Navigant Research Blog

Californian and National Policies Could Shape Future Value Stacking for Distributed Natural Gas

— December 5, 2017

Distributed natural gas generation (DNGG) has significant potential for disruption in the electric sector thanks to improving generator technologies, cheap fuel, and the global trend toward decentralized systems in need of dispatchable power. Navigant Research has identified DNGG as a significant trend of the future, and various legislative and regulatory actions continue to affect this often overlooked but critical solution ecosystem. On the surface, some of these regulatory decisions appear as setbacks, and issues at the federal level remain unresolved. Yet, this key enabling technology for the Energy Cloud will continue to show growth due to underlying benefits dependent upon government subsidies. Some of the recent actions are discussed below.

California AB 36: This bill, which proposed to expand California’s fuel cell net energy metering (FC-NEM) program to include other efficient DNGG technologies, was vetoed by Governor Brown. The governor cited recent changes to the program and wanting to assess their effectiveness first. The goal of the bill was to make the FC-NEM program (with its 500 MW cap) technology agnostic and available to other technologies that meet certain emissions criteria. The decision keeps the larger cap exclusive to fuel cells. In a separate fuel cell development, new California projects have slowed in 2017 after new minimum biogas requirements were instituted in the Self-Generation Incentive Program.

California AB 1400: This bill, which prohibits recipients of microgrid funding from using those funds for diesel generators, was signed into law by Governor Brown in October. Though not exactly related to natural gas, this law continues a California lawmaking trend in aiming to limit carbon emissions—in this case as it relates to microgrids funded by the state’s Electric Program Investment Charge (EPIC) program. DNGG is not currently affected by this new law. These developments take place during a time of surging microgrid activity in California, with highlights including an active $44.7 million grant funding opportunity from the California Energy Commission and an active microgrid research roadmap.

Federal Investment Tax Credit: This credit for fuel cells, microturbines, and combined heat and power was a long-standing tax credit that expired at the end of 2016. House Bill HR 1, a tax bill, includes an extension for this credit, which if passed would provide a boost to these predominantly natural gas-fueled technologies. Note that the bill does not include this provision as of this writing. According to Navigant Research estimates for fuel cells, the credit is worth about $0.02/kWh throughout the system lifetime, which can significantly affect the economics of such systems.

Such policy developments have the potential to for significant effects on this dynamic industry. As renewables and storage receive significant governmental support, the relative merits of distributed natural gas will continue to be debated and judged. Regardless of the level of direct support of technologies like fuel cells, generator sets, and microturbines, the fundamental drivers of DNGG point toward a bright future.


Stationary Fuel Cell Prices Falling Faster Than Wind, Close to PV

— August 1, 2016

CodeMany fuel cell manufacturers are stealthy about their costs and prices, protecting the data like it is intellectual property. But new data from Japan’s ENE-FARM program confirms what other analyses have shown: fuel cells are showing consistently steep cost declines as production increases.

Most technologies exhibit a similar cost decline pattern. For every doubling of cumulative installed capacity, a commensurate decline in cost is realized due to improvements in manufacturing, supply chain efficiencies, and economies of scale. Plotted on a log-log chart, this curve forms a straight line called the learning or experience curve, and the slope is correlated with the rate of cost decline. For these 0.7 kW proton exchange membrane (PEM) micro-combined heat and power fuel cells, the learning rate is 17.2%, a number in agreement with the 20% found for larger-scale fuel cells. These rates beat the 12% of wind power and approach the 23% of PV (based on global values from this meta-study). Japan’s Ministry of Economy, Trade and Industry also released price goals for ENE-FARM in 2019. If met, these goals will continue the trend and bring the unsubsidized payback period down to around 7 years, which could mean broad adoption in the target residential market. Europe has its own similar program ramping up as well, while the United States and South Korea are more focused on larger-scale fuel cells.

Unsubsidized Price and Capacity of ENE FARM PEM Fuel Cells, Japan: 2006-2019


(Sources: Navigant Research; Imperial College London; Ministry of Economy, Trade and Industry)

Note that the ENE-FARM data is based on prices, not costs, and that the underlying marginal profitability of these units (produced mainly by Panasonic and Toshiba) is unknown. In addition, fuel cell systems have some components that are already mature and which may limit opportunities to squeeze out costs. Regardless, relative to PV and wind, fuel cells are far less commercially mature and are likely to fall faster in the near term. Each doubling in capacity becomes increasingly difficult for mature technologies. For example, at the end of 2015, wind had an installed base of 434 GW and solar PV had an installed base of 230 GW. This accounts for around 12% of global generating capacity, and even with the current fast growth rates, it is clear that future doublings will take even longer. Meanwhile, fuel cells (which have around 1 GW installed capacity) have the potential for greater price declines as adoption grows. As prices fall, these continuous output sources will become more attractive to a growing host of markets in the coming years.


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.


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