Sector Report

Are fuel cells fool cells?

by Ken Shin / Feb 19, 2019


Fuel cells have long been heralded one of ultimate solutions for greenhouse gas, offering the promise of zero emissions. Transport is a key application as the technologies provide high energy efficiency from fuel to electricity, quiet operation, and near-zero emissions, producing only water and heat as byproducts. While battery electric vehicles (BEV) are taking leadership in “green vehicle” competition, the South Korean government has unveiled an ambitious mid- to long-term roadmap towards hydrogen fuel-cell electric vehicles (FCEV).

Filtering out the noise in the battery sector
Headwinds are rising for the lithium-ion battery sector given the resurgence of interest in fuel-cell technologies as the Korean government takes a bold step towards a hydrogen economy. Fuel cells are indeed clean and energy efficient. Nevertheless, a considerably long period of time and hefty subsidisation will be required before these technologies become economically viable and green. We find no reason to change our constructive view on the lithium-ion sector.

Are fuel cells green?
Hydrogen fuel-cell power generation is a clean and efficient form of fuel to electricity generation. Hydrogen fuel-cell electric vehicles (FCEV) are almost emission-free on a pump to wheel basis, producing only water and heat as by-products. However, nearly all hydrogen is produced from carbon-intensive steam reforming from the natural-gas process while most up-and-coming technologies that might break the link between hydrogen and carbon are still in R&D stages.

Are fuel cells economic?
Driving an FCEV is not cheap. Hydrogen prices are around US$14/kg, which translates into an operating cost of US$0.22 per mile, versus US$0.09 for an internal combustion engine (ICE) vehicle and US$0.02 for BEVs. Hydrogen supply and demand are likely to remain tight given tighter fuel speciation and sulphur caps for vehicles and vessels, including the upcoming regulatory framework initiated by International Maritime Organisation (IMO). Despite superior fuelling times, FCEVs require huge investment to construct a fuelling station network while BEVs use the already-built grid system. Other challenges include potential supply shortages of key materials such as carbon fibre and platinum.

Bullish on the battery leaders
With the significant drop in battery costs, our base-case scenario sees a tipping point where the upfront costs of BEV are less than ICE vehicles in the next couple of years.

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