Hydrogen fuel cells industry calls for federal support to maintain competitive advantage

Targetting SR&ED and early procurement

Canada's place in the top echelon of nations developing and commercializing hydrogen fuel cell technology is in danger unless the federal government implements a long-delayed national strategy and increases its support, says the head of the association representing the industry. After years of substantial private sector support for technology development, risk capital is becoming more difficult to secure and federal support is set to decline under the Conservative government's new Eco Energy Technology Initiative.

"There appears to be an appetite federally for clean energy technologies and Canada has leadership strength in hydrogen fuel cells. There's been lots of investment but we need federal partnership funding to ensure that the benefits accrue to Canada," says John Tak, president and CEO of Hydrogen & Fuel Cells Canada (H2FCC). "There's the new S&T Strategy and the climate change plan but we're not able to grasp concrete investment from those initiatives."

The call for increased public investment in hydrogen fuel cells technology comes after a remarkable run of private sector R&D investment, mostly from foreign sources. Led by Ballard Power Systems, Burnaby BC, the fuel cell sector grew rapidly during the technology boom of the 1990s before retrenching somewhat in recent years. It remains a strong, diversified sector with specialized products now appearing in the marketplace.

R&D support mostly from private sector

It's estimated that 85% of the total Canadian R&D investment in the sector has come from the private sector, with the remainder coming from public sources. That compares to the 70:30 split considered optimal for advanced nations and the dismal 54:46 ratio Canada currently enjoys.

As capital markets become more risk averse and other national governments step up support for their fuel cell sectors, Canada's leadership position is being eroded. Industry says that instead of increasing public support, Ottawa is reducing its financial assistance to the sector.

The previous five-year commitment of $213 million dedicated to fuel cells R&D runs out next year. The new Eco Energy Technology Initiative (R$, February 5/07) pledges $230 million for energy R&D, but fuel cells is just one of eight energy technologies slated to receive support.

Tak will lead a delegation to Ottawa next month in an attempt to convince officials and politicians that the fuel cells sector requires urgent attention. The mechanisms that H2FCC is proposing include enhancements to the scientific research and experimental development (SR&ED) tax credit program, early government procurement and purchase incentives for energy produced from fuel cells.

"Changes to SR&ED is one plank of what we are proposing. This government is more inclined to these kinds of incentives and there appears to be an appetite to updating it," says Tak. "We are also looking for procurement incentives. The impact of government as purchaser can be enormous and there are lots of groups proposing early procurement as a policy tool."

H2FCC is also calling for the release of the government's national fuel cells strategy. Tak says the consultations for the strategy have been completed and the document has been written but is languishing at Natural Resources Canada. "It needs to be brought forward to Cabinet for review and implementation. It was completed one year ago," he says.

call for federal support not new

H2FCC's call for incentives, procurement and a national strategy is not new. Most of its recommended initiatives were contained in a 2003 Canadian Fuel Cell Commercialization Roadmap produced by H2FCC's precursor, Fuel Cells Canada, PricewaterhouseCoopers and Industry Canada. That document urged concurrent action on several fronts and called for a national strategy to be developed within one year (R$, April 13/03). Four years later, little action has been taken and there are early signs that the hydrogen fuel cells cluster in Vancouver is losing steam.

Earlier this year, two promising BC-based fuel cell firms — General Hydrogen Corp and Cellex Power Products Inc — were acquired by Plug Power Inc, Latham NY. The firms are both developing products for the mobile industrial equipment market including electric lift trucks. The purchases were made through the recently created subsidiary, Plug Power Canada Inc, and the financial activities of the two firms will be merged.

"The federal government needs to make a decision. What I want most is a senior person (in government) to put all the pieces together and realize we can be a leader in this," says Tak. "Fuel cells are a next generation technology and the government appears to be more comfortable with near term technology and stuff it can understand … There appears to be an appetite federally for clean energy technologies and Canada has leadership strength in hydrogen. There's been lots of investment."

In addition to the Eco Energy Technology Initiative, the government supports fuel cells R&D in other ways, primarily through the National Research Council's Institute for Fuel Cell Innovation (IFCI). Officially upgraded to institute status last year, IFCI receives a modest $10 million annually. It leads the NRC Fuel Cell Program, across six NRC institutes and is about to launch a hydrogen research program.

In other areas, however, federal fuel cell research capacity has been reduced or eliminated. The Hydrogen Early Adopters program administered under Technology Partnerships Canada (TPC) has been axed. The elimination of TPC also removed funding assistance for firms developing technologies related to hydrogen fuel cells and hydrogen production, storage, distribution and purification. Canada has strength in all these areas but Tak says it's still to early to say with certainty where Canada's world-leading competitive advantage may emerge.

"It's not clear yet where Canada's niche strengths are. We will see over the next 10 years as commercialization accelerates who will dominate each niche," he says. "We're still at the beginning of the curve, where the combustion engine was 100 years ago. Improvements are being made globally.

Several nations are investing far more in hydrogen fuel cell technology than Canada. Japan, the US and Germany are at the forefront, but smaller countries like Denmark are also investing heavily and have developed sector-specific strategies.

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