Navigant Research Blog

Roller Coaster Summer Continues for Fuel Cell Incentives

— June 21, 2016

HydrogenRobust incentives in places like Germany, Japan, and the United States have expanded the market for stationary fuel cells over the past decade. Within the United States, recent changes to major incentive programs hint at the future of the industry.

The California Public Utilities Commission recently proposed changes to the Self-Generation Incentive Program (SGIP). If approved at the Commission’s June 23 business meeting, the wide-ranging changes would substantially restructure the program. Two key changes would specifically affect natural gas generation technologies such as fuel cells, microturbines, and generator sets. First, energy storage projects would be allotted 75% of program funds, with the remaining 25% going to generation projects, including natural gas projects, wind turbines, and others. This would be a strong pivot toward storage over generation since these categories account for 4% and 96%, respectively, of $1.1 billion in historical incentives paid. Second, beginning in 2017, natural gas projects would need to use a minimum of 10% biogas, increasing in steps to 100% in 2020. The changes are intended to strike “the right balance of the program’s goals of reducing [greenhouse gases] GHGs, providing grid support and enabling market transformation.”

The federal Business Energy Investment Tax Credit (ITC) has been another important incentive, offering as much as a 30% rebate on fuel cells and other energy technologies. Wind and solar won big with the December 2015 extension, though fuel cells and other natural gas technologies were passed over and currently expire at the end of 2016. However, recent comments from congressional leadership indicate that an extension for the overlooked technologies is likely this year and may even be approved as part of the Federal Aviation Administration (FAA) authorization bill, which has a deadline of July 15.

So the news for fuel cells is mixed, with California likely offering smaller incentives than in the past but the ITC likely extending beyond 2016. The goals of such programs are ever changing, though in most cases, increasing focus is placed on GHG reductions. California’s biogas requirement cuts emissions and could thus be good for the industry, provided biogas can be viably sourced in the quantities required.

Successful incentives should ultimately render themselves unnecessary by driving down costs. Fuel cell costs have been falling, though not at the rate of some other technologies like PV. The winners will be those that can creatively cut the costs of manufacturing, installation, and financing to make the systems cost-competitive with other electricity sources. Despite the GHG emissions associated with natural gas fuel cells, current developments play a role in a zero-emissions future. Today’s natural gas fuel cell research can be directly applied to the hydrogen fuel cell, a key emissions-free and dispatchable energy resource that can complement the mix of renewables that will power our future.


Fuel Cell Makers Seek an American Foothold

— March 18, 2015

In the United States, the topic of fuel cells is very often greeted with skepticism. One prominent fuel cell skeptic, Tesla founder Elon Musk, recently called fuel cell cars a silly idea.

So it’s interesting to compare that to the respect still given to fuel cell technology in Japan, where the 2015 FC Expo recently took place. The FC Expo is one of the largest fuel cell conferences in the world and attracts attendees from around the world. But the audience is predominantly from the Asia Pacific region, and the level of interest in the potential of fuel cells is dramatically different than in the United States. Japan and South Korea, in particular, are two of the biggest markets for fuel cell deployments to date.

Japan’s ENE FARM program has supported the deployment of 100,000 fuel cell combined heat and power systems in Japanese homes. At the Expo, companies like Toshiba, Panasonic, and Aisin Seiki spoke about their commitment to the Japanese residential fuel cell program, which aims to sell over 1 million fuel cell CHP units in Japan by 2020. South Korea’s POSCO Energy has developed the 59 MW Gyeonggi Green Energy fuel cell park and built a 200 MW capacity manufacturing plant for the molten carbonate fuel cell that utilizes FuelCell Energy’s technology.

New Beachheads

What’s most interesting is that these Japanese and South Korean companies are focused on expanding to new markets—in particular to the United States. Ironically, though skepticism toward fuel cells persists in the United States, the American market remains one of the most attractive in the world. That’s why South Korean companies have been buying up North American fuel cell companies, and their technology, over the past few years.

LG became a majority investor in Rolls Royce’s fuel cell business in 2012. In 2014, Doosan bought ClearEdge’s assets, and POSCO has continued to strengthen its relationship with FuelCell Energy. These companies bring significant resources and a long term outlook to the fuel cell sector, using their U.S.-based fuel cell businesses as a beachhead into the U.S. market.

Got a Match?

The U.S. market has many characteristics that make it a good market for fuel cells. The shale gas boom is driving interest in electricity generation that can take advantage of plentiful supplies of natural gas. High value markets, such as data centers, are growing in number and in energy demand, and companies like Apple and Microsoft are exploring using fuel cells to bring down those costs. Energy services companies are exploring ways to meet the growing demand for distributed energy resources (DER) , and are using new financing instruments to support  deployment of DER. Incentives and programs to promote fuel cells in states like California and New York are helping to bring down the costs of today’s fuel cells to where the cost of the power approaches grid parity.

It’s not certain, though, that the fuel cell market in the United States will grow beyond early niche markets. Fuel cell companies need to drive down costs and utilize financing schemes like power purchase agreements to reduce the risk to end users. What the fuel cell industry needs is a matchmaker who can bring together the companies working to develop a successful fuel cell market with the right energy company or financing partners in the United States so they can work together to expand the market for fuel cells in this country.


A Better Way to Extract Shale Oil

— November 5, 2014

Last month the Colorado Fuel Cell Center (CFCC) at the Colorado School of Mines hosted the first public demonstration of IEP Technology’s Geothermic Fuel Cell (GFC).  This innovative technology uses the waste heat produced by fuel cells to convert the kerogen in oil shale into unconventional hydrocarbons onsite.

Using standard fuel cell technology, the GFC flips the application on its head by taking a heat-first, power-second approach.  The system uses solid-oxide fuel cells, manufactured by Delphi Automotive, in tubular modules that can be linked end-to-end to create a long string of fuel cells encased in a steel cylinder.  The long-term plan is to insert vertical stacks that are up to 1,000 feet long into oil shale formations, spaced 10 to 15 feet apart in a grid pattern.  In this configuration, the fuel cells can generate temperatures of up to 1,200°F, which will be used to heat the formation and drive pyrolysis (thermal decomposition of the oil shale).

Giving Shale Oil a Better Name

Currently, shale oil is most commonly extracted ex situ, or offsite.  The oil shale is mined and taken to an above-ground processing facility where it is crushed, heated to temperatures suitable for pyrolysis (500-1,100°F), and the unconventional hydrocarbons (shale oil and natural gas) are collected, cooled, and refined.  This process is expensive, inefficient, and extremely damaging to the environment, and it has earned shale oil extraction a bad name.

IEP’s technology, on the other hand, performs the processing in situ, or onsite, by applying heat underground and extracting the shale oil and natural gas via wells that sit among the boreholes, leaving the formation intact.  The only byproducts are electricity that can be sold back to the grid, small amounts of clean water, and CO2.  It may seem odd to think of the electricity as a byproduct, but that’s the beauty of IEP’s approach.  If a single 1,000-foot stack contains 100 to 300 of Delphi’s 1.5 kW fuel cells, you’re talking 150 kW to 450 kW of baseload power per stack over a projected 5-year lifespan, which is no small thing when you consider the potential revenue.

IEP estimates that the gross capital and operating costs of a GFC installation will be less than $30 per barrel of shale oil when the revenue from the sale of electricity and surplus gases is taken into consideration.  This would give GFCs a significant cost advantage over the competition.  More significantly, IEP’s technology allegedly has an energy return on energy invested (EROEI) of 22:1, which would be a monumental improvement on the current best-in-class EROEI for oil shale, which is closer to 5:1.  The technology seems easy enough to replicate, but IEP has patented its idea, which should give it some protection from competitors.

The Real Cost

However, a couple of questions come to mind.  First, what will the actual installed cost of the systems be?  It could take thousands of fuel cells to develop a single formation.

Second, you have to run a fuel source out to the site, which is probably fairly remote, in order to run the GFC.  You also have to run transmission lines out to the site and build a substation in order to sell power back to the grid, and the fuel cells will only be running at that site for 5 years, so it’s a temporary installation.  How many utilities would be interested in doing that?  These questions must be addressed, and we won’t know how the economics and EROEI shake out until mid-2015, when the GFC is expected to be field-tested.  But this appears to be a very promising technology.


Japan Doubles Down on Fuel Cell Vehicles

— July 13, 2014

Two recent announcements out of Japan have dramatically cut the price that Japanese drivers will pay for a fuel cell car.  Toyota unveiled its completed design for the fuel cell vehicle (FCV) it will put on the market in 2015.  More importantly, the company revealed the price would be around ¥7 million, or $70,000.  This is a big drop from the $100,000 price tag floated, alarmingly, a few years ago.

A day earlier, Japan’s prime minister Shinzo Abe called for subsidies of FCVs beginning next year.  A part of the government’s economic growth strategy, these incentives reflect the hydrogen energy roadmap adopted by Japan’s trade ministry.

As described in my Fuel Cell Vehicles report, I’ve long said that the two impediments to fuel cell cars taking hold in the market are cost and infrastructure.  Automakers like Honda and Daimler have already shown that the technology works, resolving early issues such as cold-start capability.  FCVs will also deliver on the key performance characteristics that make them intriguing, as compared to battery electric vehicles: range and refueling.  The Toyota FCV will have a 420-mile range and refuel in 3 minutes.

The Post-Fukushima Strategy

For longtime fuel cell technology followers, I am stating the obvious.  The potential benefits of fuel cells in transportation have been well-understood for years.  Honda, General Motors (GM), Daimler, Hyundai, and Toyota have all shown they can make cars that meet those performance targets.  Nevertheless, in the U.S. media, the perception persists that fuel cells were made obsolete by the successful introduction of plug-in electric vehicles (PEVs).  In Navigant Research’s recent white paper, The Fuel Cell and Hydrogen Industries: 10 Trends to Watch, I noted that the U.S. media would continue to tie these two technologies together – and would misunderstand the rationale for pursuing them both.  Sure enough, this article asserts that the Japanese government’s goal is to crush Tesla.

Not quite.  The Japanese government’s plan is to promote technologies and fuels that will help ensure the country never has another experience like the Fukushima disaster in 2011.  The Japanese government also wants to grow the economy by supporting domestic industries.

The Market Will Decide

To take a phrase from President Obama, Japan has taken an “all of the above” approach in pursuing these two goals.  Nissan and Toyota have done well in the PEV market.  But fuel cells offer an alternative for consumers who may find that a plug-in car doesn’t meet their driving needs.

Japan has also made a huge commitment to fuel cells that provide residential power.  The country’s residential fuel cell program has supported the deployment of over 42,000 combined heat and power (CHP) fuel cells in Japan.  Manufactured by Toshiba, Panasonic, and Eneos Celltech, these residential units are sold through gas companies like Tokyo Gas.  After Fukushima, when the plant’s backup diesel generators were rendered useless and employees scavenged car batteries to power monitoring equipment, the Japanese government set a requirement that the fuel cells be capable of starting up when the power is off.  While these fuel cells employ a different technology from automotive fuel cells, the CHP program demonstrates both Japan’s commitment to pursuing whatever technology the country believes will support its energy resiliency (utilizing domestic expertise) and its willingness to support that technology in its early market introduction.

Japan has already committed to building 100 hydrogen fueling stations in key metro areas.  The country’s energy companies are partnering in that effort.  Note that the Japanese government is also supporting the automaker deployment of 12,000 charging stations in Japan.  Again, it’s not an either/or prospect for Japan.  The announcement on the FCV subsidies will put the cars at a price point where they might have a chance in the market.  If the infrastructure is in place to make fueling reasonably convenient, then it will be up to consumers to decide whether FCVs will succeed in the market or not.  Success will be measured over many years, not in 18 months.


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