Cleantech Market Intelligence
Volume Will Drive Down Fuel Cell Costs
Less than a week after BASF’s American unit announced that it was pulling out of the production of fuel cell membrane electrode assemblies (MEAs), the U.S. Department of Energy announced $4.5 million in funding for two R&D projects for MEA durability and cost reduction. The irony of this is not lost on the fuel cell community. Only a few years ago, BASF invested substantial amounts of money into developing a state-of-the-art fuel cell MEA manufacturing facility. High-volume production, predicated on high-volume demand, unfortunately, has not materialized. But the last thing the fuel cell industry needs right now is more R&D.
The history of technology adoption shows that once something works and is good enough for the initial adoption phase, what’s needed to reduce costs is volume. Get the stuff out of the door. Ship product. Here, the fuel cell industry can learn from the solar PV industry.
Both the solar PV industry and the fuel cell industry had very long incubation periods. Both went through hype cycles. Both lost the venture capital investment community a lot of money. More recently, the solar PV industry has made the VC community a lot of money, and Navigant Research forecasts that the fuel cell industry will do the same within the next 5 years. And, for both sectors, single-year data points give a distorted view of the industries’ health.
Where they differ is that the solar PV sector is now reaching an economic tipping point of production costs of $1 per watt, while the PEM fuel cell sector Navigant Research calculates is still at $10 per watt – too high for significant mass diffusion. (To be clear, this is for PEM-only fuel cell systems that are being shipped today, not next generation systems or hypothetical lab-based systems, which are, as a rule of thumb, 7 years from commercialization. Chart 1, based on Navigant Research’s solar PV data, shows two important things:
- Costs come down over time, though in a non-linear fashion
- Costs come down as installations go up.
Chart 1: Historical Solar PV Adoption and Cost Curve
(Source: Navigant Research)
This is all well known. Some in the fuel cell industry, though, seem to feel that we can shortcut this standard adoption process by pumping more and more money into R&D. The thinking: If we can cut the costs of MEAs, which currently represent more than 30% of the cost of the overall system, we can bring down costs and speed up adoption, showing a steeper, more politically acceptable adoption curve. The problem with this is that the technology still needs to go through the normalization and socialization process, in which adopters use it, break it, recommend it to their friends, find it useful, and basically bring it into their lives.
According to legend, it took 2 years to sell the first 1 million iPods and then less than 6 months to sell the second million. If Apple had held on to the product until the devices became cheaper, and some would argue, more affordable, would that first 2 years have been shortened? Unlikely. People still had to play with the product and understand how it fit into their lives. The same is true with fuel cell technology.
The moral of this tale is to stop holding onto the technology until it is “better” (i.e., cheaper). Ship now and continue to make improvements. Then costs will come down.