If the loss of the fuel cell Investment Tax Credit in Q1 2017 made for a winter of discontent, its restoration in February 2018 amounted to an early Valentine.
The fuel cell ITC largely matches those offered to solar and wind, with a 30 percent credit in 2018 and 2019, 26 percent in 2020 and 22 percent in 2021. But while solar and wind enjoy a 10 percent ITC from 2022 onward, the fuel cell ITC terminates in 2022 at 22 percent, then expires.
The ITC’s return was toasted by American fuel cell companies. On a year-ago episode of The Energy Gang, co-host Jigar Shah suggested that fuel cell forklift vendor Plug Power’s issuance of warrants to key customers Amazon and Walmart were a way for the retail titans to derive financial benefits similar to those they would have enjoyed had the fuel cell ITC been renewed in 2017.
Moving to stationary power generation, molten carbonate fuel cell manufacturer FuelCell Energy and solid-oxide fuel cell producer Bloom Energy also stand to benefit. Privately held Bloom was profitable in 2016, but the loss of the ITC swung it to an estimated $100 million loss last year and caused it to postpone IPO plans. With the fuel cell ITC restored, Bloom is rumored to be preparing for an IPO this year; if it does, it will be a strong contender to be the first publicly traded fuel cell company to scale “Wesoff’s Wall” and reach profitability.
Could the carbon capture credit be key?
As outlined in last fall’s fuel cell update, FuelCell Energy’s high temperature fuel cells generate a CO2-rich fuel exhaust. Cooling the exhaust knocks the water vapor out through condensation, leaving a sequestration-ready stream of almost-pure carbon dioxide. (Small amounts of hydrogen and carbon monoxide are also present.) Though Bloom uses a different technology, the same holds true for them as well.
This means both companies could stand to benefit from the new carbon capture credit, known as Section 45Q. (GTM's Emma Foehringer Merchant assessed the credit’s merits in this article.)
Key elements of 45Q include a $50/metric ton credit for CO2 injected into geological storage, and $35/ton for CO2 used in enhanced oil or natural gas recovery. The credit is linked to inflation and will be in place until the end of the calendar year in which a total of 75,000,000 tons has been accounted for, and facilities must sequester 500,000 tons of CO2 per year (1,400 tons of CO2 per day) to qualify for the credit.
For context, Mitsubishi Heavy Industries’ Petra Nova facility in Texas sequesters roughly 1,600,000 tons per year (4,000 tons per day). This is the emissions equivalent of a 240-megawatt coal plant run 24/7, though falling capacity factors for the American coal fleet would make this an underestimate. By far the largest of the dozen carbon-capture projects Mitsubishi Heavy has built using its amine-based KM CDR Process -- most of them for urea production -- Petra Nova started up in December 2016, on time and on budget. In a business model innovation, the project funding is provided by revenues from the extracted oil, with the company recently claiming a breakeven price of $50/barrel.
Returning to FCE's and Bloom’s natural gas fed fuel cells, their power plants would have to generate about 2,800 megawatt-hours per day to qualify for section 45Q, necessitating a nameplate capacity on the order of 115 megawatts. Allowing for planned and unexpected shutdowns, a significantly higher nameplate capacity would need to be built, to ensure the 500,000-ton-per-year threshold was comfortably met.
The Fuel Cell Industry Review 2017 estimated worldwide production of molten carbonate fuel cells (dominated by FCE) at 25 megawatts, down from 70 megawatts in prior years, with worldwide production of solid-oxide fuel cells (probably dominated by Bloom) at 76 megawatts.
In short, while the fuel cell ITC should prove transformative, helping the broader industry grow sales among early adopters, the section 45Q carbon capture credit offers high temperature fuel cell technologies a “moonshot” chance for enormous (by fuel cell standards) deployments.
Such an increase in product volumes would unlock learning curve effects, kick-starting a virtuous circle of cost reductions, growing the addressable market, scaling up sales and allowing for investment in further cost-downs. While fuel cells are tracking the early growth of solar photovoltaics, the upside has come from proton exchange membrane fuel cells, so strength in either or both of the high-temperature fuel cell technologies would provide welcome diversification for the industry.
A tale of two semis: Tesla and Nikola
Fuel cell semi truck startup Nikola Motor had a busy Q1, announcing plans for a billion-dollar Arizona factory. In early April it announced it would keep its customers’ 8,000 reservations but refund their $1,500 deposits, tweeting shade at Tesla, explaining that they “don’t use your money to operate our business” and had “never used a dollar of deposit money in the history of our company." (Tesla does not hold customer deposits in escrow, and classifies deposits as cash flow from operations.)
Nikola’s boldness seems to stem from a large order it was expected to announce April 3, now postponed to early May. The company has signed a deal with one of the world’s leading brands to convert its entire fleet to hydrogen, tweeting that preorders now exceeded $8 billion.
As for Nikola’s mystery partner, Amazon and Walmart would be considered leading candidates. Both behemoths are converting their distribution centers to fuel cell forklifts, and already own warrants in Plug Power through the transactions noted in this article. Their fuel-cell-based distribution centers store liquid hydrogen on-site, which would reduce the number of new hydrogen stations Nikola would need to build to service a hydrogen trucking fleet. (Nikola is ordering electrolyzers for 28 hydrogen stations from Norway’s Nel Hydrogen, which seems low for a fleet of thousands of vehicles, but which might be sufficient if some refueling could take place at client facilities.)
Hydrogen as the next LNG, revisited
Finally, building on a prior article noting Japan’s interest in shifting from bulk coal and LNG imports to hydrogen, it was announced at the end of the quarter that the government of the British Columbia has commissioned a study to assess the feasibility of exporting electrolyzed hydrogen from the west coast of Canada to Japan. (The hydrogen would be zero-emissions, as almost all of the province’s power is hydroelectric.)
Study participants include British electrolyzer manufacturer ITM Power, Japan’s Mitsui & Co. (the trading company with which Toyota has close ties) and Chiyoda, an engineering company specializing in oil and LNG facilities. GTM has previously noted Chiyoda’s project to import hydrogen to Japan from Brunei (see this story) in a liquid organic hydrogen carrier, so that would be the probable path.
For all the technology and cost considerations, political risk could be the wild card if an organic carrier is proposed. The project would necessarily increase oil tanker traffic off the coast of British Columbia — the organic carrier is a hydrocarbon, like oil — and worries about a spill could catalyze local opposition. Vancouver Island is home to Canada’s lone Green Party Member of Parliament at the federal level. The three Green Party Members of the Legislative Assembly of British Columbia, who hold the balance of power in the province, are also based there. Exporting clean hydrogen to replace fossil fuels — at the risk of what would amount to coastal oil spills — may pit climate hawks against environmentalists, a theme Vox’s David Roberts explored in a January essay.
Hydrogen is also being considered in Australia as a way of expanding renewables production while reducing curtailment; exports are a natural next step. The country is also home to a proposed project for the production of hydrogen from brown coal whose carbon would be sequestered; its economics — however favorable they may once have been — are likely to be undermined as renewables continue down the cost curve. And continuing its role as a vanguard of zero-emission technologies, Norway is also evaluating the prospect of liquid hydrogen exports to the Land of the Rising Sun.
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Matthew Klippenstein (@ElectronComm) heads Electron Communications, a cleantech-centric consultancy. He chronicles the Canadian electric car market for GreenCarReports and co-hosts the CleanTech Talk podcast. He does not own shares or conduct business with any of the companies listed above, but once worked for Ballard Power Systems, and co-authored the Fuel Cell Industry Review 2017.
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