​How Ballard Power Systems (BLDP) is Working to Fuel the Future

Joel Anderson  |

In the battle against global warming, it’s become increasingly clear that every aspect of our global energy infrastructure needs to be rethought. Eliminating carbon pollution wherever it exists has increasingly become a focus for governments worldwide, creating a lot of opportunity for those companies that can offer a new path to energy independence that doesn’t produce carbon emissions, but still provides a cost-competitive alternative to traditional sources...without compromising performance.

That’s not easy, though. There’s usually a reason why the traditional sources became traditional. However, some companies, like Vancouver’s Ballard Power Systems (BLDP), are rapidly developing the sorts of technology that look to make the traditional path not so traditional any more.

Ballard’s focus is on fuel cell technology, a type of power source that utilizes fuel in the form of hydrogen and oxygen to produce energy with the only byproduct being water. Fuel cells have increasingly become an optimal solution for powering stationary equipment and motive vehicles, such as buses, cars, trucks and even forklifts.“There are not very many zero emission technologies out there,” says Guy McAree, Ballard’s Director of Investor Relations. “This is one of them. It clearly can contribute and in a fairly significant way in some applications to eliminating emissions.”

However, Ballard isn’t just about reducing emissions. They’re striving to build a technology that’s going to provide advantages in terms of cost and efficiency as well.

Ballard’s PEM Offers a Competitive Advantage

Ballard’s fuel cells are relatively unique, even within the broader fuel cell economy. The basic technology for fuel cells is typically somewhat consistent. As simply as possible, hydrogen ions and oxygen are fed into the cell where they combine to form water, and the resultant electrical energy released by that reaction is captured by the cell.

However, Ballard specializes in proton exchange membrane (PEM) fuel cells, a technology they excel at, and that provides certain competitive advantages over other fuel cell designs.

“PEM is unique from all the other fuel cell technologies in a couple of respects,” says McAree. “The first is that PEM is a low heat technology. What you get on the back end of the fuel cell is electricity, a little bit of water and a little bit of heat. The other fuel cell technologies out there are relatively high heat, which becomes a factor in how you would use them.

“The other key distinction between PEM and the other technologies is that PEM is very adaptable to both stationary applications as well as mobile or motive applications. That's why, when you think of a fuel cell car or a fuel cell bus or a fuel cell forklift, those all use PEM fuel cell technology, because it's able to come to full power very quickly and it's able to cycle on and off many times in a short period of time. That makes it unique from the other technologies, which all take a long time to get to full power and don’t cycle on and off rapidly with the same effectiveness, because it actually degrades the fuel cell itself. That is the fundamental difference.”

However, focusing on the difference between types of fuel cells is putting the cart before the horse in many ways. Talking to McAree, it’s clear that he’s a fuel cell evangelist in general, and the focus at Ballard isn’t on beating other fuel cell technologies, it’s on showing the world the advantages of any fuel cell over what we have now.

“We don’t think of our fuel cells as competing with other fuel cell companies as much as we compete with incumbent technologies,” says McAree. “We tend to be competing with things like lead acid batteries and diesel generators.”

Fuel Cells are Only One Aspect of a Successful End Product

However, that does present a new set of challenges for a business like Ballard. Ballard’s business model is built entirely around the design and manufacture of the fuel cells themselves, something that provides both advantages and disadvantages.

On the one hand, remaining somewhat agnostic about the applications of their technology provides flexibility. It leverages the engineering capabilities of a number of other companies to design equipment that utilizes their fuel cells, not to mention develop new uses. On the other, it means that Ballard has to rely on a number of important downstream partners to produce the actual vehicles and equipment. No matter how good Ballard’s fuel cells are, it won’t matter much if they’re not a part of an end product that is cost competitive and works well in the field.

“You really have to design a bus around the fuel cell technology,” says McAree. “We have to work with the bus OEMs, the guys that actually manufacture the chassis and the coaches. We have to work with fueling companies that will provide the hydrogen and the storage tank for the bus. We have to also work with a system integrator that can develop the electric drive system and put the whole thing together. It becomes a consortium of businesses that can bid on these projects.”

“In the case of, for example, the forklift truck, it's slightly different,” he continues. “What we do there is manufacture the stacks, and we sell those directly to a system integrator downstream who then integrates our stack into their module and then sells that directly to the customer. The customer would be somebody like a Wal-Mart (WMT) or a Sysco Foods or a Procter and Gamble (PG) that buys forklifts from Crown or Raymond and then swaps out the battery for a fuel cell alternative.”

For some, having that buffer between them and the marketplace could be a real frustration. However, for Ballard, the quality of the companies designing applications for their technology is something they view as an asset rather than a liability.

“In the last five or six years, the price of a fuel cell bus in North America has been reduced by about 50%,” says McAree. “Some of that is through the reduction in cost for the power modules that we produce, but the other elements of the bus have also been coming down in price, the fuel storage tank, the electric drive system, and so on. Today a fuel cell bus in North America or Europe is getting closer to the price of a diesel hybrid, which would be the next most advantageous technology from a pollution reduction perspective.”

For Ballard, they may just be one piece of a bigger whole, but improving the quality of their product also makes a big difference in the overall quality of the end product. Producing cells that are cheaper, more effective, and have a longer lifespan will make a big difference in helping purchasers of many different stripes choose fuel cells over the alternatives.

“I can tell you, for instance, just in the last few months, one of our stacks running in a fuel cell bus in London just surpassed 20,000 hours of operating lifetime without having to be pulled out of the bus and have any work done on it,” says McAree. “That’s pretty significant lifetime for a single stack. That is part of the performance equation. Today, lifetime is at a point where these are really commercially viable.”

Fuel Cell Transportation Could Help to Clean China’s Air

While Ballard has a wide variety of applications, ranging from commercial to military, one major driver of its business is buses. Long relying on diesel engines that were long on pollution and short on fuel economy, fuel cell buses that make use of Ballard’s technology have started to gain traction both at home and abroad. China, in particular, has proven to be a salient market.

“One of the areas that we're having a lot success and seeing tremendous growth right now is in China, where the central government and all the provincial governments are very focused on ways in which they can reduce the dirty air problem,” says McAree. “Fuel cell buses and fuel cell trains are some of the ways in which the Chinese are moving toward addressing the cleaner air issue. That will make a significant difference very quickly because they’re talking about pretty large volumes.”

It’s meant being adept at partnering with Chinese companies building these buses and trains.

“In China, they're interested in localizing as much of the production and assembly of the bus as they possibly can,” says McAree. “They can get access to component parts much more cheaply than we can and also have low-cost labor. We’re doing deals in China where we are beginning to localize some of the assembly of the modules that we manufacture in order to allow costs to come down even further, while we retain control of critical intellectual property. There are also significant subsidies available in China for fuel cell buses. They basically anticipate that a fuel cell bus will be priced at or below the price of a diesel bus, which is a real breakthrough in terms of how attractive these will become from a financial point of view.”

An Uncertain but Optimistic Future

The future for Ballard Power Systems remains uncertain - as it would be with any company pioneering a new energy technology like this. They’re carving out a market for a new product, and that’s a process that’s always fraught with difficulty and takes big investments of time and capital. However, the Ballard of today is a very different company than the one that was initially founded in 1979. Far from a pie-in-the-sky tech company dreaming of the distant future, Ballard is very much showing that it can be commercially viable in the present even as its path to a profitable future comes more and more into focus.

“I would say in the last 5 to 10 years, we’ve been very focused on moving this business to a truly commercial enterprise, with fuel cell products that offer really compelling value propositions to customers in specific application areas,” says Guy McAree. “I couldn’t have said that 10 years ago. I think the industry has changed in a significant way in that regard, both in terms of cost being reduced and performance of fuel cell products being enhanced to the point where they are now a viable, commercial product for a variety of different uses.”

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.



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