October 11, 2004

Green power standards are centrepiece of CSA climate change program

The development of standards to support green power technologies which will reduce greenhouse gas emissions is the centrepiece of the Canadian Standards Association's new climate change program, announced September 28 by Pat Keindel, the CSA's president, standards.

She told the Hydrogen and Fuel Cells Conference 2004 in Toronto that standards can act as a catalyst for the development, adoption and diffusion of environmental technologies, including fuel cells and other clean energy technologies. At the development stage, standards enhance technical rule-making which facilitates the development of new technologies, contributing to the design, safety and performance of the developing technology.

In the adoption phase, said Keindel, standards help create consistency, uniformity and interchangeability, which can foster market acceptance and adoption. Standards, together with third-party certification schemes, are a visible and effective way to verify safety and performance, thus reducing the risk associated with developing new technologies and promoting adoption among specifiers, regulators, inspectors and consumers. This is particularly valuable for the fuel cell industry itself.

Finally, standards support the sustained diffusion of knowledge by virtue of the fact that they are dynamic documents. Once written and adopted - through a consensus process - they are regularly reviewed and updated to reflect advances in technology. They thus provide a continuous, closed loop process by which incremental improvements can be recognized and incorporated.

In addition to supporting technological innovation, standards also contribute to well-shaped public policy related to the environment, Keindel continued. Such policy can accelerate the process of invention, adoption and diffusion of green power technologies. She cited energy efficiency as a prime example, specifically the highly successful Energuide and Energy Star programs, noting that the CSA developed the standards on which these programs are based.

The CSA has been involved in fuel cells and hydrogen research since 1998 and is now working in 22 different project areas, in co-operation with its subsidiary, CSA America. Earlier this year, CSA America published the world's first fuel cell standard, which has been approved as an American National Standard by the American National Standards Institute as ANSI/CSA America FC 1-2004, Stationary Fuel Cell Power Systems. Known as FC 1, the standard includes requirements for the operation, construction and performance of stationary fuel cell power systems.

CSA America is currently leading the development of 15 new standards for the global use of fuel cells. This series will focus on facilitating harmonization of global standards and regulations for fuel cell applications by establishing requirements for the installation, performance and interchangeability of selected fuel cells and fuel cell power systems.

Other alternative energy initiatives by CSA include:

-- the development of a new standard which will set requirements for the process of extracting hydrogen from fuels, such as natural gas, to power fuel cells;

-- the certification of the first-ever fuel cell power systems to the new FC 1 standard;

-- the development of standards for the interconnection of renewable energy - such as wind, solar power, biomass or fuel cells - into the power distribution grid; and

-- the development of standards on behalf of the U.S. Department of Energy for hydrogen products and systems.

In other environment-related activities, the CSA administers (on behalf of the Standards Council of Canada) the international committee responsible for ISO 14000, the world's most recognized series of standards for environmental management systems. CSA's standard for sustainable forest management, first published in 1996 is now a National Standard of Canada and its approach is gaining acceptance both nationally and internationally. Canada currently has more certified forests than any other country.

More information on the CSA's work is available on its Web site, www.csa.ca.

Fuel cell sector profile

Another highlight of the conference was the release of the 2004 Canadian Hydrogen and Fuel Cell Sector Profile, the first comprehensive economic and corporate profile of the Canadian hydrogen and fuel cells industry. Its figures, showing a 40% increase in overall revenue and an 87% increase in revenue from product sales, present a robust picture of the current state of the industry. The revenue growth provides evidence of the overall strength of the Canadian industry, while the increase in revenue from product sales serves as a significant indicator of the evolution of hydrogen technologies from research concept to commercial application.

"The 2004 Sector Profile shows a dynamic industry across Canada, with strong evidence of the commercialization of these technologies, the next step in the evolution of this important sector," said federal Industry Minister David Emerson.

The profile is a collaborative effort involving the federal government (through Industry Canada), Fuel Cells Canada and PricewaterhouseCoopers (PwC). It was compiled by Industry Canada and PwC using information drawn from members of Fuel Cells Canada, the national hydrogen and fuel cells industry association, and other key industry stakeholders. Tracking the industry's progress over 2002 and 2003, the profile will be valuable for benchmarking the Canadian industry against its international competitors; it also underscores Canada's reputation as a world leader in this innovative, emerging sector.

Other key trends noted by the profile over the past two years include:

*more than double the number of real-world demonstration projects, with 262 projects around the world involving Canadian companies and researchers; and

*continued significant investment in progressive research and development, totalling over $290 million in 2003, or averaging just over $100,000 per employee in the sector.

"The growing impact of the fuel cell sector is positive," said John Webster, who leads PwC's fuel cells practice. "The 2004 Sector Profile shows that the number of Canadian companies involved in the sector, including suppliers, has doubled in the past five years. The 87% increase reported in sales revenues is encouraging, as is the continued commitment to research and development."

The 2004 Canadian Hydrogen and Fuel Cell Sector Profile may be viewed on-line at www.hydrogeneconomy.gc.ca. More information is also available from Erin Bigelow of Fuel Cells Canada, 604/505-9160.

Revenues surpass R&D spending

PwC also released its 2004 Fuel Cell Industry Survey, which shows that public companies in this sector recorded a 20% increase in revenues in 2003, up to $243 million (U.S.) from $203 million (U.S.) in 2002. For the first time in three years, revenues surpassed research and development spending, which dropped by 11% to $204 million (U.S.).

The top two revenue earners in 2003 were Ballard Power Systems ($120 million (U.S.)) and FuelCell Energy ($34 million (U.S.)). These two firms' revenues accounted for 63% of the total revenues of the world's 18 publicly-traded companies covered by the survey.

Nevertheless, profitability still eludes companies in this sector, none of which recorded a net profit in 2003. Net losses did decrease, however, to $367 million (U.S.) from $384 million (U.S.) in 2002.

"While the financial results for the fuel cell sector were mixed for 2003, there are encouraging signs that the industry may soon find its feet," Webster noted, adding that the next two or three years will be a critical period for the launch of successful products.

Most of the companies surveyed by PwC were involved in developing proton exchange membrane (PEM) fuel cell technology and related fueling infrastructure. Primarily designed for use in the transportation market, PEM-powered products are expected to reach large-scale commercial production after portable and stationary applications.

European market review

In Europe, meanwhile a more internationally-oriented market analysis by Frost & Sullivan shows the European market for stationary fuel cell systems to be moving toward a flurry of pre-commercial product installations incorporating diverse technologies, rather than a single product market. Efforts to commercialize fuel cells, however, are likely to be hampered until manufacturers can overcome issues related to high manufacturing costs and durability, says the Frost & Sullivan review.

At present, says the report, the cost of fuel cells far exceeds that of alternative products such as reciprocating engines, gas turbines and micro turbines. Costs will likely drop, however, with mass production and advances in fuel cell and manufacturing process technology. Efforts to reducing the costs of components, if successful, should also boost adoption rates.

Durability is the other hurdle: to be commercially viable in stationary applications, fuel cells should be able to function for nearly 40,000 hours without requiring major repair or maintenance work, whereas most fuel cells currently offer only about 10,000 to 15,000 hours of repair-free functioning.

"To facilitate mass commercialization of fuel cell products, manufacturers should either develop their own distribution and service network or forge alliances with companies that would install, distribute and service their products," says Frost & Sullivan (http://energy.frost.com) research analyst Rajat Kumar. "To ensure customer satisfaction, manufacturers must also train their personnel to ensure proper installation and servicing of their systems."

Commercial markets for stationary fuel cells are forecast to develop around 2007. Revenues are expected to rise from $65 million in the first year of commercialization to over a billion dollars in 2012.

Escalating concern over air pollution is underlining the popularity of cleaner fuels, particularly fuel cells which have an outstanding environmental performance record as compared to combustion-based options.

"Fuel cell vehicles are amongst the least polluting of all the vehicles that consume fuel directly," says Kumar. "Application of fuel cells as auxiliary power units (APUs) could also help reduce emissions substantially. The emissions profile of the technology is very attractive due to the negligible sulfur and nitrogen emissions produced during their operation."

As the European Union pushes for cleaner and pollution free technologies, more demonstration projects are expected to follow. Such projects are set to promote the testing and enhancement of newer fuel cell technologies. Data generated from such field tests is likely to help fuel cell products establish a record of reliability and durability, thus encouraging more widespread adoption.

Frost & Sullivan's Analysis of the European Stationary Fuel Cells Markets may be requested by E-mail from kristina.menzefricke@frost.com. Requests should include the recipient's full name, company name, title, contact telephone number and E-mail address. More information is available from Kristina Menzefricke at Frost & Sullivan, +44-(0)-20-7343-8376.

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