Jeremy Rifkin, adviser on climate change to the European Commission.

Hydrogen-powered fuel cells are already in use for an increasing number of applications. In Britain, the Royal Mail runs fuel cell postal vans in Scotland and Birmingham. Fuel cell buses are on the roads of California, China and Germany. Honda’s fuel-cell propelled FCX Clarity has been in production since last year, with most major maufacturers including Chevrolet, Toyota, BMW and others currently working on fuel cell cars. Fuel cells are going to provide heat and light to the new Freedom Tower on the World Trade Centre site in New York. The first passenger ferry powered by fuel cells has been operational in Hamburg since summer 2008. There’s even a propotype airplane powered by fuel cells.

With so much apparent activity, why do so many commentators dismiss the ‘hydrogen economy’ as being light years away? The answer lies in the complexity of fuel cells and their many different advantages and disadvantages.

A fuel cell is basically an electricity producing machine that uses oxygen (from the air) and hydrogen to generate electricity and heat. Hydrogen is the most abundant substance in the universe, and contains more energy per unit of weight than any other fuel. A fuel cell powered by hydrogen emits only water and heat as by-products: there are no harmful emissions or gases. Fuel cells are incredibly efficient, run silently (so they can be used anywhere), and can operate continuously (providing base load power and therefore stability to the grid).

Disadvantages include the fact that costs are currently high, and hydrogen isn’t easy to produce, transport or store. The most common way of producing hydrogen is through steam-reforming of natural gas: however, this process produces CO2 and natural gas itself is a finite fossil fuel so it has no long-term advantages. Building the hydrogen infrastructure will cost billions, and unless other ways of producing hydrogen are found it won’t help tackle global warming. One other method of producing hydrogen is through electrolysis (by running a current through water to split it into hydrogen and oxygen), but it costs much more than steam reformation.

So why bother? The answer lies in the convergence of technologies: if hydrogen can be produced from renewables, then the whole equation becomes much more attractive. Power produced during off-peak periods by wind turbines, for instance, can be used to make hydrogen which is then released via fuel cells as electricity during peak periods. Other methods are being explored: using solar PV or biological processes to produce hydrogen directly, for instance.

The fuel cell sector is to some extent still in it’s infancy. Many companies are still burning cash at frightening rates, with technological set-backs in some cases pushing commercialisation even further into the future. “The fuel cell sector still remains the ultimate ‘jam tomorrow’ investment” according to Investor's Chronicle (6/2/09). 

In today’s tough economic times, the outlook remains uncertain for the entire sector.But for long-term investors there are interesting opportunities. See our Sector Snapshot for an overview of current trends in the hydrogen econonomy; the Companies Snapshot for a rundown on the key players; and the Companies Directory for profiles on publicly-quoted companies.