Energy Winner: SFC Smart Fuel Cell

By JAN HROMADKO
FRANKFURT -- When most of us run out of power on our cellphone, Blackberry or laptop, it is rarely more than an annoyance. But when soldiers in the field get a flat battery it is rarely less than life- threatening.
Essential military equipment such as communications devices, global positioning systems and night-vision goggles depend on portable power. Traditional batteries capable of the task are weighty, adding to already heavy loads. Which is where fuel cells come in. They use a catalyst to convert chemicals into electricity, holding the promise of greater reliability in a smaller, lighter form.
SFC Smart Fuel Cell AG, a small company with around 100 employees based just outside Munich, has developed fuel cells so small they can be sewn into soldiers' clothes. Last October, the company, which is the winner of this year's Energy category, garnered the $1 million (€690,000) top prize in the U.S. Department of Defense wearable power prize competition.
And its not just the military which stands to benefit. Refining fuel-cell technology is essential to the development of electric cars and potentially has a host of other applications.
The principle behind fuel cells was discovered in the 1830s. But in the best part of two centuries since, companies have struggled to develop commercial applications for the technology.
Most fuel cells produce electricity from a reaction between hydrogen and oxygen. But, although hydrogen is abundant, it is hard to capture and store. SFC Smart Fuel Cell, which was founded in 2000, has developed mobile fuel cells that run on methanol. The systems it has developed, including the Jenny fuel cell, work on a hybrid approach with the cell continuously recharging a special lithium ion battery.
The Wall Street Journal spoke with Peter Podesser, who became chief executive of SFC Smart Fuel Cell in 2006 after working in the semiconductor and high temperature ceramics industries. Here are edited excerpts from the interview:
THE WALL STREET JOURNAL: What would you say distinguishes your company from your competitors?
MR. PODESSER: Around one- third of our 96 staff is employed in research and development and we're planning to keep that proportion in the future. The principle of fuel cells has been known for about 170 years. But we converted that technology into a sellable and applicable product for the first time in 2003.
We have sold roughly 15,000 units. This doesn't seem like a lot if you compare this with the automobile or consumer-electronics markets. But is a lot in the context of the nascent fuel-cell market: we have sold more products to customers than all our competitors combined.
WSJ: The competition is getting more intensive, isn't it?
MR. PODESSER: There are several players in the fuel-cell market that have products in prototype stage, particularly in the U.S. But that isn't necessarily bad for us. We're the icebreaker but we can only make the shipping channel so wide. Once other players enter the market the channel will get wider. That means demand for and acceptance of the fuel-cell technology will improve. We're happy to see other companies become successful in this market.
WSJ: But doesn't growing competition represent a risk for your innovative lead?
MR. PODESSER: We aim to maintain, and even expand, our technological lead.
WSJ: How?
MR. PODESSER: By cooperating with our users to develop our products. We have gained more than five million hours of operating experience among private, industrial and military users. That amount of experience allows us to develop our products very quickly. While we're seeing a lot of activity among new players in the market, they aren't developing products at the same speed as we are. This is despite the fact that our competitors include large technology companies like General Dynamics, Thales or Lockheed Martin, who all participated in the U.S. Department of Defense's wearable power prize for mobile power supply solutions that we won in 2008.
WSJ: Where do you see further potential for fuel-cell technology?
MR. PODESSER: We're active in the leisure market, supplying fuel cell-based power solutions for camper vans and sailing yachts. We entered the industry sector about two years ago and offer mobile power supply for traffic control and information systems.
We're also active in the security and environment sensor sectors. For instance, we're delivering power supply for weather stations or water level measuring systems along rivers and coast lines for disaster control purposes.
The defense and e-mobility sectors have the biggest potential for development but are also the most challenging regarding user requirements. In terms of business volume the potential of the industrial sector is at least as big as in the defense and e-mobility [electric cars] segments.
WSJ: Can you tell us a bit more about how you think fuel cells can improve in electric cars?
MR. PODESSER: We see potential in the area of additional power supply for onboard equipment as well as range extension. The normal limitation of any battery-driven vehicle is its range. Users have to drive from power socket to power socket and then wait for hours during the recharging process. Our objective is to achieve range extension by combining our fuel-cell technology with the existing e-mobility solutions. This is probably not suitable for long-distance traffic, but has the potential to work for clean urban mobility. We think this area offers gigantic potential for us.
WSJ: Is the climate-change debate a driving force in the development of fuel cells?
MR. PODESSER: For us climate change is clearly a megatrend that helps drive demand. The solar-energy industry had been around for a while, but only really took off when monetary and economic incentives were introduced. Regulatory and legal obligations are driving demand for clean energy products.
In the U.S., for instance, so-called anti-idling laws will take effect from 2010 making it illegal to keep combustion engine running to produce electricity. This will mean the sound of generators rattling in U.S. national parks to power camper vans will become a thing of the past. This is where our products come in.
WSJ: How much do you spend on R&D a year?
MR. PODESSER: Each year we invest between €4 million and €5 million ($5.8 million to $7.3 million) in R&D, which amounts to about 30% of 2008 revenues. And we're planning to keep R&D spending at around that level in the future.
We're also benefiting from a very reasonable state-support program in Germany. This national initiative for fuel cell and hydrogen-based energy research will receive an investment of around €700 million over the next 10 years.
We're fitting perfectly into this research initiative: it goes beyond pure basic research and focuses on developing technology according to end-user requirements. Germany is certainly a pioneer in this area.
Write to Jan Hromadko at jan.hromadko@dowjones.com