Hydrogen Fuel Technology: Not Dead Yet

With the furor over the potential for hybrid, plug-in hybrid and all-electric cars recently, one might think the hydrogen car was dead. Nothing could be further from the truth. Feasibility at an affordable price appears to be established and market availability of hydrogen powered cars may come sooner than you think.
Many issues remain to be addressed and this article will try to cover them.
The problems to be overcome are not insurmountable, but are also not trivial. These problems include the economics of hydrogen production, transportation, distribution and storage systems, as well as safety issues for cars involved in collisions.

Alan Ohnsman, writing for Bloomberg, reports that GM (GMGMQ.PK), Toyota (TM) , Daimler AG (DAI) and other car makers want to start supplying cars fueled by hydrogen as soon as six years from now. Quoting from the article:

“The advances that have been made by the automobile manufacturers are remarkable,” said Scott Samuelsen, director of the National Fuel Cell Research Center at the University of California, Irvine. “Infrastructure is the Achilles’ heel.”

The fuel cell center opened in 1998 and is funded mainly by the U.S. government and California Energy Commission. It has also received grants from Toyota and Royal Dutch Shell Plc’s hydrogen unit, said Kathy Haq, a spokeswoman for the center.”

Here is a picture of a Royal Dutch Shell (RDS.B) hydrogen fueling station in New York City, discussed in a Seeking Alpha Instablog in August.



According to the Ohnsman article, the economic factors are starting to line up for hydrogen. He quotes a Toyota objective of a $3,600 price premium for a hydrogen fuel cell powered car. This compares to the current price premium for the Synergy Hybrid Drive system from Toyota, currently averaging around $4,000 for the Camry. This is quite a change from the $1,000,000 price tag estimated to build one of these vehicles just a few years ago.

Advantages of Hydrogen Fuel Cells over Batteries

To understand the significance of this topic, one must first recognize how the hydrogen fuel cell powers a vehicle. Hydrogen fuel cell powered vehicles are electric vehicles. Hydrogen is not burned like a hydrocarbon fuel. Hydrocarbons are storage media for thermal energy which is released for power in an internal combustion engine. The hydrogen fuel cell is a storage medium for electrical energy, which is released when hydrogen and oxygen are combined electrochemically to release electricity. The hydrogen fuel cell is conceptually a battery, providing electricity to power an electric car. Unlike other battery powered cars, the fuel cell uses an onboard source of energy (hydrogen “fuel”) to generate electricity and does not have to stop to be recharged. The advantage of hydrogen powered cars is basically a long driving range, requiring only a fuel refill like internal combustion cars do today.

The hydrogen powered car has advantages for long trips, though for daily commutes under 100 miles round trip, the operational convenience of battery and fuel cell energy storage is similar. In fact, it could be argued that the convenience of plugging in within your own garage to recharge batteries is more convenient than finding a refueling station every few hundred miles. The ultimate decision for most commuters will be which power source is cheaper.

Fuel Cost

The most convenient metric to compare fuel costs across the ICE (internal combustion engine) – electric drive interface is the fuel cost per mile. Miles per gallon (mpg) becomes an awkward measurement. Consumers while be required to start thinking in terms of cost per mile because that will become the comparative price on the new car sticker. According to CostPerMile.org, the electricity “fuel” cost per mile (CPM) for electric cars will be between $0.01 and $0.05. Currently, electric utility charges per KWH (kilowatt hour) run between $0.10 an $0.15 in most of the U.S., so most of this large range in costs must be associated with the difference in engineering technology and size of the vehicle. Since I like a larger car, my example will compare to a mid-size Toyota Camry Hybrid. The assumed cpm for an equivalent electric car will be $0.05. (Disclosure: I own a Camry hybrid.) At $2.50 per gallon (near the national average price as this is written), the Camry has a cpm of $0.07; at $3.50 per gallon, the cpm is $0.10. I have used 35 mpg for the Camry hybrid. This is 3% higher than the sticker and 10% lower than my actual experience.

For the standard Camry the cpm would be $0.08 and $0.11 (highway and city, respectively) at $2.50 per gallon and $0.11 and $0.16 at $3.50 per gallon. The sticker mileage numbers have been used for the ICE Camry. These fuel costs are summarized in the following table.




If the range available with an all-electric car is sufficient, then customer acceptance will require that purchase costs (and maintenance costs, which will be ignored here) to be such that the purchase price difference is more than recovered in, say, 100,000 miles. The cost savings for city driving at $2.50 per gallon for gasoline is $6,000 per 100,000 miles of driving, compared to an ICE car. At $3.50 per gallon the cost savings would be $11,000. If two cars are available for our commuter and the electric car purchase cost difference is less than $5,000 more, there will be a big market. If the purchase price is $12,000 more, the market will be limited until the cost of gasoline exceeds $3.50-$4.00 per gallon.

In an August 6 press release (here), Toyota reported the results of a one-time driving test comparing a Toyota Hybrid Highlander with a new 4th generation fuel cell equipped Highlander Hybrid. In that test, the cpm for the production hybrid was more than double the cost for the fuel cell equipped model. I am taking this test result with a grain of salt because it was a one-time test.
The remaining comparison to be made is hydrogen fuel cells to plug-in electric vehicles. Hydrogen requires power for production by electrolysis of water. If the same power is used that is available at the residential power plug, all the added costs of handling, storing, transporting and distributing hydrogen are added to the costs that one has at his own power plug. Hydrogen is very uncompetitive on a cost basis with other sources of power in this scenario. If the cost of gasoline goes much higher than the $3.50 we have in our examples, then hydrogen might compete there. But hydrogen can never compete with electricity for local driving (right now under 100 miles per day) if the same electricity source is used for both battery recharging and fuel cell operation.
Never forget that a hydrogen fuel cell is nothing more than another form of battery, wherein a chemical reaction produces electrical current. A hydrogen fuel cell car is an electric car.

Can Hydrogen be Produced with Cheap Power?

Do sources of electrical power exist that are cheaper than what we produce (or can produce in the future) for domestic consumption? The short answer: Yes. (Well, maybe.)

One possible source of cheap electrical energy is from ocean currents that have a large temperature differential between the surface currents and those at depths of 1000 feet or so. This process is called OTEC, Ocean Thermal Energy Conversion.



The above graphic, from The World Energy Council 2007 Survey of World Energy Resources (here), shows that most of the areas with the largest thermal differentials occur in areas that are too far from populated shorelines to make feasible electricity generation for transmission into a power grid. Temperature differentials of 20 degrees Celsius or more are necessary for efficient power generation. The cost estimates for power from OTEC are somewhat problematic. The World Energy Council estimates that a single 10MW demonstration plant would produce electricity at a cost somewhere between $0.14 and $0.21 per KWH, depending on factors such as recovery of potable water and marketable chemicals such as ammonia and various salts. The existence of carbon tax credits could lower the costs further by as much as $0.03.

It is only with the building of multiple plants of the same design that costs may come down below $0.12, the reference cost for existing electricity generation. For example, eight 10 MW plants could produce electricity at a cost between $0.098 and $0.119.

There is potential here, but the costs have to come down more to bring electricity from OTEC to a price to make hydrogen production economically attractive. Remember, we need to transport this hydrogen from the point of generation by ocean going tanker and distribute it by truck or rail tanker (or pipeline) to retail points.

Another potential source of electricity for hydrogen production is wave and tidal motion. To supply electricity for a power grid, the waves and tides must be close to populated shore lines. Wave motion can be used anywhere for hydrogen production, not just where it occurs close to populated shore lines. The same is true for tidal action in remote regions of the planet. The picture below, from New Scientist (here), shows a SeaGen tidal electricity generator, made by Sea Generation Ltd, in the tidal currents at Strangford Lough in Northern Ireland. Sea Generation is a division of privately held Marine Current Turbine Ltd.



Generation costs for electricity from capital costs alone will be about $0.07 per KWH for a 25 year depreciation. There will be additional unspecified maintenance and operation costs.

Wave action can also be used to generate electricity. The picture below (from New Scientist - here) shows a wave operated electrical power generator in a generation farm off the north coast of Portugal.


These generators are made by privately held Pelamis Wave Power Ltd. Each generator is a 150-meter-long steel jointed structure, which flexes to drive hydraulic generators and produce 750 kilowatts of power. The company claims electricity generation a competitive costs, but provides no specifics.
The reasons I selected these examples as potential hydrogen generation power sources are:

1. Potential for a lower electricity price point;
2. Electricity generated with plentiful raw material (water) present to produce hydrogen; and
3. With OTEC, the potential for additional revenue from side products.

Ultimately, hydrogen may have the most attractive economic scenario as an energy storage medium to level supply and demand fluctuations for alternative energy sources connected to the grid. With more and more wind capacity being installed, there is a problem of not needing all the electricity at some times of peak production and not having enough production (the wind stops blowing) at times of high demand (a heat wave). Hydrogen is a storage medium to be considered when water is available. It has the additional advantage over other storage technologies in being an easily portable storage vehicle, including being put directly into fuel cell power transportation devices. This will be analyzed in a future article.

Battery Costs vs. Fuel Cell Costs

The implications from currently available information are that the costs and durability will be similar. The current objective for Toyota is to have a price premium for hybrids less than the current price premium for a hybrid. The latest generation fuel cell engine is about the same size as a typical 4-cylinder ICE engine and contains about 30 grams of platinum. This is down from the previous generation fuel cell stack which was more than twice the size and contained 80 grams of platinum. The costs just for the platinum alone have been reduced from more than $4,000 in the previous generation to less than $1,500 in the current one. The final fuel cell structure is expected to use only 10 grams of platinum, the same amount as a typical catalytic converter today.

The dramatic change from the previous generation hydrogen fuel cell stack power system to the current generation is seen in the following picture from AutoBlogGreen.com (here), showing the latest fuel cell drive system on the left next to the drive system used in the past few years in the Chevy Equinox test vehicles that have been driven by volunteers in California, Washington, DC and New York. The power, range and performance of the two systems are the same. The horsepower rating is the equivalent of a current four-cylinder ICE.



Transportation of Fuel and Wholesale Distribution

The technology for distribution by tanker truck and railway car exists today. You can not spend a few hours on any interstate highway near a population center without seeing several pressurized gas tank transports sharing the roadway with you. Pipeline distribution for pressurized hydrogen gas may require different features than currently use for natural gas, but there is no reason to believe that the engineering and construction would present any more challenges or costs. Currently, there is no data reflecting transportation and wholesale distribution impediments to scaling up the use of hydrogen to higher volumes.

Retail Distribution

The cost to build a new gasoline station has been estimated to be in the $250,000 to $450,000, with the largest variable being land cost, using estimates obtained from national average costs at RS Means Cost Works (here). Obviously, where land costs are extremely dear, near the center of major cities, for example, the cost to build a gasoline station could be much higher, up to $1,000,000 or more.

The cost of building the first 32 hydrogen refueling stations in Southern California has been quoted as $32 million. As high as this cost projection is, it is less than the current cost for a hydrogen refueling pump in Los Angeles, according to Phil Baxley, President of Shell Hydrogen, quoted in the Ohnsman article. He said currently the cost is from $1 million to $5 million per pump, depending on capacity.

Even the lower quoted cost, averaging $1 million each for 32 stations, seems to be more costly than all but the most expensive gasoline stations. However, there are three factors related to hydrogen refueling stations that mean this apparent current cost difference may decrease or even be reversed. These are:
1. externality cost exposures for gas stations;
2. lower costs for hydrogen stations in the future through economies of scale; and
3. lower costs to add hydrogen to existing gas stations than to build new.

There are major externality exposures for petroleum based fueling stations. The biggest exposure pertains to future liabilities for soil and ground water contamination by petroleum products and fuel additives. When these externalities are realized, they can be more than the original construction cost (even adjusted for inflation) and occasionally are many millions of dollars. Hydrogen refueling stations do not have these environmental cost exposures.

When the initial costs and the externalities are considered, the refueling stations for hydrogen have an original construction cost of the same order as petroleum fuel stations. Hydrogen refueling stations may decrease in construction costs from the estimates for the first 32 stations in Southern California when many hundreds are constructed per year. If hydrogen were to become ubiquitous, there might be a few thousand new stations per year for a couple of years. A more likely progression would be the modification of existing gas stations to also offer hydrogen refueling facilities at a fraction of the cost of building new stations.

Other countries have more advanced plans for infrastructure development. Both Japan and Germany are working to build large scale distribution networks, with over 1,000 stations on line for each county in five years.

Safety

To start with, we must recognize that hydrogen would not be replacing something that did not have an extremely high fire and explosion hazard. We have managed to live with the risks of gasoline for more than a century, with the material being stored in thin walled tanks that can easily rupture.

Hydrogen, a pressurized gas, would be stored in thick walled, virtually indestructible tanks. Pressurized gases are handled in such containers in a variety of industrial environments today and have been for most of the past 100 years. There are few examples of these tanks being breached. The risks have been associated with the pressure reduction valves (regulating the controlled release of the gas) being broken by impact damage. The major risk associated with using hydrogen will be the exposure to the fuel lines being damaged and allowing the tanks to lose pressure rapidly, turning them into jet propelled missiles.

The pressurized gas tank as a missile is the major safety hazard. It is not insignificant, but should not be an insurmountable problem.

Conclusion

There are still a lot of questions to be answered, but one thing is clear: hydrogen powered cars are not dead.

In congested metropolitan areas where electrical costs are high, hydrogen may become widely utilized. The further advantage of much longer travel ranges may also give hydrogen an additional edge over plug in alternatives. It is too early to make investment decisions trying to select eventual winners. While it is not wise to assume there will not be a viable hydrogen car and hydrogen distribution systems during the next decade, it is too early to make investment decisions trying to select eventual winners.

In December an article was published that discussed some investment opportunities related to hydrogen that can be tracked. Some of the stocks mentioned there and not in this article include United Technologies (UTX) and Parker-Hannifin (PH).

Disclosure: No positions.