Powering Up With Fuel Cells

By Aaron Levitt | December 22, 2010 AAA

With our planet's need for more energy exponentially increasing, more and more focus is being placed on renewable methods. New sources such as algae-based fuels and advances in solar technologies are quickly becoming Wall Street darlings. Even older technologies are getting a second look in the wake of this demand. While the promise of a fuel cell revolution has come and gone, investors shouldn't disregard the technology yet. Many fuel cell firms have struggled with profitability and dependability issues. However, there are still plenty of opportunities for fuel cells in today's energy mix.

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Gaining Traction
The desire for energy independence and a commitment to preventing climate change are helping the resurgence in the adoption of fuel cells. Analysts at SBI energy research estimate that the fuel cell market reached nearly $598 million over the course of 2010. They predict the market will grow to $1.22 billion by 2014 or grow at an annual rate of 20%. Japan has achieved a fuel cell growth rate greater than 100%, as the nation has added the majority of the planets stationary installations.

Domestically, the sector saw a boost as the Energy Policy Act of 2005, included R&D, demonstration and market transition programs for fuel cells and hydrogen. It also contained tax incentives for the purchase of fuel cells. These credits have been extended to 2016 and are seen by the industry as a positive sign towards the wide-spread adoption of the technologies.

Power Up
The largest demand for fuel cells is currently for power generation units. As the economic and political advantages of using renewable energy sources are becoming well known, various commercial and public entities are leading the way in the adoption of fuel cell power sources.

However, much growth is also stemming from niche segments. The transport sector has seen tremendous growth over the past few years. Recently, Daimler has partnered with the Department of Energy to contribute twenty Mercedes-Benz fuel cell vehicles to the Technology Validation Project fleet. The goal of the project is to achieve fuel cell transportation readiness by 2015. Other members to such projects include Ford (NYSE:F), Chevron (NYSE:CVX) and Hyundai-Kia.

In addition, The National Renewable Energy Laboratory (NREL), in partnership with Xcel Energy (NYSE:XEL) has launched a wind-to-hydrogen program. The project hopes to improve the efficiency of producing hydrogen from renewable sources at costs low enough to compete with coal, oil and natural gas. So far the project has been a success.

Adding Exposure
Looking towards the future, fuel cells could find their way into more municipalities, remote off-grid locations and automobiles such as Honda's (NYSE:HMC) new FCX Clarity. While the sector is nowhere near as booming as it was during the dotcom days, adding a speculative dose of fuel cells to a portfolio may do it some good.

One of the biggest growth drivers for the industry has been in forklifts and other materials handling vehicles. Ballard Power Systems (Nasdaq:BLDP) has moved away from the automotive fuel cell industry and into these more lucrative motive cells. The company is quickly becoming a leader in the sector. Other fuel cell makers such as Plug Power (Nasdaq:PLUG) and Hydrogenics (Nasdaq:HYGS) have also moved into this area.

While stationary fuel cell manufacturer Fuel Cell Energy (Nasdaq:FCEL) has moved closer to profitability with its latest earnings report, it's still far off from being an investment. For investors wanting more of a fuel cell "sure thing", both industrial giants Siemens (NYSE:SI) and United Technologies (NYSE:UTX) have large business lines dedicated to commercial fuel cells. Investors gain the safety net of dividends and a diverse product lines to help cushion the blows. (Discover the issues that complicate these payouts for investors. Check out Dividend Facts You May Not Know.)

The Bottom Line
With more nations and municipalities focusing on finding cleaner and renewable sources of energy, many technologies are being looked at. Moving past the previous hype, fuel cells are once again returning to the forefront of alternative energy. New advances in technologies and cheaper costs are helping the systems compete versus other forms of energy. Although growing, those wanting to play the sector should keep in mind that it is still in its infancy, and investors should tread lightly.

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