Deloitte predicts that hydrogen will enjoy tremendous success in 2011. However, this success will not be seen in the automotive market as expected, but in other applications, such as clean standby power generation in the telecom industry ¹and indoor forklifts², where hydrogen’s energy density and environmental benefits outweigh its current limitations of high cost and lack of fueling infrastructure.

A decade ago, hydrogen (H2) and hydrogen fuel cells (HFCs) were seen as the most likely technology to displace the internal combustion engine in vehicles. Hydrogen-powered cars were expected to be in showrooms by now, and some even said that millions would be on the road by 2010³. Engineering difficulties, costly fuel cells (more than $1000/kw in 2002), and a drop in oil prices contributed to hydrogen disappearing from the front pages.

However, probably the biggest reason why thinking about HFCs changed in 2002 was due to the nature of hydrogen itself. At first glance, hydrogen looked like an ideal, safe fuel. Although it was not very dense, and so needed more compression than natural gas, this obstacle could have been dealt with.

The bigger problem was the lack of naturally occurring sources of H2. It can be extracted from water by electrolysis or processed from natural gas or ammonia, but free hydrogen does not exist in an economically useful resource. Unlike coal and petroleum, there are no hydrogen mines or wells. Instead, hydrogen is a substance that stores energy: the only energy you get out of it is what you put into it. This makes an HFC more like an H2-powered battery than a traditional fuel-burning engine.

There are many applications where hydrogen’s battery-like power is preferable to a combustion engine. Two examples include forklifts used inside warehouses and remote generators that supply backup power for telecom equipment.

Forklifts are often used in large enclosed spaces like warehouses where combustion engines, which produce carbon monoxide, would be unsafe. Batteries have been the preferred solution for years, but have several drawbacks: batteries don’t last an entire shift, their power output drops as they discharge, and stacks of charging batteries take up a lot of floor space. In this niche environment, an HFC can offer a full shift’s worth of power, refuel in one to three minutes and pays for itself in two years⁴.

There are many places in the world where back up power (for infrequent emergency outages) or standby power (for more frequent outages related to a less reliable grid) is needed. Many of these locations are not amenable to traditional power sources, such as lead acid batteries or diesel generators. In particular, the telecom market requires power sources that can be located in harsh environments with extreme temperature fluctuations, which reduces the usefulness of lead acid batteries, or in urban areas where diesel exhaust is restricted. Hydrogen is a reliable and environmentally friendly substitute. As more countries mandate eight-hours of backup operating time to maintain wireless emergency communications service, this market is likely to grow⁵.

There are other near-term hydrogen applications, such as distributed energy generation for factories or residences⁶ and fleet fuel, including urban buses, where cost is less of a concern than air quality. Across all applications, 10,000 HFCs may be sold, representing revenues of $250 million, up 200% from 2009⁷.

Some analysts are expecting H2 to make headlines again in the automotive space⁸. High oil prices, carbon-related environmental concerns, and the automotive industry’s willingness to consider alternative fuels are driving the revived interest in H2 technology. Several large auto manufacturers continue to fund tens of millions of dollars in HFC R&D spending annually, although the amount is declining. Government support is also declining: North American HFC research for the transportation market was slashed (non-transportation HFC research was also reduced, but not as sharply)⁹.

Despite R&D investments, the H2-fueled vehicle has yet to be commercialized, and some pessimistic analysts say commercial adoption could be decades away¹⁰. The energy density is acceptable and the environmental benefits are obvious: you put hydrogen in, and water vapor is the only exhaust. But the cost of an HFC remains high compared to other power plants: current (non-production) vehicles are estimated to cost $300,000 each¹¹. The cells are vulnerable to damage from fuel contaminants such as carbon monoxide, and they do not start well in cold temperatures. These problems are likely to be solved over time, but commercial availability appears to be at least several years away.

Bottom Line

Although HFCs remain a niche, their near-term applications could easily create a billion-dollar market by 2015. The forklift and standby power markets alone are worth over $5 billion; hydrogen could likely capture at least 20 percent of these markets.

Plus, there are many other possible applications for the technology, such as portable electronics. These energy-hungry devices are pushing the limits of lithium ion battery technology; a refuelable energy source might be a welcome alternative¹². Military and space organizations are also likely to continue using HFCs for demanding and high-value applications, although generally in small numbers.

The HFC sector seems worthy of ongoing R&D support. Current technologies can be made less expensive, more easily manufactured and more resistant to damage from environmental causes. Research will be needed in the areas of membranes and catalysts, with a special focus on reducing the amount of platinum needed: platinum costs are one reason HFCs are so expensive. Also, those involved in the production, transportation, and storage of hydrogen should consider improving their products and economics: as hydrogen demand increases, supply and distribution will need to become more widespread and economical.

¹Transact Energy Secures Altergy Systems Fuel Cell Technology for India, TransAct Energy Corp., 2 November 2010:http://www.transactenergy.com/2010/11/transact-energy-secures-altergy-systems-fuel-cell-technology-for-india/

²Plug Power Inc: Fuel Cells Power Walmart Lift Trucks, Business Review Canada, 23 June 2010,http://www.businessreviewcanada.ca/sectors/renewables/plug-power-inc-fuel-cells-power-walmart-lift-trucks

³Hydrotopia, Salon.com, 24 September 2002: http://dir.salon.com/tech/feature/2002/09/24/hydrogen/print.html

⁴Economics of Fuel Cell Solutions for Material Handling, Ballard, April 2009:http://www.ballard.com/files/pdf/Case_Studies/Material_Handling_Economic_Benefits_041510.pdf

⁵ FCC moves forward on backup power rules, ITExaminer.com, 14 September 2008:http://www.itexaminer.com/fcc-moves-forward-on-backup-power-rules.aspx

⁶Ballard, Tokyo Gas to Develop Fuel Processor for Residential Fuel Cell Generator, HighBeam Research, 13 January 2000:http://www.highbeam.com/doc/1G1-58575057.html

⁷Consensus analyst forecasts; Thomson FirstCall, October 2010

⁸Second Wind for Hydrogen In the Eco-car Race?, CBS News, 19 April 2010:http://www.cbsnews.com/stories/2010/04/17/tech/main6406094.shtml

⁹Hard cell, Globe and Mail, 10 June 2009: http://www.theglobeandmail.com/globe-drive/green-driving/news-and-notes/hard-cell/article1176394/

¹⁰Hydrogen/Fuel Cells, US News and World Report, 11 January 2008: http://money.usnews.com/money/personal-finance/articles/2008/01/11/hydrogenfuel-cells.html

¹¹The hydrogen car fights back, CNN Money, 14 October 2009: http://money.cnn.com/2009/10/13/technology/hydrogen_car.fortune/index.htm

¹²Canadian Fuel Cell Commercialization Roadmap Update ,Ballard, December 2008:http://www.ballard.com/files/pdf/PWC_Report.pdfpage 31