Renewable Energy and the Hydrogen Economy

By J. Peter Lynch
April 2003

The Author has over 25 years experience working as an investment banker with startup and development stage companies in the technology, computer and medical fields. He has served as an officer, director or advisor to dozens of companies over the years with a primary focus on technology development and strategic partnering.
In addition he has worked, for 25 years as an independent securities analyst in small emerging technology companies with a primary focus in alternative energy and has served as a contributing editor for the past 15 years to the Photovoltaic Insider Report, a leading alternative energy publication primarily directed at industry.

What are Fuel Cells?

A fuel cell is an electrochemical energy conversation device. It converts hydrogen and oxygen into water, producing electricity and heat in the process.

Fuel cells are silent, efficient, compact (see note) and can be used for many different power applications. There are many different types of fuel cells and each has its optimal uses.

Note: to illustrate, a fuel cell device the size of a small piece of luggage could power a car.

How do they work?

A fuel cell (like a battery) has a positive and a negative side.

Hydrogen is put into the negative side (anode) creating direct current. Oxygen is put into the positive side (cathode) conducting electrons, from the negative side and combining them with the hydrogen ions and oxygen to form pure water.

This is why everyone is so excited about fuel cells.you can get pollution free electricity by combining the most abundant element in the universe (hydrogen) with ordinary air (oxygen) and the only other byproduct is 100% pure water.

Types and Uses of Fuel Cells

The type of electrolyte they utilize usually classifies fuel cells. Some types of fuel cells show promise for use in larger stationary power generation and others may be useful for small portable application or for powering cars. There are 6 main types of fuel cells:

Next Steps for Fuel Cells

The main problem with current fuel cells is that they are more expensive than traditional fossil fuels. However, many are far into the last stages of pre-commercial development and with some technical improvements and economy´s of scale in manufacturing, I am sure that they will drop in price and become cost effective.

I expect that we will see the first fuel cell powered cars emerging in late 2004 and early 2005. There will be a number of other issues that must be addressed as developments progress. For example, is the car quick and easy to refuel, can it travel far enough between refueling, will it be easy to maintain, etc.

In general, I do not think that there are any significant ”technical” breakthroughs needed to make fuel cells take their place as one of the key elements in the world´s future Hydrogen Economy. It will certainly be a very interesting and profitable area for investors as we get closer and closer to full-scale commercialization.

Promise and Timing

The biggest investment opportunity over the next 20 years will be in the transition to the hydrogen economy with all its components, fuel cells being one of the KEY ones. The fuel cell industry is in its early stages and now is an ideal time to start to get familiar with it.

We will be developing at section for stocks to watch in the sector to be posted at www.investorideas.com.

To review: A fuel cell is an electrochemical energy conversation device. It converts hydrogen and oxygen into water, producing electricity and heat in the process.

The real key to understanding where the fuel cell fits in is to first understand where the hydrogen will come from and how it will be extracted.

Energy Storage

The number one problem with energy is: how to store it for when it is needed.

Currently we receive our power from large power plants that are always running, so there is always electricity available in your home when you plug something into the wall. The majority of these power plants are fueled by coal and natural gas so in effect, the energy is stored in the coal or natural gas until it is burned to create electricity. The problem is that we will run out of coal, natural gas and oil (or for environmental reasons be unable to use more) and we will need to have another source of ”energy storage”.

It is my opinion that this next global source of energy storage will be hydrogen.

Two Key Problems with Hydrogen - Availability and Storage

"We are like tenant farmers chopping down the fence around our house for fuel when we should be using Nature´s inexhaustible sources of energy-sun, wind and tide. I´d put my money on the sun and solar energy. What a source of power! I hope we don´t have to wait until oil and coal run out before we tackle that."

Thomas Alva Edison (1847-1931)

Timing

The industry is in its early stages now, I don´t think anyone needs to rush out and buy fuel cell stocks tomorrow. However, I think this is the ideal time to start a ”watch list”. This list will consist of companies that you keep an eye on and be ready to buy the appropriate ones when the timing is right and they are mature enough to be stable investments.

There are a number of things that I think the potential investor should keep in mind and be aware of before and when creating their ”watch list”.

  1. The fuel cell industry is just starting and not all the current companies are going to survive. Some will survive and perhaps become market leaders, but others will fall by the wayside.
  2. It is important to understand the ”likely” order in which fuel cell applications will become commercial (see below - Likely Order of Commercialization). This should be very helpful in timing when a company is emerging as a potential investment.
  3. The cost of fuel cells must come down considerably (2 to 4 fold) for fuel cells to be used throughout the economy. A number of technical developments must occur and the industry must scale up production in order to get the cost benefits from mass production.
  4. Even though many fuel cell related stocks are down 70 to 90 percent from their peak in early 2000 they still have fairly large market caps. And many of them have no earnings.
  5. Look for the companies that have at least enough cash on hand to get them through 2 to 3 years of operations without running out of money. At this stage of development, this is a critical screen that MUST BE passed. Compare their quarterly burn rate with cash plus short term investments to determine how many quarters of cash they have on hand.

Likely Order of Commercialization:

  1. Micro applications
    Many of these applications for fuel cells are cost effective now. Batteries are VERY expensive and many applications of fuel cells are cheaper now. Some examples that you will be seeing this year and next year are: Cell phones, Laptop Computers, PDA´s etc. these applications will give devices approximately 10 times greater time between ”charges”. You will probably ”re-charge” your fuel cell with a little portable direct methanol cell (similar to the old fountain pen ink cartridges).
     
  2. Portable applications
    Applications will be portable generators for emergency uses or remote locations. For example, Coleman is currently selling a small portable unit (1 kilowatt) that runs on special hydrogen cylinders in which the hydrogen is stored in solid form or on direct hydrogen gas.
     
  3. Stationary Power for special high value uses
    Applications where the need for uninterrupted power is GREATER than any extra cost associated with fuel cells. For example, if a large computer data center lost power (even for a few seconds) that could result in a loss of millions of dollars. Fuel cells are very reliable (more reliable than the current electricity grid) and will be used as backup to make sure that power is never lost.
     
  4. Stationary Power
    As the price of fuel cells comes down they will begin powering whole buildings and also providing heat for heating and air conditioning. These will most likely be the kind of fuel cells that also give off a lot of heat. These are much more efficient (at this application) because a building can use that extra heat, whereas a car or a laptop cannot.
     
  5. Transportation
    The most well known area of fuel cells, thanks to the press and President Bush. But in my opinion, it will be the LAST area to be commercialized. There are a number of problems that must be solved involving a way to store the hydrogen effectively (weight, space and safety) to fit in an automobile that are not factors in a building or home. In addition, there is a lack of a nationwide (or local) hydrogen infrastructure i.e. hydrogen (gas stations) stations where people can stop and get their vehicles fueled.

Bottom Line - Fuel Cells are coming and they will be everywhere

Fuel cells will be one of the key components in the hydrogen economy. They will replace the internal combustion engine and will convert the new main store of energy (hydrogen) to power when it is needed. They will be everywhere throughout the economy, they will power cities, buildings, homes, portable computers, cell phones, vending machines and vehicles of every type.

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