Throw Out the Boiler, Home Fuel Cells Are Coming

British chemical and precious metals firm seen as beneficiary of growth in residential fuel cell marketplace in coming decade.

Published: 15-Dec-2000

LONDON, Dec 15 (Reuters) - Fuel cell technology may have been used for the Apollo and Space Shuttle space programmes but its first mass commercial use is likely to be closer to earth -- in our homes and offices.

As well as having the much-hyped potential to replace the internal combustion engine in our petrol-guzzling cars, fuel cells could start to replace domestic boilers as a source of clean, low-cost heat and power within the next two years.

One beneficiary of the opening up of a market analysts say could be worth around 800 million pounds in 10 years, would be be Johnson Matthey Plc (JMAT.L), the UK chemicals and precious metals group that is seen as a leader in the field.

The first fuel cells -- which can convert hydrogen from gas and oxygen from the air into electricity and water -- were made by scientist Sir William Grove in 1839, though it was not until 1960 that space researchers at NASA put them to practical use.

Domestic demand for fuel cells is expected to emerge first in the United States where electricity prices can surge in some states during summer when air conditioners are on full blast.

"You can buy in cheap gas and supply part of your domestic electricity requirements," said Peter Cartwright, analyst with Williams de Broe.

Cartwright said these generators were unlikely to provide all of a household's electricity needs but could be integrated for use in times of peak demand or used as stand alone units, such as just for a television or freezer.

Johnson Matthey is seen supplying around one third of the generator by value to fuel cell manufacturers such as Canada's Ballard Power Systems Inc and Plug Power Inc and H Power Corp of the United States.

The British group supplies the membrane electrode assembly (MEA) which is a key component of proton exchange membrane (PEM) fuel cells. Another UK firm that could benefit is James Cropper Plc (CRPR.L) which has a deal with Johnson Matthey to supply a carbon product that forms part of the membrane assembly.

BOOST TO SHARE VALUES

The hype surrounding fuel cell technology has seen shares in some of the companies involved soar this year.

Johnson Matthey has outperformed the chemicals sector by more than 40 percent this year, reflecting not just the favourable outlook for its catalysts and strong platinum prices, but also the potential for fuel cells. Analysts say this could be worth between one and four pounds to its share price.

In a recent research note, Schroder Salomon Smith Barney said Johnson Matthey's fuel cell technology was worth up to four pounds a share at least and gave it a 12.50 pound price target.

"Johnson Matthey is the world leader in fuel cell catalyst technology and is well positioned to create a substantial business from this leading-edge technology in the long term," the broker said in the note.

However, Williams de Broe's Cartwright was more circumspect.

"We learnt a lesson over the last year in the tech area to be a little shy about putting hard numbers on these things which are well into the future, over which the technology is changing before your eyes," Cartwright told Reuters.

Johnson Matthey's shares ended at 990 pence on Thursday.

Shares in Ballard Power -- seen as the world leader in developing PEM fuel cells for use in transport, electricity generation and portable power products -- have outperformed the Toronto electrical sector by more than 200 percent this year.

Not all companies, however, have shared in the good times.

Shares in Plug Power, which develops fuel cells for use in the home, are off sharply from a post-flotation peak of $150 and have underperformed the S&P technology index by around 36.5 percent this year.

And that is despite a boost last month when Plug Power said that the initial prototype of its first commercial product will be manufactured in the fourth quarter.

FAR EAST DEMAND?

Demand for fuel cells could also emerge in the Far East, where electricity supplies may be less reliable and where often only bottled gas is on offer.

In June, Johnson Matthey demonstrated a new fuel processor that converts both natural gas and bottled liquefied petroleum gas to hydrogen for use directly in a fuel cell.

"The initial customers for high value fuel cell systems will be residential users in areas with unreliable power supplies," Johnson Matthey Executive Director Neil Carson said at the time.

In July, Johnson Matthey teamed up with TXU Europe and Energy Partners of the United States to develop a micro combined heat and power (CHP) fuel cell system that produces three kilowatts of electrical power as well as useable heat.

After an 18-month evaluation phase of the project -- which is partly supported by the UK Department of Trade and Industry fuel cell programme -- the partners plan large demonstration programmes in Europe and the United States.

"We see a major role for fuel cells developing in distributed generation over the next five to 10 year," Eddie Hyams, President of TXU Europe Power, had said in July.

TXU Europe is part of U.S. power firm TXU Corp while Energy Partners is a leading developer of PEM fuel cell systems.

CELLPHONE BATTERIES ON SALE

Fuel cell technology has already made a mark in U.S. shops.

Wal-Mart Stores Inc , the world's largest retailer, last month said that it was to market fully-charged disposable cellphone batteries using fuel cell technology made by Electric Fuel Corp .

The batteries, which are to be sold in all Wal-Mart's 1,000 stores for around $12, would give customers five times more talk and stand-by time compared with conventional batteries.

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