the film forum library tutorial contact

Fuel Cells: Batteries of the Future? by Thomas Lee Seattle Times, October 29, 2000

VANCOUVER, B.C. - "The revolution that begins today in California will soon spread throughout the world," says Firoz Rasul, the white-haired chairman and chief executive of Ballard Power Systems.

He is standing in the front lobby of the company's headquarters here, shooting a television promo for the unveiling next month in Sacramento of several cars powered by Ballard fuel cells.

"That was great, but this time can you bring it up a little more?" asks the producer standing behind the camera.

Rasul pauses.

"The revolution that begins today here in California will soon spread throughout the world," he says with a little more gusto. The Ballard exec loves the word "revolution" and says it often. It's practically embedded in the white walls and blue-tinted windows of this futuristic building.

But this revolution has taken a long time. After all, fuel cells - devices that produce electricity from the chemical reaction of hydrogen and oxygen - were supposed to be mankind's energy savior for years, but their cost and unproven technology have made them little more than pipe dreams of environmentalists.

This time, however, there is a good reason to believe people like Rasul and the Wall Street enthusiasts who back his company.

Today's volatile energy markets, driven by electricity deregulation, oil prices set by foreign countries and tougher environmental laws, have sent investors flocking to companies developing renewable energy technologies such as fuel cells.

And the Pacific Northwest, with its long tradition of promoting clean power, is emerging as a hub for fuel-cell technology, an industry that by some estimates could reach $100 billion in sales by 2010.

"All of this energy technology is going to be wildly successful," said Kim Zentz, president of Avista Labs, the fuel-cell division of Avista in Spokane. "This is a very rich field."

Ballard seen as leader

Ballard Power Systems is widely seen as the leader in fuel-cell technology. The company proudly displays 20 years of work in its front lobby - from its earliest one-kilowatt fuel cell to its newest Xcellis engine, which Ballard believes could soon replace the standard gasoline-powered combustion engine found in most cars.

Despite its reputation, Ballard did not invent the fuel cell; the credit belongs to a Scottish inventor more than 160 years ago.

In 1839, Sir William Grove, an amateur scientist, constructed the first modern fuel cell. He discovered if he combined hydrogen and oxygen through an electrochemical reaction, it produced small amounts of electricity. At the time, Grove's cell could not generate enough power to compete with the standard battery.

Grove was on to something, though. Unlike a battery which simply stored power, the fuel cell can produce electricity just as long as there is a constant supply of hydrogen, the most abundant element in the universe, and oxygen.

Fuel cells, which resemble compact discs, can also be stacked and integrated, creating the equivalent of a mini-power plant.

But perhaps the fuel cell's greatest benefit is what it doesn't produce - pollution. The cell's only byproducts are heat and water, which itself could be used for other applications.

"Fuel cells are the only real green machines," said Subhash Singhal, director of the fuel-cell program at the Pacific Northwest National Laboratory, a U.S. research center in Richland. "There is no limit to how much power it can produce."

Fuel-cell problems

Yet for all of its promise, the fuel cell is fraught with problems. The metals needed to construct a cell are extremely expensive, which makes it impractical for a company to mass-produce. And hydrogen, for all its abundance, is difficult to transport or store because of its volatility.

Enter Ballard, which first burst onto the scene in the early '80s with its proto-exchange-membrane (PEM) cell, a highly efficient but cheaper version of the General Electric cells used to power U.S. spacecraft during the 1960s.

The company's research led to lighter fuel cells made of less-expensive materials needed to produce the reaction between hydrogen and oxygen.

Other advances followed, including the use of a fuel processor, which extracts hydrogen from commonly available fuels such as natural gas, methanol, ethanol or even gasoline. The hydrogen, however, would not be pure, meaning the cell would produce small amounts of greenhouse gases, which are believed to cause the depletion of the ozone layer.

Nevertheless, the fuel processor is an important step to pushing fuel cells closer to marketability, said Craig Holmes, director of business development at Idatech in Bend, Ore.,

"It's an easier sell with a fuel that already exists," said Holmes, whose company makes fuel processors. "The idea (to sell fuel cells) has been there for a long while, but technology has not kept up - until now."

Energy for cars

Demand is the unknown now.

So far, Ballard's most high-profile products are its fuel-cell-powered automobile engines. DaimlerChrysler and Ford - which own large stakes in Ballard - along with Honda and Nissan are working to put fuel-cell cars that will be priced competitively against gasoline-powered cars into showrooms by 2003. Vancouver, B.C., and Chicago are testing city buses running on Ballard cells.

But markets for those vehicles remain years away. Experts say the first market demand for fuel cells will probably be electricity generation for homes and businesses. With the ongoing deregulation of the power industry, utilities will have to compete for customers able to purchase electricity from a variety of sources, including micropower companies that sell fuel cells, natural-gas microturbines and solar cells.

In a deregulated market, "customers will have a choice," said Singhal. "And one of those choices is to produce your own power."

Micropower, also called distributed generation, is a hot growth industry, expected this year to attract $800 million in venture capital, compared with $200 million in 1998, according to Nth Power, a San Francisco-based venture-capital firm.

Cary Wasden, managing partner of Reed, Wasden, & Associates, a Bellevue-based investment and research firm, likens the financial opportunities presented by power deregulation to that of the telecommunications industry when it was deregulated.

"The potential value is enormous," said Wasden. "For the investors who catch it, they will be the same investors who bought into the telecoms."

Nobody suggests fuel cells will replace grid power anytime soon. But with the nation's aging transmission lines and substations buckling under the weight of soaring demand, reliable power has emerged as a key concern for high-tech companies that depend on an uninterrupted flow of electricity.

Power reliability "is the difference between profit and a huge loss," said Paul Lancaster, Ballard's vice president for finance.

Lancaster said there is also a growing residential market for fuel cells as backup generators, especially in regions prone to severe storms that knock out power lines. The company hopes to have its first portable fuel-cell generators available by the end of next year.

So far, Wall Street is a believer in the technology. Today, Ballard's stock hovers around $100 a share, up 254 percent from last year, giving the company a market value of more than $8 billion. Other newcomers such as Plug Power, H Power and Fuel Cell Energy have seen their stocks skyrocket during the past few months. Avista is considering a plan to offer shares of Avista Labs.

But Wasden thinks investors may be getting ahead of themselves. Because the industry is so fragmented, none of the companies has the manufacturing ability and distribution systems in place to bring cells to market, he said.

Wasden believes investors should diversify their energy portfolios.

"Nobody in their right mind is going to make a clear investment in fuel cells," he said. "It's going to happen, but fuel cells won't start making money until 2010. This is a huge market. You can afford to wait some more."

Lancaster disagrees.

"The market is as strong as ever before," he said. "The time is absolutely now."

Pacific Northwest fuel-cell industry

Ballard Power Systems

Headquarters: Vancouver, B.C.

Type of company: Public, trades as BLDP on Nasdaq.

Founded: 1979

Employees: 850

Business: Recognized as world leader in PEM fuel-cell technology. Investors include DaimlerChrysler and Ford Motor. Working to commercialize fuel-cell-powered cars by 2003.

Avista Labs

Headquarters: Spokane

Type: Subsidiary of publicly traded Avista.

Founded: 1998

Employees: 50

Business: Secured patent on cartridge system that allows individual fuel cells in a stack to be repaired or replaced without shutting down entire unit. Hopes to sell residential fuel-cell generators by 2005.

Idatech (formerly Northwest Power Systems)

Headquarters: Bend, Ore.

Type: Subsidiary of publicly traded Idacorp.

Founded: 1996

Employees: 50

Business: Developed residential fuel-cell units being tested by the Bonneville Power Administration.

Pacific Northwest National Laboratory

Headquarters: Richland

Type: Government research center.

Founded: 1965

Employees: 3,500

Business: Leading member of the Solid State Energy Conversion Alliance, a joint effort of the U.S. Department of Energy, universities and private companies to commercialize fuel-cell technology.