Proton Energy Systems, as you know, is one of the prominent new companies on the new “energy technology” scene, having done its IPO last Fall. One thing that sets them apart from other fuel cell companies is the fact that they have a successful commercial product line, namely the HOGEN hydrogen generator. While they continue development of an advanced regenerative fuel cell system based on PEM technology, the HOGEN is already entering the market, in many exciting applications. In discussions with David Wolff, VP of Marketing and Sales at Proton, I’ve learned that they are gearing up a significant effort to introduce HOGEN for generator cooling. I asked Dave to outline the main points of their story, so that UFTO companies could check into it sooner. Here is his note.

Thank you, Ed, for your enthusiastic support and knowledgable advice as Proton positions our products within the electric generator cooling market. As you are aware, electric generator cooling is only one of many exciting market segments for HOGEN hydrogen generators, but the electric generator cooling segment has many unique attributes which make this the right time for an onsite hydrogen solution. I will review the important issues in this e-mail.

Onsite hydrogen is not new in electric generator cooling:

– Onsite hydrogen via electrolysis is not a new idea for electrical generator cooling. General Electric sold electric generators equipped for self-generation of hydrogen using old-style KOH (potassium hydroxide – “caustic”) electrolyzers for many years during the mid-20th century. These systems were generally shipped to developing countries where the hydrogen infrastructure was non-existent, and the self-generation of hydrogen made it possible to have the high efficiency of a hydrogen cooled generator in these isolated areas. The downside to these old style electrolyzers was that they were very expensive, very labor intensive to operate (often requiring a dedicated staff of their own), were expensive to purchase, required constant maintenance, involved hazardous KOH electrolyte and asbestos cell separators, and had to be equipped with a compressor because they made hydrogen at a pressure of less than one psig.

How Proton’s HOGEN hydrogen generator has changed the playing field for hydrogen generators:

Proton’s HOGEN hydrogen generator uses innovative Proton Exchange Membrane (PEM) electrolysis technology instead of the customary liquid electrolyte technology to achieve electrolysis. But it is not just the interesting technology, but the total advantages of the system that make the difference:

– Very compact systems – our boxes are 10% of the size and weight of the “traditional” KOH systems, and half the size and 30% of the weight of the “advanced” KOH systems now being introduced by Stuart, Hydrogen Systems and others.
– One box, all-in-one “Plug and Play” design – our systems contain all required components in a single box for ease of installation.
– The average installation time for a HOGEN 40 hydrogen generator is a couple of hours: a 380 installation and startup takes one day start to finish.
– Unmanned operation – Proton’s HOGEN hydrogen generators operate unattended and require routine maintenance only once per year
– Fast delivery from stock – Proton has begun routine production of the HOGEN 40 hydrogen generator and they will be available for rapid delivery
– Process pressure without a compressor – HOGEN hydrogen generators deliver 150 psig or higher (depending on model) UHP grade hydrogen without the need for a mechanical compressor, eliminating the cost, electrical consumption, maintenance and operational complexity associated with the use of a hydrogen compressor.
– Highest purity – our systems deliver 99.999+% pure UHP grade hydrogen without the need for purification and without the risk of KOH carryover
– Aggressive pricing – our systems offer superior performance and are priced at or below the cost of a complete system offered by our competitors.

While Proton has introduced exciting new technology and convenience, some of the excitement is driven by changes in the electrical utility
market and industrial gas market:

– Under regulation, utilities used to have little incentive to reduce costs, since they were guaranteed a cost-plus profit – in essence
– the more they spent, the more they made. All this has changd under deregulation, and utilities are examining every chance to reduce costs.
– The cost reduction efforts have squeezed plant staffing, and the staff that used to be used to monitor the frequent hydrogen
– deliveries (hydrogen is a highly hazardous material and procedure is that the deliveries would be monitored by plant personnel) is no longer available. By eliminating or reducing deliveries, a HOGEN hydrogen generator frees up staff.
– The price of hydrogen has been rising at the rate of 10+% annually for the past several years (propelled by increases in natural
– gas, diesel fuel, regulation and labor) – the “cost to beat” for electrolysis is getting easier.

It is important to note that use of a HOGEN hydrogen generator may not eliminate the need to get delivered backup gas, and to have the ability to get hydrogen gas delivered for a generator refill (approximately once annually). The most cost-effective generator is sized to meet the steady-state needs of a generator, not the refill. For example, we know that a GE Frame 7 gas turbine requires approximately 21 cubic feet of hydrogen per hour for makeup gas, but requires 7500 scf of hydrogen to refill the generator after it has been purged of hydrogen. The refill gas is best supplied though a bulk delivery by an industrial gas supplier or some other supply method.

Also be aware that Proton’s fundamental business philosophy is that we will access our markets through qualified incumbent distribution methods. In the case of hydrogen supply, the incumbent method is through industrial gas companies such as Air Liquide, Praxair, Airgas etc. Since we believe that sites will continue to require backup storage (often rented) and delivered gas for refilling after a purge, we believe that Proton’s business goals and the customers’ total requirements for technology, products and services may be best suited by accessing HOGEN hydrogen generators through industrial gas suppliers.

Beyond products and services, industrial gas suppliers can supply financing services to electric utilities. We are finding that in the new business environment, that generating stations are looking for a maximum two year payback on capital expenditures. We are often right on the edge of a two year payback, and thus it is difficult for the facility to make the right decision. Financing via a full service lease from an industrial gas company makes it an operating expenditure rather than a capital investment and makes the right decision easier to implement.

Current models of HOGEN hydrogen generators deliver 150-200 psig hydrogen without a compressor. We expect to be building systems within the near future that can deliver 1600 psig and up without a compressor. This would eliminated the need for delivered backup hydrogen because the systems would be able to pressurize the existing tube banks present at many electrical generating plants to their working storage pressure – making our own backup gas.

While the opportunities in generator cooling for HOGEN systems are exciting in the U.S. and in Western Europe, there are even more exciting opportunities possible outside of these areas. In many developing countries, regional and national utilities have been so desperate for reliable hydrogen supply that decades ago they purchased a small number of old fashioned KOH electrolyzers with large reciprocating compressor which they set up at centralized sites and they fill their own cylinders which they then truck hundreds of miles to their various electric generation sites. Thus they have the worst of both worlds – high cost hydrogen, and high cost distriibution. Our proposed “White paper” (which may be the presentation that we give at Power-Gen Latin America in Oct ’01) will talk about replacing this far flung network with compact onsite hydrogen generators at each generation station, allowing the old central systems to be retired, decreasing costs and increasing reliability.

Hope this information is helpful. Thank you again for your enthusiasm and assistance.

David E. Wolff
V.P. Marketing and Sales
Proton Energy Systems
50 Inwood Rd.
Rocky Hill, CT. 06067
(860) 571-6533 x254
(860) 571-6505 FAX
dave.wolff@protonenergy.com
www.protonenergy.com