Examining FuelCell Energy And Exxon Mobil's Carbon Capture Process

| About: FuelCell Energy, (FCEL)

Summary

FuelCell Energy and Exxon Mobil are partnering to provide cost effective method to clean pollution from new and existing natural gas fired power plants with the addition of fuel cells.

Exxon Mobil expects natural gas to overtake coal as the fuel of choice for electrical power generation by 135% between 2010 and 2040.

The fuel cell used in the carbon capture process produces large amounts of usable hydrogen as a byproduct that will provide needed green hydrogen infrastructure for fuel cell electric vehicles.

FuelCell Energy should see year over year exponential revenue growth with good margins.

Green hydrogen produced by carbon capture can be delivered incrementally to 10,000 existing Exxon Mobil stations providing hydrogen infrastructure as needed.

FuelCell Energy's Carbon Capture

FuelCell Energy (NASDAQ:FCEL) will provide a key component to a paradigm shift currently happening in the automotive industry by providing the hydrogen refueling infrastructure and green hydrogen needed for fuel cells to become the power of choice for electric vehicles.

There is a race to determine the best power source for electric vehicles. Tesla (NASDAQ:TSLA) on one hand has become very popular and has focused on using batteries to power their electric car. Toyota has decided to power theirs with a fuel cell using hydrogen fuel. The process of cleaning the pollution from natural gas power plant exhaust with FuelCell Energy's carbon capture will provide the green hydrogen infrastructure needed to push Toyota (NYSE:TM) well ahead of Tesla (TSLA) and make fuel cells the common sense choice.

First I want to talk briefly about the current efforts toward carbon capture at natural gas fired power plants. On May 5, 2016 FuelCell Energy and Exxon Mobil (NYSE:XOM) announced their plans to work together to advance the use of fuel cells to clean the exhaust from natural gas fired power plants. Actually they have already been working together on this for years and this is the next step. You can read the benefits of this partnership from the plethora of recent news stories and the press release. You can also read about FuelCell Energy's current progress in other areas in their Company Update.

The benefits of using FuelCell Energy's Carbon Capture Technology to clean the exhaust from natural gas power plants (and coal power plants) are clear. This new process cleans pollutants from the exhaust while producing additional electricity and providing additional revenue.

Exxon Mobil's research indicates that a typical 500 megawatt power plant using a carbonate fuel cell may be able to generate up to an additional 120 megawatts of power while current carbon capture technology parasitically consumes about 50 megawatts of power. By itself this partnership will be transformative for FCEL as the world transitions to cleaner power and from coal powered electrical plants to natural gas.

The Paradigm Shift

The scope of this article is about a paradigm shift currently underway in the automotive industry. An additional byproduct of the fuel cell carbon capture process is that the fuel cell also produces large amounts of useful hydrogen. It is this hydrogen as a byproduct of carbon capture that is the key impetus for the auto and freight transportation industry to transition to hydrogen fuel cell electric vehicles.

New Fuel for the Auto Industry

Car manufacturers have been working toward marketing fuel cell electric vehicles FCEVs for years. Ford (NYSE:F), Hyundai (OTC:HYMTF), Honda (NYSE:HMC), Toyota , General Motors (NYSE:GM) Mercedes… have all begun building FCEVs and offering them to the market place. Passenger buses and semi trucks that haul freight are also now being powered by fuel cells and hydrogen.

Why this move to fuel cell electric vehicles? For starters fuel cell electric vehicles produce zero emissions. Fuel cell electric vehicles are electric vehicles with all of the inherent benefits but they don't rely on rechargeable batteries for power with the range limitations and the long recharging times. Rather the onboard fuel cell is used to produce electricity from hydrogen fuel in a tank similar to the gasoline tanks we currently use. They drive just like a battery electric vehicles BEVs except they do not experience the performance issues that batteries have in cold weather. In addition hydrogen fuel cell cars are greener than electric cars since over 60% of the electricity in this country is produced by fossil fuels.

Toyota has named their fuel cell electric vehicle Mirai which means "future" in Japanese. Toyota is clearly on record as stating they believe fuel cell electric vehicles FCEVs are the future of the auto industry and that this is "the turning point in automotive history." In the middle of 2014 they severed their relationship with Tesla and their pursuit of battery powered electric vehicles BEVs in favor of fuel cell electric vehicles FCEVs.

The driving factor for this move is that fuel cell electric vehicle does not have the same range issues as batteries. It is an electric car that has a range comparable to a gasoline engine that consumers are already used to and that can be refueled in a matter of minutes just like everyone does right now by pulling into the neighborhood gas station.

The Barriers To Fuel Cell Electric Vehicle Wide Spread Acceptance

The problems all these manufacturers and governments are working to overcome right now are (1) the lack of refueling infrastructure and (2) the current source of the hydrogen production. Ford has noted both of these problems in their research and development of fuel cell electric vehicles. From Ford's Website:

Producing and distributing hydrogen fuel is another important hurdle on the road to implementing hydrogen-powered FCVs….

Currently, the most state-of-the-art procedure is a distributed natural gas steam-reforming process. However, when FCVs are run on hydrogen reformed from natural gas using this process, they do not provide significant environmental benefits…

It would be necessary to employ carbon-sequestration technologies in hydrogen production from fossil fuels or increase the use of renewable energy sources to enable the hydrogen for hydrogen-fueled FCVs to provide significant environmental benefits.

Even if the challenges of producing hydrogen can be overcome, there is still no widespread hydrogen fueling system. Therefore, new infrastructure must be invested in, designed and executed throughout the country to make hydrogen-powered vehicles commercially attractive to Ford customers.

The complaint specifically about hydrogen as a fuel for electric cars is twofold. First, the claim is it is not green enough. In other words the current process for producing hydrogen pollutes more than the hydrogen as a fuel saves. Second, there are currently only a handful of refueling stations so you can't reliably drive across the country and know you can refuel your car.

Green Hydrogen Production

FuelCell Energy has already solved the first issue and was recently awarded California Low Carbon Fuel Standard (LCFS) certification administered by the California Air Resources Board (NASDAQ:CARB). Because they can produce hydrogen with a "net negative" carbon footprint their process offers a superior result in comparison to other hydrogen generation technologies such as electrolysis or traditional steam reforming. You can read about their green hydrogen process in various news stories.

FuelCell Energy has already tested and proven over the past four years what their fuel cell can do regarding carbon capture, producing green electricity and hydrogen production. They installed and tested a fuel cell using bio-fuel from a waste water treatment plant that also provides hydrogen for vehicle refueling. It produces electricity and usable heat for the plant and enough hydrogen to fuel 50 cars per day. This process is repeatable in every part of the world.

The current partnership with Exxon Mobil has the potential to advance this on a global scale using carbon capture. Rather than burning natural gas to produce hydrogen through steam reforming the hydrogen produced in this process is a byproduct of cleaning CO2 from the exhaust in power plants as it is producing clean electricity. It really can't get much greener.

Wide Spread Hydrogen Distribution

The second identified barrier is a shortage of needed refueling infrastructure. Exxon Mobil is a key partner in this process because they have over 10,000 gas stations in the US thus the majority of the needed infrastructure for hydrogen distribution is already in place. Installing Air Products' (NYSE:APD) hydrogen fueling stations at each of the 10,000 existing Exxon Mobil gas stations incrementally as the fuel cell electric vehicle industry develops is not a far stretch as we gradually transition from gas powered cars to a hydrogen powered transportation industry.

Air Products' SmartFuel H70/H35 retail hydrogen dispenser is the market's first fully-integrated dispenser. It mirrors traditional consumer gasoline fueling and payment practices and is readily available to meet consumer expectations of refilling hydrogen-powered fuel cell vehicles in a safe, fast, reliable and familiar way.

Fuel Cell Powered Electric Semi Trucks

There are even recent developments in the freight transportation industry worth considering. Signed into law last July, the California Sustainable Freight Action Plan (CSFAP) is meant to, "improve freight efficiency, transition to zero-emission technologies, and increase competitiveness of California's freight system." Yes that's right; imagine zero emission semi trucks refueling at a hydrogen station. Notice these head lines:

Loop Energy is pleased to announce a collaboration agreement with Hunan CRRC Times Electric Vehicle Co., Ltd. (a subsidiary of CRRC Corporation Ltd.) to develop zero emission power systems for heavy duty transportation applications.

Zero emission hydrogen fuel cell bus rolls into Orange County. Hydrogen fuel cell buses are powered by oxygen and hydrogen. These two components are combined to produce electricity, heat, and water. Fuel cell electric vehicles are zero-emission vehicles. As the fuel cell electric bus operates, it will emit only water, creating cleaner air and a healthier environment.

Imagine this: Exxon Mobil and FuelCell Energy will sell and install (DFC) fuel cells to both new and existing natural gas power plants. As a result clean electricity will be produced from cheap natural gas with near zero emissions while at the same time producing additional electricity from the fuel cell that was installed to clean the exhaust. As a byproduct the fuel cell will also produce "large amounts of useful hydrogen." The hydrogen can be produced locally in most cases and distributed to gas stations already existing around the US providing the needed hydrogen infrastructure for fuel cell electric vehicles.

Conclusion

Are we seeing the beginning of a shift away from the use of oil as a transportation fuel? I think we are. It may seem overwhelming to imagine how it could happen given the number of existing cars and trucks fueled by gasoline and diesel. However consider these recent headlines:

· Mexico City just announced a limit to the gas powered cars on the roads because the smog is so bad.

· China is planning to take 6 million cars off the road to improve air quality.

· India's smog- shrouded capitol pulls cars off roads.

When you read headlines like those it's not hard to see how a paradigm shift to hydrogen is not only possible but required. Imagine a world with only zero emission cars, passenger trucks, buses and freight trucks on the road. Imagine a world that has truly shifted away from gasoline and diesel to clean hydrogen with only water as exhaust. There are some very large companies already moving that direction.

Will battery powered cars win out over fuel cell powered electric vehicles? For me the range will always limit battery powered electric vehicles to a local commute car and I think that is true of most people. Add to that the issues associated with batteries like cold weather and disposal and I believe the market will ultimately chose hydrogen powered electric vehicles over batteries.

In my opinion FuelCell Energy is in the best position to produce year over year exponential revenue growth. They are currently transitioning from a research and development company and are close to being profitable with growing margins. Each of their other products has the potential to be equally transformative with year over year revenue growth. They are currently being watched very closely as they strive to become profitable and their stock price reacts every time even the slightest hint of news appears. They will benefit from every aspect of this energy paradigm shift and be a key player in providing clean affordable and reliable energy for many years in the future.

Disclosure: I am/we are long FCEL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.