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David Bode: The Hydrogen Economy - Hype or Holy Grail

by David Bode, Manager, Special Carbon Materials, Showa Denko Carbon, Inc., Ridgeville, SC, and Secretary, FuelCellSouth Partners Forum Board of Directors

In January 2003, President Bush announced the creation of his Hydrogen Fuel Initiative. The President allocated $1.2 billion over five years to transform the nation's transportation system from its dependence on petroleum to the use of clean-burning hydrogen. In announcing his initiative, President Bush envisioned that the first car driven by a child born today could be powered by fuel cells.

Last December, the U.S. House of Representatives voted 416-6 to pass legislation creating the "H Prize", a competition offering prizes worth up to $50 million to encourage research into hydrogen as an alternative fuel. The bill's co-sponsor, Rep. Bob Inglis, R-S.C., believes that the competition will "create jobs, clean up the air and make America more secure by breaking our dependence on Middle Eastern oil".

The South Carolina state legislature recently passed a bill creating the South Carolina Hydrogen Infrastructure Development Fund. The legislation appropriates up to $15 million in grants for hydrogen production, storage, distribution, and dispensing infrastructure in South Carolina.

At the National Hydrogen Association's 2006 Annual Conference, the University of South Carolina along with the City of Columbia, the South Carolina Research Authority and EngenuitySC launched the Greater Columbia Fuel Cell Challenge.

With all of the resources focused on hydrogen and fuel technologies at the federal, state and local level, many people question if the hydrogen economy is the energy equivalent of the Holy Grail or if it is just a lot of hype. In truth, the answer lies somewhere in between.

As with many new and promising technologies, the news media, the investment community and companies with a stake in the hydrogen economy have generated a significant amount of interest in hydrogen and fuel cells. Conferences, seminars and trade publications have proliferated around the world. A host of pure-play fuel cell companies have gone public, attracting millions of dollars in equity funding. State and local governments have created hydrogen energy legislation and initiatives in an effort to replicate the successes of Silicon Valley and Research Triangle Park.

As it turns out, the current realities of the hydrogen economy have fallen short of the earlier, lofty expectations. In its 2006 Hydrogen Posture Plan, the US Department of Energy doesn’t foresee the initial market formation of a hydrogen economy until 2010, when infrastructure investment begins albeit with the help of governmental policies. The DOE doesn’t project the onset of a national infrastructure with commercially available hydrogen power and transport systems until 2025.

However, in its 2006 Fuel Cell Industry Survey, PricewaterhouseCooper notes that “the unbridled optimism of the past has been replaced by a keen sense of purpose that is focused directly on producing products that can be used by customers, are competitively priced and which will produce returns for investors”. In a recent report funded by the DOE, the Batelle Institute identified three near-term market opportunities for fuel cell technologies. Batelle determined that within five years fuel cells could capture almost 20% of the current markets for emergency response backup power, distribution center forklifts and airport ground support equipment. These three markets represent potential annual sales of 27,000 fuel cell units valued at almost $550 million. By comparison, 2005 revenue for the 23 public fuel cell companies covered by PricewaterhouseCooper was $266 million, a 20% increase over the previous year. According to Fuel Cell Today, over 20,000 fuel cell units were produced during the period of 1991-2006.

In the Executive Summary of its 2006 Hydrogen Posture Plan, the DOE states that the “use of hydrogen as an energy carrier, together with other alternative domestic fuels and technologies, can enhance long-term energy security while mitigating the effects of air pollution and greenhouse gas emissions”. It’s important to note that this statement highlights hydrogen as only one of several key domestic fuels in the country’s alternative energy portfolio. In its Fiscal Year 2007 request to Congress, the DOE Office of Energy Efficiency and Renewable Energy budgeted $196 million for hydrogen technology but also provided $500 million in funding for biomass, solar, wind and renewable energy programs.

In the end, the hydrogen economy will be only one of many solutions to US energy independence. It isn’t the Holy Grail, but it’s also not overblown hype. In its assessment of the hydrogen economy, The National Academies observed that “a transition to hydrogen as a major fuel in the next 50 years could fundamentally transform the U.S. energy system, creating opportunities to increase energy security through the use of a variety of domestic energy resources for hydrogen production while reducing environmental impacts, including atmospheric CO2 emissions and criteria pollutants”.

Editor's note: This article was stimulated by the author's objection to a Swamp Fox Insights blog post: The wrong way to sell fuel cells, or any technology for that matter. We're especially pleased to publish articles from readers who are willing to contribute to critical discussions like this one.

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