Ken Silverstein EnergyBiz Insider Editor-in-Chief

A number of impediments such as cost and efficiency stand in the way. But the Bush administration has authorized $2 billion over five years toward the effort -- one it says will begin to bear fruit within two decades. With a far greater emphasis now being placed on clean energy technologies and reliability, distributed generation and fuels cells are getting a lot more attention.

At present, those technologies have a small place in the electric power sector and are primarily used by those businesses such as chip makers that can ill-afford even a momentary loss of power. Fuel cells may one day be used to power everything from cars and buses to businesses. Distributed generation generally has bigger applications and may be used as the primary power source for a business complex spread across a campus.

"The hydrogen economy is both real and hyped," says David Bodde, senior fellow at Clemson University in South Carolina. "Some obstacles have to be overcome. That said, there is an urgent need to move to a more sustainable energy infrastructure."

Dozens of fuel makers are now in business and some of them may have the right technological formula. By 2020, the American Gas Association has forecast that such facilities will account for 20 percent of all new capacity in this country, or five percent of all electricity generated. While only about five percent of all businesses need on-site power, process manufacturers that are voracious consumers are among the key prospects.

More than 200 phosphoric acid fuel cells using hydrogen as a fuel source are operating worldwide and reducing energy bills by between 20-40 percent annually, says the U.S. Department of Energy. Vancouver, Canada-based Ballard Power Systems, for example, has implemented a pre-commercial 1 kilowatt combined heat and power fuel cell generator to be used in the residential market in Japan. At 100 percent capacity, it has a 34 percent fuel to electricity efficiency rate. By comparison, modern combined cycle power plants have a 50-55 percent efficiency rate while coal-fired plants have an efficiency rate of about 30-40 percent.

Serious Questions

"As research, development and demonstration efforts progress along renewable, nuclear and clean coal pathways, a suite of technologies will become available to produce hydrogen from a diverse array of domestic resources," says Douglas Faulkner, acting assistant secretary for energy efficiency and renewable energy before a congressional panel. "These technologies will be commercialized as market penetration grows and demand for hydrogen increases.

To be sure, there's a real question as to how to separate the hydrogen. Some say that the amount of energy used to make hydrogen is more than the amount of power produced by fuel cells. If fossil fuels are extracted to make the hydrogen, then more pollutants would be released. At the same time, natural gas supplies are already over-extended and there's simply not enough of it to use in the hydrogen conversion process.

The Bush administration's ultimate objective is to create hydrogen using a "carbon neutral" strategy. In the long-term, its goal is to use renewable, nuclear and coal gasification processes to create hydrogen, says Faulkner. Opponents of the current administration's ideas say that it relies too much on fossil fuels and not enough on clean renewable energy forms, all to produce hydrogen.

Tom Drennen, associate professor of economics at Hobart and William Smith Colleges, says that the hydrogen economy and the electric power sector are not yet a perfect match. The primary issue he has is that it is more efficient to use the original feedstock as a power source than to use that feedstock to create hydrogen. It can only make sense if regulations change and limit the level of carbon dioxide emissions -- the ones thought to cause global warming.

"I would not expect a broad-scale application of this anytime soon," says Drennan, although he has hopes for a Scottish project. ConocoPhillips, Shell and Scottish Energy are attempting to build the largest hydrogen energy plant ever. A 350 megawatt plant in Scotland that would convert natural gas to hydrogen to fuel. The companies say it would capture carbon dioxide emissions and cut them by 90 percent.

While the Scottish project might be grandiose, others are employing the concept on a much smaller scale. Zoot Enterprises uses fuel cells to produce power for its facility in Four Corners, Mont. The $3.8 million project is tightly integrated with its own diesel generators as well as the local utility's grid-all to add electric reliability. The banking outfit is also working with the Energy Department to finance a micro grid on its 160 acre campus that will house a number of different businesses. The goal is to have distributed generation power the whole site.

Additional research is necessary to spur commercialization and the funding for it must come in part by national governments. Bringing the hydrogen economy into the realm of possibility is likely. But, elevating it to the status of the perfect solution is not. Like all ideas and technologies, this one has its costs and benefits -- factors that developers and policymakers must weigh before deciding where to allocate scarce resources.