Fuel Cells: Maybe they aren’t 10 years away…….

Up until a couple of years ago I have been in the camp that “fuel cells are 10 years away,” which is where they have been for the last 30 years. However, as I commented in a recent tweet that is no longer the case. After that tweet commenting on Katie Fehrenbacher’s post on GigaOm.com  re test driving the Mercedes Fuel Cell vehicle I got a reply from Ron Glantz. Ron, who for many years was the number one ranked auto analyst on Wall Street and a successful money manager, has forgotten more about the auto industry than most people actually know.  While he claims he truly has forgotten almost everything and has not kept up on the industry, his email to me belies that point and raises some interesting questions. I have copied it below:

“While automakers are still working on fuel cells, apparently they have given up on generating hydrogen in cars by processing gasoline. (I had previously sent you a note saying that the problem was the cost of the platinum used in the catalyst.) Instead, they are counting on hydrogen refueling stations:

  • The Nikkei says that the Japanese government is supporting an initiative to draw hydrogen from oil refining. Oil refining uses hydrogen to remove sulfur from oil. The hydrogen used in this process doesn’t have to be high quality, 90 percent pure suffices. Fuel cells expect 99.9 percent pure hydrogen. The sponsored project aims to produce high purity hydrogen, based on “industrial” hydrogen technology”. The Japanese government will bear half the cost of a cheap project. It is estimated to cost 500 million yen ($ 6.15 million) over a three-year period.  It wants to be ready before 2015. Why 2015? Japan’s Ministry of Economy, Trade and Industry (METI) expects a “wide adoption of fuel cell vehicles by fiscal 2015” and “seeks to secure a steady supply of high-purity hydrogen.” Again: Why 2015? It just so happens that Toyota is dead set on selling its first mass-produced fuel cell car by 2015.
  • In Korea, Byung Ki Ahn, general manager of Hyundai-Kia’s Fuel Cell Group, said recently: “There are already agreements between car makers such as ourselves and legislators in Europe, North America and Japan to build up to the mass production of fuel cell cars by 2015.” Indeed, if you go through the many files produced in Brussels, you find that in Europe “car manufacturers are getting ready for the commercial production of hydrogen vehicles by 2015.”

So, now you have a “chicken and egg” problem — how can you sell cars before there are refueling stations; how can you justify building stations before there are cars?”  -Ron Glantz, 01/01/11.

Of course this is not a problem for a country that is building into a growth market, e.g., China, India. If one has to build service stations for a growing population of vehicles, anyway, they can just as easily be hydrogen, or natural gas, and, maybe as an interim step, battery recharging or replacement stations.  This is an oversimplification, but it highlights the problem facing the developed world when it comes to a new paradigm. Most innovations applied in the developed world are as replacements, not necessarily meeting new demand. A different economic equation which the developed world has to accept or be left behind.

This entry was posted in Automobile Industry and tagged , , , , , , , , , by Jack Rivkin. Bookmark the permalink.

About Jack Rivkin

Jack Rivkin retired in 2008 as EVP, CIO, Head of Private Asset Management of Neuberger Berman(NB) and from NB's Executive Management Committee. He was also on the Lehman(LB) Council on Climate Change(CC) and the NB CC Fund Advisory Board. He has been engaged with the United Nations and other entities on policy issues related to Private Capital and CC. He is an Associate Fellow of the Asia Society. He has continued on the NB Mutual Fund Board and with his CC responsibilities. He began his investment career in 68 as an analyst at Mitchell Hutchins(MH), and became Director of Research(DOR) there. After Paine Webber(PW) acquired MH, he served as DOR; CFO of PW; CEO of PWMH-the equity trading and investment arm of PW; Chmn of MH Asset Management and President of PW Capital. 87-92 he was DOR and, subsequently, Head of the Worldwide Equities Division of LB. 93-95, he served as a Vice Chairman and DOR at Smith Barney (now Citigroup). He was an EVP with Citigroup Investments 94-01, responsible for private equity investments. He was also an adjunct professor at Columbia University teaching a course in Security Analysis. He joined NB in 2002. He is the co-author of “Risk & Reward—Venture Capital and the Making of America’s Great Industries,” Random House, 1987. He is a regular guest on various media. He is the principal subject in a series of Harvard Business School cases describing his experience as DOR and Equity Head at LB. He has served as a director of a number of private companies and the NYSSA. He is currently a director of Idealab, Dale Carnegie, Operative, World Policy Institute and other private companies. He is a member of the Economic Club of NY, the Anglers Club, Theodore Gordon Fly Fishers, and a lifetime member of Trout Unlimited. He continues to be an active private equity investor when he isn’t fly fishing. Mr. Rivkin earned his Professional Engineering degree from the Colorado School of Mines and his MBA from the Harvard Business School

8 thoughts on “Fuel Cells: Maybe they aren’t 10 years away…….

  1. I think that we are in the grip of the biggest and most insane hoax in history, and unless the public get wise to it soon, we will all be parted from what wealth we have.

    Lets take a simple economic view of what is likely to happen.

    In the absence of sufficient alternative solutions/technologies, the only way western countries can ever attain the IPCC demands of CO2 emissions reduced to 40% below 1990 levels, (thats about 60% below todays) is to machine restrictions on the use of fossil fuels. Emission Trading schemes are an example.

    As the use of fossil fuels is roughly linear with anthropogenic CO2 emissions, to attain a 60% reduction of emissions , means about the same proportion of reduction of fossil fuel usage, including petrol, diesel, heating oil, not to mention coal and other types including propane etc.

    No matter how a restriction on the use of these is implemented, even a 10% decrease will make the price of petrol go sky high. In otherwords, (and petrol is just one example) we can expect, if the IPCC has its way, a price rise on petrol of greater than 500%.
    First of all, for all normal people, this will make the family car impossible to use. Worse than that though, the transport industry will also have to deal with this as well and they will need to pass the cost on to the consumer. Simple things like food will get prohibitively expensive. Manufacturers who need fossil energy to produce will either pass the cost on to the consumer or go out of business. If you live further than walking distance from work, you will be in trouble.
    All this leads to an economic crash of terrible proportions as unemployment rises and poverty spreads.
    I believe that this will be the effect of bowing to the IPCC and the AGW lobby. AND as AGW is a hoax it will be all in vain. The world will continue to do what it has always done while normal people starve and others at the top (including energy/oil companies and emission traders) will enjoy the high prices.

    Neither this scenario nor any analysis of the cost of CO2 emission reductions is included in IPCC literature, and the Stern report which claims economic expansion is simply not obeying economic logic as it is known in todays academic world.

    The fact that the emission reduction cost issue is not discussed, leads me to believe that there is a deliberate cover up of this issue. Fairly obviously the possibility of starvation will hardly appeal to the masses.

    AGW is baloney anyway!

    Cheers

    Roger

    http://www.rogerfromnewzealand.wordpress.com

    PS. As well as fuel cell technology, I think you should consider the economics of hydrogen production especially the energy needed to produce the gas.

    • Roger, You may be right. I am not willing to take the chance that you are. I expect the price of petroleum to rise significantly, not because of the development of alternative energy sources, but because we don’t develop substitutes fast enough. Since we can’t (yet) live in parallel worlds I guess we will have to wait and see which is the bigger hoax, Global Warming or the noise from the fossil fuel interests. We have been through warming periods before but we have not been through a period in the last 800,000 years at least, where CO2 has been at this high a concentration in the atmosphere and rising. i agree with you that we need to deal with other elements that are changing our environment, but I would not exclude CO2 from that list.

      • Jack,

        Who is taking the chance around here?

        What if you have your way and your family starves according to the scenario I described above, (using standard basic economic principles by the way), and we find it was all in vain?

        Thats what I call a very sure risk.

        At the very least, it is not unreasonable to demand a high standard of proof for AGW.

        B.T.W. correlations, data and mathematical models that have assumptions built into them, are not scientific proof of anything including AGW. If you have something more than that please share it with me.

        Cheers

        Roger

        PS did you notice how I think “fossil fuel interests” also stand to gain should the IPCC have its way.

  2. Roger, the one interesting point that should be made is that you don’t care about fuel prices, you don’t care about coal prices. Instead you care about driving around, and you care about having the lights on. So, although you speak of tremendous increases in fuel prices, if these are matched by similar increases in efficiency gains, then there is no economic impact whatsoever (and less-than-stable oil exporting countries will have less revenue to put into extra-curricular activities).

    I’m going to assume that since you use the word “petrol”, you are either an Aussie or a Brit. In the US there is the same “sky is falling” rhetoric about increased fuel prices – however, none of these arguments realize that Europe and Japan have FAR higher prices than the US, and they get along just fine.

    So, the real question is, what can we do to move towards more efficient technologies, which will have an economic benefit? Fuel cells may indeed be one. As a long-time fuel cell proponent (and designer) I think that they have some tremendous advantages. However, they are coupled with ancillary costs which have made their development time lengthy thus far. As Jack points out, if they are seriously adopted in the next four years, that will really be something.

    • Aaron,

      “the one interesting point that should be made is that you don’t care about fuel prices, you don’t care about coal prices. Instead you care about driving around, and you care about having the lights on.”

      Did I say that?

      “So, although you speak of tremendous increases in fuel prices, if these are matched by similar increases in efficiency gains, then there is no economic impact whatsoever ”

      There is some doubt that wind energy is feasible in the short run, and both wind and solar power will always be unreliable because the wind does not blow all the time and neither does the sun shine all the time.
      Practically they can only be supplements for hydro power however which has limited expansion potential in most countries.
      Nuclear energy has some potential, but that appears to be even more unpopular.

      Attempting to conserve fossil fuels with electric or hydrogen cell powered cars will simply move the CO2 emissions from the exhaust pipe to the smoke stack.

      Biofuel competes already with the food supply.

      There is no alternative fuel program that I know of that survives without taxpayer intervention. This is another method by which fuel prices are and will continue to increase, through our taxes.

      The price of crude oil and refined petroleum is the same world wide as it is a world market. Price differences to the retailer are different because of varying rates of taxation. The high retail price countries, hopefully, get comensurate benefit from their governments in other areas. Also it is dangerous to compare prices around the world by simply using the current exchange rate and converting to $US. To be accurate one would need to calculate the proportion of the average citizens income used to buy a litre of gasoline and use that as the comparison. This is textbook economics by the way.

      I still assert that the scenario I describe is very likely if the IPCC has its way.

      Cheers

      Roger

      http://www.rogerfromnewzealand.wordpress.com
      ps NP about calling me an Aussie. Our authoritarian single house government pushed through an ETS scheme recently, I sincerely wish that like Australia and the US, we had an upper house to exercise restraint.
      Check on my blog the link about why average Australian is more wealthy that the average New Zealander. We might be becoming australians ourselves very soon.:)

  3. Interesting conversation as long as we deal with data, not assertions. The price of crude is on its way to $150+/Bbl having nothing to do with the IPCC and more to do with a growing global economy and a weak US dollar and Euro relative to the Asian currencies. Wind and Solar are intermittent but people like Aaron Fyke are working on mitigating storage solutions that also provide controls that make energy transmission much more efficient. The real issue will be who owns the technologies that make all of this happen. More on that soon.

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