With gasoline prices predicted to climb above $1 a litre this summer and the possibility of brownouts, Ontario's emerging fuel-cell industry should be burning bright. It isn't.
The everlasting promise of hydrogen-powered automobiles being just around the corner is wearing thin with investors. And low electricity rates, and low retail oil and natural gas prices in North America compared to the rest of the world, work against fuel cells replacing existing energy sources.
"The (fuel-cell) technology is not yet mature, but this isn't the major barrier. The bigger issue in Canada and the U.S. is there are all kinds of hidden energy price supports," says Peter Tobias, president and chair of SWITCH.
SWITCH is a Kingston-based association representing alternative energy research and development companies and manufacturing companies, as well as Queen's University and the Royal Military College of Canada.
"It isn't a level playing field for fuel-cell developers," he says. "We are introducing products (fuel cells) where the cost of substitutes (electricity and gas) is low."
Tobias estimates SWITCH's 25 members spend $7 million to $10 million annually on development of fuel-cell technology. More than half comes from the private sector and the balance from federal and provincial governments.
In January, the Ontario government established the Ontario fuel cell innovation program to provide $3 million annually to develop fuel-cell products and projects. The first grants are expected this summer.
In 2004, Ontario's largest hydrogen fuel-cell company, Mississauga-based Hydrogenics Corp., lost $33.5 million, $10 million more than in 2003. Canada's largest hydrogen fuel-cell company, Ballard Power Systems Inc. of Burnaby, B.C., lost $175 million in 2004, $50 million more than in 2003.
Hydrogenics and Ballard focus mainly on developing proton exchange membrane fuel cells (PEMFC). In a proton exchange fuel cell, one of five fuel-cell technologies, pure hydrogen is used to create a chemical reaction to produce electricity.
"I don't believe it is possible for PEMFC-based fuel cells to reach price points that will allow true mass markets to develop," says Jonathan Hykawy, an energy analyst with Fraser Mackenzie Ltd. of Toronto.
Hydrogen fuel cells are unlikely to replace the internal combustion engine because "we have no infrastructure for delivery of hydrogen," he says.
"It is a problematic fuel. You will either have to build pipelines or have lots of hydrogen delivery trucks on the road."
The more than $200 million in losses reported last year by Ballard and Hydrogenics occurred because "people have started to realize that it is going to be a very long time, if ever, before we have a fuel cell in an automobile," Hykawy says.
"In technology development, anything over five years is an absolute guess. If someone says it is five years, 10 years, 15 years, it means who the hell knows," Hykawy adds.
DaimlerChrysler recently announced it expected to produce its first hydrogen-fuelled automobile by 2012.
In December, Toyota said it expects its first hydrogen-powered car by 2030. General Motors, which is financially supporting Hydrogenics and Ballard, is developing a hybrid car that uses gasoline and electrical power until more long-term technologies are developed.
While most of the investor and public attention has focused on the pure hydrogen fuel cell in cars, other more economically viable fuel-cell technologies such as solid oxide fuel cells used in stationary power plants have largely been ignored, Tobias says.
"The solid oxide fuel cell (SOFC), which produces heat and electricity from natural gas, is only one to two years away from commercialization," Hykawy says.
In March, Fuel Cell Technologies Ltd. (FCT) of Kingston installed its first residential fuel cell in an experimental house in Ottawa.
The Canadian Centre for Housing Technology's five'-kilowatt system runs on natural gas and produces heat and electricity.
But, Tobias says it will be a long time before solid oxide fuel cells will be sold competitively for heating the average Canadian home.
"They are not cost-competitive for the general public," adds FCT's Vikram Varma, director of corporate development. All fuel-cell technologies are expensive because of low production volumes.
Instead, FCT is focusing on remote Canadian locations where reliability of power is critical, and on European and Japanese markets, where the price of electricity makes the SOFC commercially viable.
"Electricity rates in Ontario are one-third the open-market rate in Europe," Tobias says. But in remote northern locations, "where you have to (ship in by air) 45-gallon drums of diesel fuel to use for generation that breaks down every second week, a fuel cell can compete."
In the Northwest Territories city of Inuvik, electricity can cost as much as 60 to 70 cents a kilowatt hour. In Ontario, the price is less than five cents.
Mississauga's Astris Energi Inc., which develops another type of fuel cell based on alkaline technology, is more likely to produce a commercially viable product because its cell does not reply on pure hydrogen to produce energy, Hykawy says.
The company's main market is for stationary power use such as emergency backup power for data centres and continuous power generation at airports and hospitals.
The disappointment with the fading future of hydrogen fuel cells has made it difficult to raise money for other alternative fuel technologies, Tobias says.
He adds that potential investors see the problems Ballard has with its technology and say: "If Ballard Technologies can't do it, why should you be any different?" But, Tobias says, Ballard is competing against the internal combustion engine, which he calls "one of the most refined, most capital-intensive and low-cost generic products in the world. It is possibly the most low cost, highest efficiency manufactured article in the world. They are targeting the Holy Grail.
"Let the U.S. and the rest of the world worry about hydrogen-powered fuels cells," Hykawy says."Canada should concentrate on markets that are much closer."
(Charles Wyatt can be reached at wyatt@businessedge.ca)
