Cleantech Market Intelligence
Fuel Cell Providers Act Locally
With the election over, the economy and job growth remain the key issues for most Americans. Energy policy is often promoted as an employment plan – but I’m skeptical that energy policy can be designed to drive large-scale employment. This may be another political myth like the promise of “energy independence”. Nevertheless, our research into the growth of the fuel cell market over the past few years, and our assessment of where it’s going, suggest that a counterintuitive approach to job creation may be in order. In short, if governments want to promote job creation in the fuel cell sector, they should promote domestic demand for fuel cell products.
How do they do that? First, Pike Research has tracked shipments of all fuel cell applications from companies around the globe, and where those shipments are going, from 2008 to today. This database was used for our analysis of the state of the industry in the Fuel Cell Annual Report 2012. The vast majority of fuel cell systems from 2009 to 2011 were shipped to the manufacturer’s home market. This is indicative of the fuel cell industry as still a fledgling market. Before going commercial, companies will have made enormous investments in their technology, and then invested even more in making a product that can be sold commercially, and yet again in marketing and sales. In the early phase of commercial sales, companies have to limit their target markets, and it makes most sense to first go after their local market. For example, providers of stationary fuel cell systems must develop products with the right power rating and certification for their local or regional market, as well as the capability to reform domestic fuels – such as city gas, a fuel supply particular to Japan. Once the local market is established, the company can move to other regions. This oversimplifies the strategy a bit – there are companies that are targeting more than one market – but overall this is the state of the fuel cell industry today.
There is a second trend that shows how domestic demand can drive localized manufacturing. In our recent webinar on the Fuel Cell Industry in 2012, we showed the following graph of revenue by region from 2009 to 2011.
Fuel Cell Systems Revenue by Region, World Markets: 2009-2011
(Source: Pike Research)
Notice that the Asia Pacific is the only region to see consistent growth. This reflects the dramatic growth from Japan’s Ene-farm program promoting residential CHP and Korea’s promotion of stationary fuel cell power. It is also the result of companies shifting operations to the actual market where they will be selling. One notable example of that has been U.S. company FuelCell Power, which announced a long-term deal with Korea’s POSCO Power in March. The deal includes a licensing commitment that provides for manufacturing based in South Korea. We can see this happening with other companies that are targeting overseas markets and moving a portion of their manufacturing to those regions, making them, in essence, “domestic” markets.
So for governments that want to promote jobs in the fuel cell industry, at this early stage of commercial sales, it may make the most sense to support the domestic demand for fuel cells that will allow companies to build for their home market – and hire the workers to do so.