A Fuel Cell
Primer:
The Promise and the
Pitfalls
"Not long ago, the fuel cell was dismissed as an
environmentalist’s pipe dream....Now it is the subject of a
heavily financed research-and-development race among
some of the world’s biggest auto makers."
Jeffrey Ball, The Wall Street Journal
By Tom Koppel Ph.D. and Jay Reynolds
 2000 by Tom Koppel and Jay Reynolds
All Rights Reserved
Table of Contents:
What is a Fuel Cell?............................................................................................................ 4
Not All Fuel Cells Are Created Equal ................................................................................ 5
Ballard and its Allies........................................................................................................... 7
The California Connection.................................................................................................. 9
The Competition, GM and Toyota.................................................................................... 10
Fuel, The Great Unknown................................................................................................. 12
Political Uncertainties....................................................................................................... 14
Commercial-Scale Stationary Power ................................................................................ 15
Home-Size Stationary Power............................................................................................ 19
Portable/Standby Power.................................................................................................... 21
Related Technologies and Markets................................................................................... 22
A Glimpse at the Hydrogen Economy.............................................................................. 23
APPENDICES .................................................................................................................. 26
APPENDIX OF TABULAR DATA................................................................................. 27
APPENDICES OF USEFUL WEB SITES....................................................................... 27
Additional Resources – Video, pdf and Web.................................................................... 27
Hydrogen and Fuel Cell Resources................................................................................... 27
Fuel Cell Companies:........................................................................................................ 28
Governmental Resources: ................................................................................................ 28
Additional Online Resources ............................................................................................ 29
About the Authors............................................................................................................. 30
Disclosures of Our Investments ........................................................................................ 30
Disclaimer ......................................................................................................................... 30
A Fuel Cell Primer: The Promise and Pitfalls
Page 2, Rev 6, January 2, 2001
The incredibly rapid advance of fuel
cell technology shows that necessity
really can be the mother of invention.
There is no mistaking the necessity.
We in the industrialized countries have
been consuming the world’s limited
energy resources at a rate that cannot be
sustained, much of it in inefficient
internal combustion vehicles that burn
non-renewable fuels. And we’ve been
despoiling the environment in the
process. Estimates from the
Environmental Protection Agency
indicate that motor vehicles in the U.S.
account for 78% of all carbon monoxide
emissions, 45% of nitrogen oxide
emissions and 37% of volatile organic
compounds. Worldwide, over one
billion people living in urban areas
suffer from severe air pollution, and
according to the World Bank over
700,000 deaths result each year.
Moreover, each gallon of gasoline
produced and used in an internal
combustion engine releases roughly
twenty-five pounds of CO2, a
greenhouse gas that contributes to global
warming.
In response to the critical need for a
cleaner energy technology, invention
kicked into high gear. Fuel cells
generate energy with little or no harmful
emissions. So, beginning a decade ago,
significant government seed money was
put into fuel cell R & D. Private capital
soon followed. In just ten years, the
power of fuel cells was boosted roughly
twenty fold, making them easily
compact and light enough to power our
cars. Drastic cost reductions have made
them contenders to deliver stationary
and portable energy for a multitude of
other applications. The advances in fuel
cell technology are real. As one leading
fuel cell engineer has said, “This is not
just smoke and mirrors.” Fuel cells
promise to greatly reduce energy-related
environmental impacts without
significantly compromising our modern
lifestyles.
Little wonder, then, that some
investors have been betting, and winning
big, on publicly traded companies with
major stakes in fuel cell technology.
From the beginning of 1995 to the end of
1997, the share price of the
acknowledged leader in the field, Ballard
Power Systems, soared 1100 %. In just
this past year Ballard’s shares rose
224%, closing at $63.16 after having
been as high as $144.95. The overall
performance of a few of the smaller
players was also impressive. FuelCell
Energy’s share price, for example, shot
up a remarkable 273% in that same time
period. However, Plug Power’s stock
decreased 52%. In most cases if
investors bought near the high points for
these stocks and held them, by year’s
end they had lost half their equity or
more. That’s why we speak of “pitfalls”
as well as promise.
Until now, this sort of meteoric rise
in market capitalization was largely
reserved for biotech and Internet stocks.
But as Red Herring magazine recently
observed, “There is potentially far less
economic and political risk associated
with fuel-cell stocks. While biotech
products have to pass Food and Drug
Administration test trials, and many
Internet stocks have unproven revenue
models, fuel-cell companies could
succeed for fundamental business
reasons alone.”
A Fuel Cell Primer: The Promise and Pitfalls
Page 3, Rev 6, January 2, 2001
Still, most of the fuel cell companies
do not yet have a commercial product to
offer and have never turned a profit.
Some of the most important issues
affecting fuel cell commercialization
have yet to be answered. In light of such
rapid technological breakthroughs,
who’s to say that today’s leaders will
remain at the head of an expanding fuel
cell pack. And given the run-up in share
prices, perhaps fuel cell stocks are
already overvalued. The buzz and wellmeaning halo of virtue surrounding this
clean, green technology can be
infectious. But investing in fuel cell
companies is nothing if not speculative.
This report is presented in the hope
that it can help you to cut your way
through the hype and jargon. We will
explain very briefly how fuel cells work;
outline the main types of fuel cells and
their relative merits for specific
applications; and introduce you to a few
of the leading fuel cell companies. We
will also outline their development and
marketing strategies, discuss their
alliances (if any) with larger
corporations; and warn of the major
uncertainties that face this burgeoning
new industry. Finally, we will provide
links and recommended reading that
should expedite your further digging.
All of this will, we trust, help you to
make well-informed decisions.
What is a Fuel Cell?
A fuel cell is a clean and quiet device
that generates electricity from hydrogen
and oxygen. An individual cell delivers
very little power, so thin cells are
combined like slices of bread in a loaf to
form a fuel cell "stack." Fuel cells
simply reverse the familiar high school
science demonstration in which
electricity is put through water to
produce hydrogen and oxygen. In the
most common transportation fuel cell, a
polymer plastic membrane coated with
platinum is sandwiched between two flat
electrodes. Hydrogen flows in on one
side, oxygen from the air on the other.
They combine to form water so pure you
can drink it and generate electricity
without combustion or nasty emissions.
A fuel cell is a bit like a battery, but
better, because it needs no slow
recharging. It produces electricity as
long as fuel and air are supplied to it.
British lawyer and physicist Sir
William Grove discovered the principle
of the fuel cell in 1839, decades before
the invention of the internal combustion
engine. But then it largely languished
until the Apollo space program in the
1960s. No batteries could last long
enough for a flight to the moon. NASA
spent tens of millions of dollars in a
successful crash program that used fuel
cells to power the on-board electrical
systems.
They worked, but the commercial
potential of fuel cells seemed minimal.
The cells that NASA deployed were
hand-built and used exotic materials, so
the cost per kilowatt of power was
astronomical. They were also bulky.
Other types of fuel cells were more
promising, though, and research
continued at a low funding level at
several national laboratories and
universities. Beginning in the mid1980s, government agencies in the US,
Canada and Japan significantly increased
their funding for fuel cell R & D.
Meanwhile, the environmental
advantages of fuel cells became a
political factor, and their green potential
A Fuel Cell Primer: The Promise and Pitfalls
Page 4, Rev 6, January 2, 2001
began to capture the public imagination.
When advances in the output of fuel
cells reached the point where it was clear
they could power a car, investment in the
technology began to grow exponentially.
The rest, as they say, is history.
Not All Fuel Cells Are
Created Equal
There are six major types of fuel
cells with potential for a variety of
commercial applications.
The first to be fired into space was
the proton exchange membrane (PEM)
fuel cell, which was developed by GE
and performed successfully on the
Gemini orbital missions of the mid1960s. Then it was abandoned, and
GE’s patents gradually ran out. Ballard
Power Systems, with Canadian
government funding, began improving
PEM in 1984, as told in the book by one
of us, Powering the Future: The Ballard
Fuel Cell and the Race to Change the
World. Today, PEM is the main type
being commercialized to power
automobiles.
The Apollo moon missions used the
alkaline fuel cell (AFC) developed by
United Technologies Corporation. Now,
under the aegis of its subsidiary,
International Fuel Cells, a greatly
improved version provides electrical
power to the space shuttles. AFCs
worked well in space, where the rocket
was already supplied with extremely
pure liquid hydrogen and oxygen. But it
was not suited to operating on air and
impure hydrogen.
By contrast, PEM had the potential
to work on air and less pure hydrogen
(such as gas that is "reformed" from a
convenient liquid fuel like methanol).
This makes PEMs more suitable than
AFCs for use down here on earth. But
the early PEM cells needed so much
expensive platinum catalyst that this was
prohibitive except for space and some
military uses. (This has been solved by
spreading such a thin layer of
microscopic platinum particles on the
electrodes that very little is now
required.) Another plus for PEM is that
it begins generating power at room
temperature and attains its peak power at
about 80° Celsius (176° Fahrenheit),
allowing the relatively fast startup
needed for cars. And it responds almost
instantaneously to changing power
demands, which is crucial for
transportation.
The phosphoric acid fuel cell
(PAFC) was actually the first type to be
commercialized (by US and Japanese
companies) at a very modest level for
stationary power use, beginning in the
1980s. Several hundred units, mainly
using natural gas and generating 200 to
250 kilowatts, have been installed
around the world. Like PEM, PAFC can
run on impure hydrogen and air. But its
power output is considerably lower than
PEM; it does not respond well to
changing power demands; and its
operating temperature of around 200°
Celsius (395° Fahrenheit) means much
longer startup times. Still, in the late
1980s and early 1990s, the US
government put tens of millions of
dollars into PAFC. The thinking was
that PAFC was a relatively proven
technology. And with a large battery
bank for peak acceleration and hill
climbing, it might be suitable for buses.
Two other types of cells operate at
much higher temperatures of 650° to
A Fuel Cell Primer: The Promise and Pitfalls
Page 5, Rev 6, January 2, 2001
1000° Centigrade (1202° to 1831°
Fahrenheit), making them even less
suitable for ground transportation
because of their long warm-up time. But
they have other advantages. The solid
oxide fuel cell (SOFC) uses a cheap
catalyst and can operate on unreformed
natural gas or propane. It has high
overall efficiency, which can be
improved further if the heat it gives off
is captured and used (e.g. to drive a
turbine or heat a building.) It can also be
made relatively small.
The molten carbonate fuel cell
(MCFC) also uses an inexpensive
catalyst, has high efficiency and
produces excess heat that can be
captured and utilized. It can run not only
on natural gas and propane, but even on
diesel fuel, which makes it suitable for
ships and stationary power in remote
places, such as islands, where delivering
a supply of natural gas is difficult or
impossible.
Finally, the direct methanol fuel
(DMFC) cell is a lot like PEM in terms
of its catalyst and operating temperature.
It has the advantage that it can be
directly fed unreformed liquid methanol,
rather than gaseous hydrogen from a
reformer. The technology is years
behind PEM at present. If perfected,
though, it would eliminate the need for
fuel reformers in cars.
Markets and Major Companies
By far the greatest public interest has
focused on fuel cells for transportation,
especially cars and buses. This reflects
both the urgent need for cleaner cars and
the colossal size of the transportation
market. The amount of money that has
gone into R & D for fuel cells aimed at
the car and bus markets has eclipsed
expenditures on all other types
combined. Moreover, it was putting
prototype fuel cell vehicles on the road
in the mid-to-late 1990s -----with wellpublicized “roll-outs” in places like
Berlin’s Brandenburg Gate and in front
of California’s state capitol in
Sacramento-----that really gave this
technology visibility. Finally, we all
drive cars, right? So we can easily
imagine owning one powered by clean,
quiet fuel cells in the not-too-distant
future. It is what most of us picture
when we think of the coming fuel cell
revolution.
Vehicles, and especially cars, impose
special requirements on fuel cells. They
must be able to start up quickly and
operate in environments ranging from
extreme winter cold to dry desert heat.
They must be compact and as
lightweight as possible. They must be
able to stand vibrations and respond well
to rapidly changing power demands.
Finally, a supply of fuel must be widely
available.
The only well-advanced type of fuel
cell that is really suitable for mass
transportation is PEM. This is mainly
because its low operating temperature
allows for relatively short start-up times
(thirty seconds or less) and because it
responds almost instantaneously to
changing power demands, a
characteristic known as “loadfollowing”. PEM cell stacks have
already been made compact and
powerful enough to fit easily into a
passenger car, and they offer power and
acceleration equal to, or even better than,
the internal combustion engine. So there
is no reason to expect them to encounter
consumer resistance if they can be made
A Fuel Cell Primer: The Promise and Pitfalls
Page 6, Rev 6, January 2, 2001
cost competitive, and if the needed fuel
infrastructure can be established. Two
big ifs.
Also under development, though, is
the direct methanol fuel cell (DMFC),
which may in a few years provide
serious competition to PEM for cars. Its
advantage, as mentioned, is that it can
run on methanol without a separate fuel
reformer. Its main drawback, until now,
is that its power density was much lower
than PEM, but improvements on that
score have been rapid. The development
of a small, efficient and inexpensive
methanol reformer for PEM is one of the
current challenges facing the car makers.
Yet methanol could turn out to be the
only practical way of delivering
hydrogen for fuel cell cars, at least over
the next decade or longer. So if the
methanol reformer proves to be a
stumbling block, DMFC could yet turn
out to be the technology of choice. Even
Ballard, the PEM leader, has hedged its
bets by purchasing non-exclusive rights
to a proprietary DMFC technology
developed by the Jet Propulsion
Laboratory and Loker Hydrocarbon
Research Institute.
transit buses were put onto the streets of
Chicago and Vancouver.
Ballard Powered Transit Busses
They proved themselves by
successfully carrying thousands of fare
paying passengers on normal transit
routes for two years. In Germany,
Daimler-Benz has put Ballard cells into
its own prototype NEBUS (short for
New Electric Bus), which is similar, but
not identical, to the ones in Chicago and
Vancouver. Meanwhile, Daimler put
Ballard cells into its series of prototype
cars (called NECARs, for New Electric
Car).
Ballard and its Allies
In the race to put fuel cells into cars
and buses, the apparent leader is Ballard
in partnership with DaimlerChrysler and
Ford. Starting in 1990, Ballard put its
fuel cells into a series of increasingly
impressive prototype buses that ran on
compressed hydrogen. The first small
bus, rolled out for the media in 1993,
was the first-ever fuel cell vehicle
capable of carrying passengers with
reasonable speed and operating range.
Several larger prototypes followed. In
the late 90s, six Ballard-built fuel cell
The Necar 3
In 1997 Daimler-Benz (soon to
become DaimlerChrysler) and Ballard
made a $ 390.8 million ($ 508 million
Canadian) deal under which Daimler
acquired a 25% stake in Ballard. They
also formed a joint venture company
called DBB Fuel Cell Engines (owned
two-thirds by Daimler, one-third by
Ballard) to manufacture fuel cell
engines. These engines integrate the
A Fuel Cell Primer: The Promise and Pitfalls
Page 7, Rev 6, January 2, 2001