Final Evaluation of the Hydrogen Early Adopters Program

4. Findings: Relevance

Relevance was assessed against two criteria:

• Alignment with industry needs
• The extent to which the industry has evolved since the program was created

4.1 Alignment with Industry Needs

Conclusion

The H2EA program was seen by government and industry representatives as being in line with industry needs when it was established in 2003.

Findings

The program was a response to the Commercialization Road Map for Fuel Cells of 2003 ¹³ that identified challenges to commercialization and how to overcome them, including stimulating market demand through demonstration projects. Demonstrations were recognized as an important part of the innovation cycle; they allowed companies to test concepts and returns on R&D to enable a transition to the next steps in the evolution of the technology. In fact, many countries involved in fuel cell development, in addition to Canada, have such programs to reduce risks and validate the technology.

H2EA and CTFCA have been the only federal government demonstration programs to focus on hydrogen; H2EA was, therefore, viewed as playing an important role in the sector's development. Evidence from the document review and interviews indicates that demonstrations have been necessary to help accelerate market adoption and validate the technology, particularly for early niche market fuel cell applications in areas such as mobile phones and handheld devices, back-up power systems, buses and forklifts.

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4.2 Evolution of the Industry

Conclusion

The industry has evolved substantially since the program was created in terms of technological and industrial developments including the achievement of some commercial successes. Organizations within the industry, however, have evolved at different rates, and as a result there are diverging views on how best to support the industry's continued development.

Findings

Though the industry is widely considered by interviewees to have evolved since 2003, it has not done so evenly. In several respects, there have been important technological and industrial developments and even some signs of commercial success to which H2EA is considered to have been an important contributor. Hydrogenics' sales of back-up power systems is one such example of a smaller application of products/technologies demonstrated in the program. This development has helped Hydrogenics realign itself along a more sustainable business model that is manufacturing-focused as opposed to R&D-focused. Other developments have been in hydrogen infrastructure where there are now ten fuelling stations installed as part of the hydrogen highway and hydrogen village projects. Also, the clustering of end-users, developers and suppliers created by the demonstrations along with the strengthening of Hydrogen & Fuel Cells Canada have been pointed to by interviewees as evidence of the positive nature of this evolution.

In other areas, however, further technological progress is needed. Hydrogen storage, for example, is one area that requires considerably more targeted research and development. Research is currently underway at the National Research Council (NRC) Institute for Fuel Cell Innovation on hydrogen storage in support of commercialization in the transport sector. Other solutions being developed include storage of hydrogen in hydride form. Cold weather start is a second example of areas requiring additional research. While protein exchange membrane (PEM) fuel cells can now operate at sub-zero temperatures, there continue to be significant challenges to fuel cell applications, including improvements to the power density, durability and cost of fuel cells ¹⁴.

Such limits in current fuel cell technology have led to a shift in attitude in the Canadian industry away from the ideal of pure hydrogen applications of fuel cells to the use of fuel cell hybrids which can operate with smaller, and therefore less expensive, fuel cells, or to the use of hydrogen based internal combustion engines as demonstrated by the Ford project. The fact that hybrid fuel cell systems using batteries in automobiles, and fuel cells combined with gas turbines in stationary applications are now being pursued is a significant shift from the thinking of five years ago when, we were told by interviewees, these options were not being considered.

For many respondents, the industry is evolving more slowly than expected at the outset of H2EA. The financial status of most of the companies involved in fuel cells has diminished since 2003 as private sector investment has dropped, a situation that some believe is partly the fault of the industry itself, which oversold the development timeline. As a result, some companies now have difficulty in joining cost-shared programs. At the same time, other firms are moving closer to commercialization.

Given differences in the evolution of organizations within the industry, views are diverging on how best to support the industry's continued development. One view is that funds now need to be directed to infrastructure. Those holding that view tend to be larger players in the industry who have progressed from demonstrations and are focused on commercialization and the necessary R&D to address gaps and weaknesses identified in the demonstrations — they are further down the development path. While demonstrations were recognized as an important component of commercialization as they provide the ability to get technology to users operating in a real world market, some in the industry have moved on to deployment, emphasizing market development rather than demonstrations.

Another perspective is that the focus should be on a system of tax credits to support the promotion of the production and acquisition of hydrogen fuel, the adoption of technology, and the purchase of fuel cells on a per KW basis. According to proponents, market forces should be the key driver, allowing customer value propositions to pull forward applications on a competitive basis.

Finally, others see a need for R&D programs targeted to key barriers such as hydrogen storage, and the continuing use of demonstrations for applications such as the testing of larger vehicles prior to commercial use. The issues, in this instance, are the cost of fuel cells and the need for the development of a supplier group.

While differences of opinion exist on its rate of development and needs, the industry is seen as heading in the right direction as shown by significant cost decreases resulting from volume manufacturing to meet increasing numbers of orders, and an evident confidence in generating applications. The general view from industry and government interviewees is that industry will continue to need support in future years for demonstrations, and for research and development, although government is likely to play less and less of a role as the marketplace matures. Discussions continue among stakeholders on the future needs of the industry. ¹⁵

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¹³ Canadian Fuel Cell Commercialization Roadmap, Government of Canada, Fuel Cells Canada, PricewaterhouseCoopers, March 2003. (Return to Text)

¹⁴ Ballard Power Systems Technology Road Map, May 15, 2006. (Return to Text)

¹⁵ See for example, "Towards a National Hydrogen and Fuel Cell Strategy: A Discussion Document for Canada," Government of Canada, 2006, accessed on February 22, 2008. (Return to Text)