In short, there are three reasons for the failure of hydrogen fuel cells to reach mass penetration, even though billions of dollars have been spent on the technology by both the private and public sector for the past 50 years:
Simply put— hydrogen fuel cells produce electricity or as physicists would say "work" at too high a cost to compete with traditional energy products. To date, there has been no mass application that uses hydrogen fuel cells economically. With so much money over so many years, why is there so little to show for it? Yes, there is no CO2 emission and yes there are potential enormous applications which I will get to later, but first let’s look at the reality of hydrogen fuel cells in 2011.
Market Opportunities of Hydrogen
Let’s take a look at the automobile market as an example. An automobile manufacturer today produces an internal combustion engine for about $3000 cost. Assuming that this engine is about 80 horsepower (hp), its electrical equivalent is about 60,000 watts or 60 kilowatts (kW). Today’s fuel cells cost about $1000 per kW. Therefore a fuel cell needed to power a moderate sized automobile costs about $60,000. To meet the cost of $3000, there needs to be a 20 fold reduction in cost down to about $50 per kW. To reach a cost that would allow an automobile of marketable cost, a cost of $200 per kW or total engine cost of $12,000 would probably work. Such an engine cost would allow an automobile to be marketed for around $30,000. Such a price point would be attractive since the product has other attractive attributes such as clean exhaust and quiet operation.
Hydrogen fuel cells have had limited penetration in other markets. Consumer electronics such as laptop computers, video cameras, and cell phones that depend on battery power are good targets for fuel cells. Battery power is very expensive on a per watt basis. Fuel cells have no problem meeting the right price point. The fuel cells are somewhat more bulky than batteries and do have to be refueled periodically. Consumers often just stay with batteries because of the convenience they exhibit.
Military applications are another market where there has been some penetration by fuel cells. Battery replacement for soldier carried equipment is important on the battlefield. The U.S. Military uses disposable batteries during war time. The sheer weight of batteries needed by each soldier is a serious concern to commanders (and to the soldier). Back pack power modules of about 1kW have been evaluated by the military. Quiet operation and low thermal profile are important on the battlefield for power units that power command and communication centers. Fuel cells sized to replace diesel generator sets would find an interest. The military would rather only have one fuel type on the battlefield—diesel fuel. This wish adds a complication of necessitating a diesel fuel to hydrogen reformer to be part of the fuel cell system.
Backup systems for cell phone towers, buildings, hospitals, data centers, and police command centers, etc. are another market where the clean and quiet operational characteristics of fuel cells have advantages over diesel generator sets. The clean exhaust allows back up units additionally to be run to shave peak power consumption resulting in cost savings not always possible with diesel engines because of air pollution rules.
The cost burden of transportation of hydrogen
To compound the cost disadvantage that fuel cells have, consumers are then asked to pay more for fuel. Today, most hydrogen is produced by the steam reformation of methane from natural gas. At today’s natural gas prices, the cost of producing hydrogen is approximately $1 per kilogram. A kg of hydrogen has about the same energy content as a gallon of gasoline. Talking about kilograms of hydrogen makes it convenient to compare costs to the cost of gasoline. In the U.S. these plants that produce hydrogen are located where the markets for hydrogen are—next to oil refineries. Customers in other locations are served by compressed hydrogen gas or liquefied hydrogen. These deliveries are made by truck. The lowest cost method of hydrogen delivery is by trucking liquefied hydrogen. The cost of liquefying and trucking the hydrogen increases that $1 per kg cost to a $6 per kg cost. With handling and markups, the unsubsidized hydrogen filling station cost would be in the $8-10 range. (The station in Washington, DC was selling hydrogen at $2 per kg when it opened. Don’t fret that anyone lost money—there was next to no demand.) The cost of trucked compressed gas is about twice that of liquid.
Three methods of lowering the cost of hydrogen
The storage and transportation of hydrogen can be improved over the traditional ways of compressed and liquid transport. Companies such as Safe Hydrogen can reduce the cost of transporting that $1 per kg hydrogen from the steam reformation of methane plant to about $2 to yield a delivered cost of about $3 per kg. (Note: full disclosure, I am an investor and sit on the board of directors of Safe Hydrogen)
Another proposed means of lowering the costs of hydrogen is producing it via electrolysis of water. This is just a more sophisticated version of the high school chemistry demonstration with a battery, two electrodes, and a glass of salt water. It takes about 60 kWh of electricity to produce a kg of hydrogen. If electricity is about $0.10 per kWh, then the cost of hydrogen produced this way is about $6 per kg. Thus there is no price advantage to produce hydrogen locally from electricity.
Another way to produce hydrogen locally is by the photo dissociation of water by sun light. Companies, such as Nanoptek, can produce hydrogen for about $1.50 per kg even in sun poor regions like New England.
These two companies cited above highlight technologies that can finally make hydrogen valuable for mass adoption. Nanoptic, as mentioned above uses solar power to generate hydrogen locally at a much lower cost than the electrolysis procedure explained above.
Safe Hydrogen, and, to be fair, other competitors are developing low cost methods of transporting mass quantities of hydrogen so that the hydrogen can be used as a low cost and clean source of energy.
Think about it, low cost mass quantities of clean energy. How could this be used at a renewable utility scale farm? What could low cost mass quantity of hydrogen do for a wind farm operating intermittently? When wind energy is not needed immediately, it can be stored as hydrogen. More to come on my next piece. Maybe there is a future for hydrogen.
David Anthony is the Managing Partner of 21Ventures, LLC,(www.21ventures.net) a VC management firm that has provided seed, growth, and bridge capital to over 40 technology ventures across the globe, mainly in the cleantech arena. David Anthony is also Adjunct Professor at the New York Academy of Sciences (NYAS) and the NYU Stern School of Business where he began teaching technology entrepreneurship in 2009.
David received his MBA from The Tuck School of Business at Dartmouth College in 1989 and a BA in economics from George Washington University in 1982. He is an entrepreneurship mentor at the Land Center for Entrepreneurship at Columbia University Graduate School of Business. In 2002, David was awarded the Distinguished Mentor of the Year Award from Columbia University.
David blogs at: www.davidanthonyvc.com