The 1 Thing That Could Put Fuel Cell Stocks' Future in Jeopardy

For fuel cells to gain a broader audience, they will need to address this issue more than anything else.

Mar 23, 2014 at 1:09PM

Imagine an electric vehicle like the Tesla Model S with a range greater than 1,000 miles. Sounds crazy, right? It may not be as far off as you think. Hydrogen fuel cells in place of tradtional batteries could actually make this possible, and fuel cell system companies like Plug Power (NASDAQ:PLUG) and Ballard Power Systems (NASDAQ:BLDP) are starting to test the waters with this very idea. For it to be possible, though, there is one great challenge that fuel cells will need to overcome: infrastructure. Let's take a look at why fuel cells could make batteries obsolete and why it will be so difficult to implement.

The science of fuel cells
A fuel cell is like a battery, but at the same time it isn't. Like a battery, it uses a chemical process to generate electricity, but instead of charging a fuel cell with electricity like a battery, it consumes pure hydrogen and oxygen. This means that a fuel cell can continuously create energy and be charged with hydrogen at the same time. 

There are several potential benefits to this type of technology. Not only does it make the time to recharge a fuel cell similar to the time to refill a gas tank, the energy density of hydrogen fuel cells -- the total amount of energy that can be stored in a certain weight of that material -- has been shown to be six to eight times greater than the most advanced lithium ion battery on the market today. 

The golden fleece
So far, fuel cells have proven to be effective options in some rather niche markets. Plug Power has developed a fuel cell system for material handling equipment such as warehouses, and it is starting to see some commercial success. It recently announced that it had secured an order for more than 1,700 of its fuel cell systems -- a device that can replace lead-acid batteries in existing equipment -- from Wal-Mart. However, the markets that have shown to be receptive to fuel cells so far have been very limited ones. The entire North American market for material handling equipment is only $800 million, and it's hard to imagine Plug Power capturing 100% of that market.

The true prize that fuel cells would like to capture is to replace batteries in electric and hybrid vehicles. According to a recent outlook report from Royal Dutch Shell, electric, hybrid, and hydrogen powered vehicles will represent more than 40% of all vehicles on the road by 2050, and these technologies along with natural gas engines will completely replace liquid hydrocarbon fueled vehicles (gasoline and diesel) by 2070. 

In no way are either Ballard or Plug Power ready for a market of that size, but they are starting to test the waters. Plug Power also recently signed on to do a test project with FedEx to use Plug's fuel cell system in electric hybrid package delivery trucks

What's holding back fuel cells?
As promising as fuel cells may seem, you would be surprised to know how difficult it is to secure hydrogen. Even though hydrogen is one of the 10 most abundant elements on this planet, the only way that we have found to successfully produce hydrogen gas is through a process that transforms methane to hydrogen, and the infrastructure for hydrogen is weaker than any other alternative fuel out there.

Just take a look at these three images, all are from the Department of Energy's Alternative Fuels Data center.

These are all of the publicly accessible charging stations for electric vehicles:

Electric Stations

And here are the publicly accessible compressed natural gas fueling stations:

Cng Stations

Both electric and electric vehicles have struggled mightily to break through as a fueling option for the everyday consumer, and so companies in this space have turned to alternatives. Tesla Motors has been both building its own fueling infrastructure as well as selling at-home charging stations. Natural gas engine supplier Westport Innovations, on the other hand, has focused its efforts on fleet vehicles and long-haul trucking because it will be easier to build out infrastructure for these groups of the transportation market than for the everyday consumer.

Just to get a sense of how far these fuels have to go, a study by Morgan Stanley estimates that it will require 53,000 fueling stations nationwide before we start to see universal adoption of either of these fuels as viable alternatives to gasoline for vehicles. 

As much ground as these options have to cover before they can be seriously be considered competition for gasoline, they are both light years ahead of hydrogen fueling infrastructure.

These are all of the publicly accessible hydrogen fueling stations in the U.S.:

Hydrogen Stations

Photo source for all images: US DOE Alternative Fuels Data Center.

And the lack of fueling infrastructure is only half of the issue. There is also a severe lack of hydrogen production capacity in the U.S. Despite the small size of Plug Power, its fuel cell systems already account for more than 2% of the entire nation's consumption of liquid hydrogen. Another fuel cell manufacturer, Fuel Cell Energy (NASDAQ:FCEL), is looking to take that problem on. It hopes to use its current direct fuel cell power generation stations -- a system that produces its own hydrogen using methane -- into systems that produce excess hydrogen that can also be used as hydrogen fueling stations. It helps, but it is a drop in an ocean compared to the total hydrogen and fuelings stations that will be needed to make fuel cells a more viable technology.

What a Fool believes
The potential is there for fuel cells to have a huge impact on the way we produce and use energy, but we are still a long ways off before any significant changes. Plug Power and Ballard have found a way to make fuel cells viable for a couple of niche markets, and those small amount of sales will certainly help keep buoy these businesses from needing to dip into the equity markets again and again like they have over the past several years. For any fuel cell company to become a major player in the energy space, though, it will need to seriously address the lack of hydrogen and hydrogen infrastructure. 

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Tyler Crowe has no position in any stocks mentioned. You can follow him at under the handle TMFDirtyBird, on Google +, or on Twitter @TylerCroweFool.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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