Screen Shot 2014 03 11 at 9.54.18 AMYahoo


The gainers include:

  • Plug Power: 67%
  • Ballard: 48%
  • Fuel Cell: 49%



Let's back up for a moment.

What are fuel cells? 

Basically, fuel cells take hydrogen and turn it into electricity. The most common way of doing this involves using a proton exchange membrane.

This is a membrane that separates out the positive and negative charges — the proton and electron — of a hydrogen atom. The membrane is treated in such a way that the electron cannot pass through it; instead, it only captures the proton. This allows the electron to go through an external circuit and get momentarily captured as electricity.

The exhaust product from the system is created by the proton and electron recombining with an oxygen molecule, which is flowing through the other side of the membrane. The only "waste" created from a fuel cell is water heat, meaning they are essentially carbon neutral.   

Via Ballard, here's the visual demonstration. The flow field plate is charged to separate out the proton and electron.

how fuel cells workBallard

Hydrogen and oxygen pass through along either side of the charged membrane. 

ballard fuel cellBallard

The hydrogen atom gets split into its positive and negative charges — protons and electrons.

how fuel cells workBallard

The proton passes through the membrane, where it will become part of an exhaust product ...

how fuel cells workBallard

... while the electron gets temporarily captured as electricity.

how fuel cells workBallard

The split proton and electron are reunited with an oxygen atom to produce water and heat — a nearly pure form of energy exhaust.  

how fuel cells workBallard


how fuel cells workBallard

( You can watch the whole video here » ) 

More demand, and getting cheaper

The long-term shift in the marketplace is that hydrogen — namely in the form of natural gas, which is simply hydrogen and carbon — is getting cheaper and more abundant according to Bloomberg's Christopher Martin. On the higher end, solar-based fuel cells, which convert solar and wind energy into hydrogen, have seen cost improvements as solar use has expanded. And fuel cells form part of the push toward cleaner energy, something Wal-Mart has been pushing. And a recent note from Navigant indicates more sectors are looking to fuel cells to provide grid-independent sources of power in case of natural disasters.

“With the growing need to enhance grid resiliency and the accelerating adoption of distributed generation technologies worldwide, the stationary fuel cell industry is well-positioned for growth over the next decade,” says Mackinnon Lawrence, research director with Navigant Research. “Expected to break through the $2 billion mark in annual revenue in 2014, stationary fuel cells are seeing increased financing options for adoption, particularly in the healthy residential combined heat and power segment.”

Wal-Mart also sees the cells as cost- and labor-saving devices, since it takes less time to refuel a lift, and thus creates less downtime.  

The hype cycle

But again, the market cap of these firms remains relatively minuscule. As far as their use in transport, fuel cells are so far mostly limited to light industrial machines like forklifts. Navigant says the stationary fuel cell market will reach $9 billion in annual revenue by 2022.

More importantly, these stocks have come under huge waves of hype before, when the market has gotten frothy. Plug Power went public during the dot-com bubble, and while it survived, its stock has gone nowhere for the past decade. Check out the insane heights it reached during the bubble. 

plug powerGoogle Finance

For what it's worth, Lake Street's Rob Brown today lowered his rating on Ballard to "hold" from "buy" with a $4 price target. He writes in a note:

At the current price, we believe shares are implying roughly $4 per share in value for new development programs (based on discounting at least $80M in additional annual EBITDA) on top of the core business, which we value at $2.50 per share. Many of these potential programs have yet to be identified, have very limited visibility on future outcomes, and likely will not contribute meaningful revenue for at least 4 years. 

Ballard gets 10% of its revenue from Plug Power, and 25% from Volkswagen, Brown says. Indeed, some analysts believe everything will ride on whether automakers ultimately start rolling out fuel cell vehicles en masse. But given the surge in demand for electric vehicles, there is a decent chance the bump doesn't go much higher from here.