Ballard’s Q2 shows fuel cell technology could finally be profitable
Canada’s Ballard Power Systems recently announced positive adjusted EBITDA over the trailing 12-month period ending on 30 June, suggesting that a publicly listed fuel cell company may eventually post a profitable year. Ballard was founded in 1979 and listed 22 years ago. Its US-listed contemporaries, Plug Power, Hydrogenics and FuelCell Energy, have been public for almost as long. Last year, FuelCell Energy CEO Chip Bottone said the company was "within striking distance" of profitability, but it hasn't reached it yet.
Publicly listed fuel cell companies have yet to post a profitable year. But Canada’s Ballard Power Systems recently announced the next best thing: positive adjusted EBITDA over the trailing 12-month period ending on June 30.

So, is this another false start for fuel cells, or does it portend profits will soon come to the sector?

Ballard was founded in 1979, making this its 38th year of operations and 22nd as a public company. Its North American-listed compatriots -- Plug Power, Hydrogenics and FuelCell Energy -- have been publicly listed for almost as long. Last year, FuelCell Energy CEO Chip Bottone said the company was "within striking distance" of profitability, but that goal has yet to be realized. Bloom Energy, meanwhile, remains a private company.

Outgoing GTM editor Eric Wesoff recently noted that there has not been a profitable fuel cell company in his lifetime. Wesoff’s Wall has proven as insurmountable as the one in the popular dragon-infused TV series Game of Thrones, preventing fuel cell firms from crossing into profitable territory for centuries -- although not for lack of trying. Could the wall soon be breached?

Ballard Q2 earnings report showed Positive H1 adjusted EBITDA (TTM figures not listed)

Ballard’s trailing 12 months’ (TTM) adjusted EBITDA of $0.6 million was based on revenues of $100 million and gross margins of 34 percent. With net losses in this period below $10 million, revenue growth of one-third would put it on the cusp of profitability. The company’s goals to increase revenues by 50 percent and gross margins by 6 percent over calendar-year 2016 (reiterated in its Q2 report) may be designed with this in mind.

Though it provides technical services to four global auto OEMs, Ballard’s rising fortunes appear largely tied to China’s enthusiasm for hybrid battery/fuel cell platforms for heavy-duty transport (buses, trucks and light rail), which mirrors the country’s interest in batteries for light-duty passenger vehicles. These hybrids supplement battery propulsion with modestly sized fuel cell stacks which serve as zero-emission range extenders.

The company has signed $29 million in contracts to deploy 600 fuel cell engines for Broad-Ocean, a leading Chinese motor manufacturer that has taken a 9.9 percent ownership stake. Ballard has also supplied fuel cells to Yinlong Energy, a battery-electric bus manufacturer (2017 target production: 35,000) that aims for 20 percent of its sales to incorporate fuel cells by 2020. Finally, its joint venture fuel-cell production facility in Guangdong province is contracted to purchase $150 million of membrane electrode assemblies (MEAs, a fuel cell subcomponent) from Ballard over a five-year period, on a take-or-pay basis. While these sums would amount to a rounding error for other industries, they are significant for the fuel cell sector.

The transformative potential of the Chinese market is underscored by other fuel cell firms’ announcements. Hydrogenics received a $21 million private placement from Hejili, a Chinese limited partnership, and a $50 million contract with Blue-G, a division of Yixing Electric Auto, covering 1,000 fuel cell stacks. Plug Power, fresh off major transactions with Amazon and Walmart, is also testing fuel cell range extenders in China, and their fuel cell forklifts will likely find a receptive market there as well.

For its part, FuelCell Energy, whose high-temperature molten carbonate fuel cells make it more of a competitor to Bloom Energy, has found its core market in South Korea, where 170 megawatts of its installations have been sited. (From its press releases, privately held Bloom Energy’s installation base appears to have recently topped 200 megawatts.)

Freedom from fossil hydrogen

While FuelCell Energy and Bloom can run their systems on biogas, the proton exchange membrane fuel cells used by Ballard, Hydrogenics and Plug Power require pure hydrogen, which would need to be renewably generated for fuel cells to be a climate solution. And with water electrolysis accounting for only about 1 percent of worldwide hydrogen production -- steam methane reforming with its byproduct carbon dioxide being the dominant process -- the “renewable hydrogen” era remains many, many moons away.

Whether despite or due to this challenge, electrolyzer vendors have innovated to achieve significant cost reductions in recent years. Norway’s Nel Hydrogen has recently claimed that cheap electricity and high electrolyzer utilization (and admittedly, fuel taxes) will allow it to provide hydrogen at a lower cost than gasoline in some jurisdictions (see slide 9 in this Nel presentation).

While this claim may remain untested for some time, given the paucity of fuel-cell vehicle deployments, Nel has signed a framework agreement with SunPower (see slide 22) for renewable hydrogen production, and has moved forward with a framework agreement for a 100-megawatt electrolysis/power-to-gas plant in France, which will inject hydrogen into the natural gas network. The project is valued at 450 million Norwegian kroner, or about $55 million at current exchange rates, with the possibility of eventual expansion to 700 megawatts.

Nel is also developing an intriguing 400-megawatt electrolyzer concept with an unnamed industrial customer to undercut the cost of fossil hydrogen.

Source: Nel Hydrogen, Nel ASA presentation (May 2017), slide 26

While overambitious announcements have continued to characterize the hydrogen and fuel cell sectors, Nel’s competitors have also announced higher-capacity electrolyzer platforms (see here and here) in response to client demand, which suggests the economics may be beginning to show promise.

Of course, even cheaply generated renewable hydrogen would be of limited value unless it could be easily transported, which leads us to Japanese engineering firm Chiyoda and its plan to import hydrogen from Brunei.

The mother of all flow batteries

By 2020 (presumably in time for the Tokyo Olympics), Chiyoda plans to ship toluene to Brunei, where it will be reacted with hydrogen produced from natural gas to generate methylcyclohexane (MCH). The MCH will be shipped back to Japan, where the hydrogen will be removed, leaving toluene, which will be sent back to Brunei.

Call it the mother of all flow batteries.

FIGURE: Development of Large-Scale H2 Storage and Transportation Technology With Liquid Organic Hydrogen Carrier

Source: Chiyoda

By using the hydrocarbons as a liquid organic hydrogen carrier, or LOHC, Chiyoda aims to circumvent the problems of long-distance hydrogen transport. Though the process may seem something like a Rube Goldberg machine, its overriding advantage is its backward-compatibility with ubiquitous, mature petroleum infrastructure. Given expectations of an eventual peak in liquid fuels demand, LOHC processes could one day offer oil companies a way to stay relevant in a post-petroleum world.

For this pilot project, Chiyoda proposes to transport 210 tons of hydrogen per year to Japan, corresponding to yearly shipments of about 3,500 tons of organic carrier. (By comparison, an oil supertanker can carry upward of 300,000 tons of crude.) A monthly round trip would mean cycling a mere 300 tons of organic carrier between Japan and Brunei, presumably a small enough volume to piggyback off existing shipping flows between the countries.

In terms of energy delivery, 1 kilogram of hydrogen contains about as much chemical energy as a gallon of gasoline, which weighs about 6 pounds (2.75 kilograms). Methylcyclohexane has roughly the same density, and releases about 6 percent hydrogen by weight when converted into toluene. As such, a gallon of methylcyclohexane would yield up 0.17 kilograms of hydrogen, with chemical energy equivalent to one-sixth of a gallon of gasoline. Even factoring in fuel cells’ greater efficiency at converting chemical energy to work, LOHCs might be hard-pressed to deliver one-third as much work-per-tanker as today’s liquid fuels.

Perhaps in part for this reason, funding awards from ARPA-E’s Renewable Energy Fuels Through Utilization of Energy-Dense Liquids (REFUEL) program have focused on ammonia, which consists of 17 percent hydrogen by weight. Ammonia production is a mature industry, with about half a million tons produced each day (global daily oil production amounts to roughly 10 million tons of crude). Unfortunately, ammonia boils at -30 degrees Celsius, has a pungent odor, and is classified in the United States as toxic by inhalation, all of which could impede its success as a widespread hydrogen carrier.

While their time might not come for decades, some form of liquid energy carrier seems likely to play a role in the future: Not all global energy flows can likely be replaced with increased electric transmission capacity. However imperfect the liquid energy carriers of the future may be, their success will probably hinge on compatibility with infrastructure from already globe-spanning industries.

Saluting the supporting cast

Students of the renewables revolution could be forgiven for questioning the relevance of fuel cells, renewable hydrogen and liquid energy carriers, given the ascendance of wind, solar and now battery storage. But emerging technologies deserve attention precisely because they are still emerging and their future is uncertain. The "big three" have enough momentum to saturate their respective markets; their spread and success are largely a given with time.

So while fuel cells, renewable hydrogen, liquid energy carriers, next-generation nuclear and biofuels, efficiency innovations and other technologies may only ever be the supporting cast of the energy transition, their arc is inherently more interesting. The big three may not bring us all the way to a carbon-neutral world on their own, in which case some of these technologies may step into the spotlight, while others remain in the shadows and still more leave the stage.

The twists and turns at the bleeding edge of fuel cell technology make for compelling viewing and engrossing speculation, though for an admittedly smaller audience than the big three enjoy. If and when they breach the wall of profitability, perhaps fuel cells will be taken more seriously.

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Matthew Klippenstein is a consultant in Vancouver, Canada. He does not own shares or conduct business with any of the companies listed above, but once worked for Ballard Power Systems.