuel cells, hydrogen is fed into the anode where, encouraged by a catalyst, the hydrogen atom splits into a proton and electron. Wake up! The protons pass through an electrolyte, but the electron can't get through the electrolyte so it has to travel around, creating an electrical current that, via a wire, leads into whatever the fuel cell is powering and then back again to the cathode. At the cathode both the proton and electron react with oxygen in the air to form water.
Fuel cell technology is not new. Welsh scientist William Grove invented the first fuel cell in 1839 while experimenting with electrolysis of water. Their use began in earnest with the US space programme in the 1960s after nuclear power was judged too risky and solar power too cumbersome. Fuel cells provided power for on-board electronics for the Gemini and Apollo spacecraft and still provide electricity and water for space shuttles today. As a result of the early space flight successes in the 1960s, the industry tried to bring the technology down to earth. Technical problems and high investment costs made the landing bumpier than anticipated.
Significant investors in today's fuel cell research range from traditional engine manufacturers such as Pratt & Whitney and Siemens-Westinghouse to vertically integrated electricity giants such as Detroit Edison, fuel companies such as Methanex and automotive players like DaimlerChrysler.
Utopia: 10 ways fuel cells could improve your world
No comments yet
Ballance partners with Hiringa for Kapuni hydrogen project
Kiwi Property eyes residential development for mixed-use centres
Strong construction growth shores up 1Q GDP but services weak
Sharesies to offer fractionalised NZX shares
20th June 2019 Morning Report
NZ dollar steady ahead of Fed decision, NZ GDP
Vital proceeds with $37m first stage of Wakefield Hospital redevelopment
Risks from exploration ban coming to pass
Pushpay lifts annual earnings guidance; shares rise
Treasury mindful of gaps in living standards framework