Fuel cells remain an expensive technology. The vast majority of non-portable fuel cells sold to consumers today are done so with the aid of a subsidy. The most famous example of this is the Ene‑Farm scheme in Japan, where a government subsidy has facilitated the sale of more than 45,000 residential fuel cell units since the programme began sales in 2009. Government subsidies tend to be finite and in this particular example the level of subsidy has gradually decreased in line with system cost reductions, also allowing for a reduction in retail price from ¥2.7 million to ¥1.9 million for the latest Panasonic model. With up to ¥450,000 in subsidies available (depending on location) the price reduces to ¥1.45 million. A price of ¥1.45 million ($15,000/£9,500) is competitive with a comparable Stirling engine micro-CHP system – the Baxi Ecogen retails for around £7,500 in the UK, or ¥1.1 million – but that price is unsubsidised. Like-for-like, the price difference is close to double, so significant cost reductions in the technology will have to be achieved if the subsidy is to be removed entirely under the current sales model.
The government capital subsidy in Japan is relatively unique; European governments prefer feed-in tariff models that can provide additional earnings for an owner during the unit’s operation but does not subsidise capital cost. For more established technologies such as solar the unsubsidised capital cost is affordable for many people – they raise the capital and reclaim money over time. For current-generation fuel cells the capital cost is not so easy to swallow. We expect system costs to fall dramatically over time but this relies on the economies of scale afforded by mass production, itself requiring increasing demand. In the meantime some interesting alternative models are emerging.
Tailoring a domestic fuel cell to a specific market may limit its international appeal but if the target market is large there can be benefits in creating such a product. The electrical output of recent Ene‑Farm systems has been reduced from 1 kW to 0.7 kW – there is no feed-in tariff in Japan and market research concluded that 700 W is sufficient to meet the demands of most homes. This reduction in fuel cell size is the main reason behind the lower price that can now be offered.
In Europe, Elcore has designed a system specifically for the German market. Unlike most fuel cell micro-CHP systems the Elcore 2400 is not intended to be a full boiler replacement but rather an add-on. With an electrical output of 300 W and a thermal output of 600 W, the system is designed to meet the electrical base load of an average German home as well as the year-round hot water requirement, with some excess available for space heating. The property keeps its electricity grid connection for meeting peak demand and its boiler/burner for meeting additional heating demand. This model relies on the fact that the majority of prospective buyers will already own boilers and that those boilers have long lifespans, which would be lengthened further by reduced use once the fuel cell is installed. It also de-risks the consumer purchase as the incumbent setup can make up for any potential shortcomings of the fuel cell. By making use of a significantly smaller fuel cell than other systems, the unit is being priced at €9,000 ($12,000/£7,800) without any subsidy, making it price-competitive with other micro-CHP technologies. However, due to its design there is unlikely to be much scope for feeding electricity back into the grid, which may impact cost-competitiveness when operating expenditure is accounted for. Nonetheless, as a fuel cell product the Elcore 2400 is cheap and has the potential to be very successful in the German market. Trials are underway and will ramp up soon thanks to Elcore’s involvement in the ene.field project.
But what if there was a way to de-risk the purchase of a fuel cell entirely? What if the fuel cell was free? Last month Ceramic Fuel Cells Limited (CFCL) launched an innovative programme in the UK for its 1.5 kW BlueGen promising just that. Due to the size of the fuel cell’s output, the programme is targeting social housing schemes, shared accommodation, schools and small businesses. Customers pay a lower electricity price and financiers recoup their investment through feed-in tariff payments, which were recently increased for micro-CHP in the UK. A return on investment (ROI) of 6–9% should be achieved over a ten-year period. More information on CFCL’s programme can be found in our previous Analyst View ‘Micro-CHP Fuel Cells for Businesses, Schools and Shared Accommodation’. This form of financing is beneficial to both customers and fuel cell manufacturers but relies on financiers who are happy to accept an ROI others may consider low and the sustainment of generous feed-in tariff rates for micro-CHP; recent history in the solar industry heralds caution here.
Shifting capital financing from governments to private financiers is a step in the right direction towards a self-sustaining industry. Subsidies should not be considered by anyone as a permanent means of supporting technology. We have now reached a point where residential fuel cell technology is of low enough cost to be considered by niche financiers for a low ROI but with a positive socioeconomic impact. As the technology continues to decrease in cost, whether it be through the ongoing cost reduction of materials, the benefits of mass manufacture, or further optimisation of systems for markets, the ROI increases and the risk decreases. The more investors backing the technology, the faster it can progress on its cost reduction curve. Eventually this will lead to the technology reaching costs low enough, and ROI high enough, to entice mainstream investors. At this point the industry should be considered self-sustaining. It is difficult to predict how long this process will take, but the launch of CFCL’s programme is a clear sign that it has begun.
Jonathan Wing Market Analyst
Photo: BlueGen installed in a Sheffield home (Source: CFCL)