I am trying to determine if Hydrogen Fuel Cells is the next great green technology or just on life support with stimulus money. There is a lot of conflicting information, especially for motive applications (i.e. Lift trucks). As a backdrop, US Department of Energy Secretary Chu announced he was withdrawing fuel cell funding in July. He cited the lack of infrastructure and that the technology was at least 10-20 years from commercialization. Congress reinstated the funding. There have been some recent announcements of additional implementations. Whole Foods is planning on purchasing 61 lift trucks with hydrogen fuel cells for a distribution center in Landover, MD. But in the same week Jungheinrich (one of the largest manufacturers of lift trucks globally and the largest in Europe) said the technology was many years away and would not be deployed in Europe anytime soon.
So what is real and what is hype? At this point, 95% of all hydrogen is being produced from natural gas. To implement hydrogen fuel cells, you have to expend a tremendous amount of energy to pull hydrogen gas from natural gas (or even more energy to strip hydrogen from water using electrolysis). Further, you need to store it – either very cold as a liquid or pressured tank as a gas. Either way, not cheap. Only after these two issues are resolved, do you get into the “infrastructure issue” of having a distribution network available. At this point, you have a lot of trucks running from Houston and about three other locations in the USA (Linde and Praxair) to provide hydrogen for installed fuel cells. The issue is that most hydrogen is used for petroleum distillation and that is about the extent of the existing network. You can also install on-site generation using natural gas, but that is even less efficient in producing hydrogen than the large operations.
So, for hydrogen fuel cells to be the green technology of the future, the industry needs to solve the hydrogen generation issue (low cost and carbon neutral), hydrogen storage issue (especially for motive applications), and the hydrogen supply infrastructure issue. The grand plan is to use solar or wind energy to pull hydrogen from water – completely carbon neutral. While that can be done today, it just doesn’t make financial sense (the investment for the solar panels, electrolysis equipment, and hydrogen storage is way more expensive than just solar and buying batteries to store the energy from solar, let alone the just burning petroleum products).
So, is there any areas were hydrogen fuel cells make sense? Emergency power. This looks like the only viable area currently. Products are available commercially and companies are installing including hospitals, telecommunications, and military applications. But most of these projects have at least some government subsidy (but it is closer to financially viable compared to other applications).
I suggest that companies watch and learn. At this point, hydrogen is being kept afloat by stimulus money, but how many companies would invest if that money was not on the table? A few years ago, Walmart tried two pilots on fuel cells in lift trucks. I understand that they spent months working through the issues and evaluating. However, I have not seen any more announcement of expanding. To me, that is a sign that the technology is not ready for further application. I am not sure who I trust less – Congress or Walmart. But in this case, I side with Walmart.
For more information…(biased sources)
http://www.hydrogenassociation.org/
http://www.fuelcelltoday.com/
Tuesday, October 27, 2009
Friday, October 23, 2009
How to be a leading green company
I am starting to get overwhelmed with various definitions of “green”. I am rapidly coming to the conclusion that the green movement is lacking leadership (I know this is not a new thought). But it is now causing problems for corporations. What is a corporate leader to do? They have to show that they are aware and working on climate change issues. But what is green and how to be a perceived leader? Ever different group has its issue – saving the forests, bio-fuels, carbon reduction, clean water, wild animals, or alternate energy. In some cases, these goals are in conflict with each other or have other risks…for example for the recent news…
- Using Bio-fuels hurts forests ((http://www.nytimes.com/2009/10/23/science/earth/23biofuel.html?_r=1&scp=2&sq=Forests%20climate%20change&st=cse0. )
- Wind farms hurt birds (http://greeninc.blogs.nytimes.com/2009/10/20/two-states-two-paths-to-clean-energy/?scp=2&sq=Wind%20energy%20birds&st=cse)
- Geothermal causes earthquakes. http://www.nytimes.com/2009/10/12/business/media/12askthetimes.html?scp=1&sq=Geothermal%20energy%20earthquakes&st=cse)
Also, you have multiple groups scoring corporations on their green credentials. There is Carbon Discloser Index, several stock market indexes of social responsibility, Green seal, tree hugger, and a dozen single issue groups. How do you please all of them? You can’t. So, what are leading companies doing? Look at how some of the largest companies with the lowest reputations have gone about it? BP, Exxon, and Walmart.
They have picked a couple of key initiatives. The big oil companies have looked at renewable energy. These tie in with their strengths and corporate interests (if we really have reached Peak Oil, then these companies still want to make money in the post oil world and do have the expertise in very large energy projects – whether huge solar installations or deep sea oil platforms). Walmart has focused on efficiency and supplier relationships. They are building high efficiency stores and warehouses. They are also pushing their supplier base for efficiency. As many have noted, Walmart’s efforts in its supplier base may have a bigger effect than any government initiative or law. The key is if an initiative does not save money or grow new markets, then it is not a good initiative and will probably come out as green washing or worse as a waste of money. The other thing is that it takes years to gain a perceived leadership positions. So, pick a strategic focus (good for the environment and good for the company), focus your efforts, and work for the long haul. It also doesn't hurt to educate/lobby key environmental organizations on your efforts. That is also why you are seeing most large corporations expand their external relations organiztion in this area. The sustainability report for most companies is now as thick (and as slick) as their annual report.
Wednesday, October 7, 2009
$20 per Gallon
I am reading an interesting book, Chris Steiner’s $20 per Gallon: how the Inevitable Rise in the Price of Gasoline will Change our lives for the Better. It describes how business and society will change as gas changes from $6 to $8 to $10 to $12 to $20 per gallon. It is a very thought provoking. However, I think it misses on some the ramifications on supply chain.
Steiner’s premise is UPS will do great as more people use e-commerce rather than drive to a store. Further, Walmart (and all big-box retailers) will be hurt as people also walk to a local stores for staple items. Steiner paints a future utopia that looks like 1950s small town America – like the idea, but believe the Author’s social belielfs have hurt his objectivity. Walmart will actually do better and the smaller retailer will be hurt further. Walmart is a one-stop shop and I believe consumers will be more likely to go to “just” Walmart rather than a series of smaller retailers (even by walking). Further, Walmart’s efficiency at logistics will be an even greater advantage over other retailers as petroleum costs increase.
As petroleum cost increase, the “last mile” problem becomes the more fundamental issue. Half the cost of shipping an item from China is in the delivery to a customer’s home address or for the consumer to pick it up at a store. To say another way, more gas is used to drive the last mile than the other 6000 miles combined. I do not see major companies changing the majority of their supply chain – most manufacturing will not come back from low cost countries because petroleum cost increases. The only exception would be for items that are shipping air freight. Anything that ships via container ship will not change. You will see more inland water transportation (Europe already there), more West Coast port diversion to East Coast (glad Panama is widening the Canal), and more multimodal shipping. However, that all helps large organizations with scale and strong logistics. As petroleum costs increase, more focus (and resources) will be spent to improve efficiencies. Railroads and inland ports will do very well. However, parcel carriers, especially those focused on air shipments will do very poorly. You will see less parcel shipments as that is the most energy intensive shipping. The one opportunity I see is for parcel carriers to use their store operations (UPS Store and Fedex-Kinkos) as drop points for customer pick up. This is similar to the JC Penney Catalog pick-up centers of 25 years ago.
What to do as a supply chain professional? With any major investment, do a sensitivity analysis of what would the payback be if petroleum costs tripled in price? What if it was 5 times as expensive (as “peak energy” doomsayers believe)? How easily would it be for you to handle multi-modal shipments? How close is a rail head to your major shipping points (better be less than 40 miles if you expect to shuttle). The sweet spot for inter-model will decrease in distance to 300-500 miles from 750 miles.
In addition to looking long term, what about short term emergency planning? What if there is a sudden increase in petroleum costs due to terrorism, war, or natural disaster? How would your company handle a sudden tripling of cost of petroleum? How quickly could you change your prices and contracts? Transportation companies and many commodity based businesses have mechanisms to quickly institute price changes based on market changes. If you are in a very different business, how would you handle a massive change, especially if you have contract prices in place? Do you have contracts based on a delivered price?
Steiner’s premise is UPS will do great as more people use e-commerce rather than drive to a store. Further, Walmart (and all big-box retailers) will be hurt as people also walk to a local stores for staple items. Steiner paints a future utopia that looks like 1950s small town America – like the idea, but believe the Author’s social belielfs have hurt his objectivity. Walmart will actually do better and the smaller retailer will be hurt further. Walmart is a one-stop shop and I believe consumers will be more likely to go to “just” Walmart rather than a series of smaller retailers (even by walking). Further, Walmart’s efficiency at logistics will be an even greater advantage over other retailers as petroleum costs increase.
As petroleum cost increase, the “last mile” problem becomes the more fundamental issue. Half the cost of shipping an item from China is in the delivery to a customer’s home address or for the consumer to pick it up at a store. To say another way, more gas is used to drive the last mile than the other 6000 miles combined. I do not see major companies changing the majority of their supply chain – most manufacturing will not come back from low cost countries because petroleum cost increases. The only exception would be for items that are shipping air freight. Anything that ships via container ship will not change. You will see more inland water transportation (Europe already there), more West Coast port diversion to East Coast (glad Panama is widening the Canal), and more multimodal shipping. However, that all helps large organizations with scale and strong logistics. As petroleum costs increase, more focus (and resources) will be spent to improve efficiencies. Railroads and inland ports will do very well. However, parcel carriers, especially those focused on air shipments will do very poorly. You will see less parcel shipments as that is the most energy intensive shipping. The one opportunity I see is for parcel carriers to use their store operations (UPS Store and Fedex-Kinkos) as drop points for customer pick up. This is similar to the JC Penney Catalog pick-up centers of 25 years ago.
What to do as a supply chain professional? With any major investment, do a sensitivity analysis of what would the payback be if petroleum costs tripled in price? What if it was 5 times as expensive (as “peak energy” doomsayers believe)? How easily would it be for you to handle multi-modal shipments? How close is a rail head to your major shipping points (better be less than 40 miles if you expect to shuttle). The sweet spot for inter-model will decrease in distance to 300-500 miles from 750 miles.
In addition to looking long term, what about short term emergency planning? What if there is a sudden increase in petroleum costs due to terrorism, war, or natural disaster? How would your company handle a sudden tripling of cost of petroleum? How quickly could you change your prices and contracts? Transportation companies and many commodity based businesses have mechanisms to quickly institute price changes based on market changes. If you are in a very different business, how would you handle a massive change, especially if you have contract prices in place? Do you have contracts based on a delivered price?
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