United Tech Teaches Chem 101

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A year ago, I penned a short column on the subject of a new(-ish) technology being rolled out by United Technologies (NYSE: UTX) in service of the Spanish navy (of all things). You can read the whole article here, but the upshot goes like this: United Tech is building a proton exchange membrane (PEM) fuel cell engine to power Spanish submarines.

At the time, I found this surprising. Ordinarily, when you think fuel cells, you think of tiny R&D shops like Ballard Power (Nasdaq: BLDP), FuelCell (Nasdaq: FCEL), or Plug Power (Nasdaq: PLUG) -- not giants like United Tech (UTC) or Siemens (NYSE: SI), which is building similar engines. But where Ballard and its peers see fuel cells as a way to "go green," the defense majors view them as a great way to power silent patrol craft -- quiet as a diesel-electric boat in electric mode, but with endurance more akin to nuclear-powered boats. 

Turns out, though, fuel cell research has a third plus for the majors -- one that I missed entirely up until I read a press release yesterday, bearing the daunting title: "Hamilton Sundstrand and Proton Energy Systems Successfully Qualify Next Generation Electrolysis Cell Stack for Submarine Oxygen Generation Systems."

Connect the dots
Within that title are three words that connect my column of yesteryear with a development that appeared only yesterday:

• "Hamilton Sundstrand" -- which is a division of UTC
• and "submarine" -- which is where this story begins

By asking around the industry a bit last year, I discovered that while the fuel cell angle has a certain "gee whiz" factor for European navies, it's of little interest here in the States. 

Local coastal powers, you see, have historically been able to get by with cheap, diesel-powered sub fleets. They're great stealth actors in look-and-listen mode, and while they lack the endurance of a nuclear boat, few coastal powers have need for navies that can sail the globe and "project power" that -- let's be honest here -- the navies' owners don't really have in the first place.

Here in the States, however, diesel boats just don't do the trick for the U.S. Navy, which requires that its boats "run silent, run deep" ... and run a long time as well. For modern naval missions, nuclear power has always been a sine qua non, and so the advent of PEM engines hasn't really caused much of a stir among U.S. boat builders General Dynamics (NYSE: GD) and Northrop Grumman (NYSE: NOC).

But it may now.

Which came first, the chicken or the egg?
Classic question. But here's a better one for today's lesson: "Which came first, the water or the H2O?"

Now, I was only a "B" student in high school chemistry, so I'm going to beg off on the specifics of how PEM fuel cells work. If you're really interested, and have the scientific savvy to get the gist, there's a good page to check out in this link to Wikipedia.

For the rest of the class, suffice it to say that the technology announced in yesterday's press release sounds to me like a derivation of the PEM breakthrough announced late last year. You see, submarines require two things above all else: Power to make 'em go, and air to keep the crew alive.

On the power side of things, PEM technology combines hydrogen and oxygen to produce electricity (to power boats) and water (as a byproduct). Conversely, yesterday's news addresses the second major need of a submariner crew: Through electrolysis, UTC is taking water and breaking it into its constituent parts: hydrogen and oxygen. The former, as already discussed, can be useful for powering boats, if the Navy ever becomes interested; the latter being quite convenient for breathing.

An aha! moment
And this, Fools, is where we find UTC once again using technology to keep itself relevant to its customers. Researching fuel cells for the Spanish navy's power needs, it seems UTC has hit upon a way to sell a derivative technology to the U.S. Navy as well -- the very Navy that turned up its nose at fuel cells in the first place.

I have to tell you, Fools. The more I learn about UTC, the more I like it.

Enough with the electric submarines already. What other surprises does UTC have up its sleeve?

• How about a 20% dividend hike?
• Too mundane? Then read about UTC's solar-powered salt.
• Meanwhile, UTC's putting the lie to the myth of a commercial construction slowdown.