Japan: Fuel-Cell Nation

NEC, Toshiba, and Sony are developing ever-smaller cells to replace batteries

When it comes to gadgets, the Japanese are a tough lot to please. So when NEC Corp.'s stand at the WPC Expo computer trade show in mid-September started to draw crowds like Tokyo's Shinjuku Station at rush hour, it was clear that something extraordinary was on display.

The attraction turned out to be a fuel-cell-powered laptop. The 2-kilo computer can go five hours before its cell needs to be refilled with methanol. That's better performance than all but the hardiest of laptops running on conventional batteries. NEC plans to start selling an even lighter fuel-cell-powered machine late next year, and a year after that says it will release a model that can operate 40 hours on a single fill-up. "We're confident that fuel cells will become the main power source for mobile devices," says Yoshimi Kubo, the senior research manager overseeing the development of NEC's new laptop. "It'll be a very big and lucrative market."

Japan seems determined to dominate that business. NEC, Toshiba, Sony, and dozens of other Japanese companies are working feverishly to create ever-smaller cells to replace the rechargeable batteries in laptops, cameras, cell phones, and other gadgets -- now a $4.8 billion global market. In 2005, Tokyo Gas Co. plans to start outfitting thousands of homes with affordable fuel-cell units that generate hot water and energy. Toyota Motor Corp. and Honda Motor Co. already have nearly two dozen fuel-cell-powered cars on the streets, and there are nine filling stations in three Japanese cities where they can tank up. And in July, FedEx Japan started making Tokyo deliveries in a fuel-cell-powered vehicle.

Fuel-cell advocates say the devices are the future of energy. By combining oxygen with hydrogen, they generate electricity. The oxygen comes from the air, and the hydrogen can be produced in a cell from methanol or natural gas. Or, as is the case in most fuel-cell-powered vehicles, pure hydrogen can be pumped into the cell. One big benefit is that the cars emit only water from their tailpipes. The downside is that hydrogen requires a lot of energy to produce and is hard to store.

STICKER SHOCK AHEAD. If fuel cells take off as their fans expect, Japanese companies will likely see big gains. Sure, many initiatives are under way in Europe and North America. Motorola is testing a methanol cell for phones and handhelds. And others are working on devices for homes and cars. But Japan stands out for its emphasis on commercial applications. In 10 years, the global market for fuel cells could be as big as $18.6 billion, and Japan will account for as much as a third of that, according to market researcher Allied Business Intelligence Inc. "Japan has clear advantages over the U.S. and Europe," says Atakan Ozbek, Allied's director of energy research.

The big money -- if the technology matures enough -- will almost certainly be in cars and buses. The Japanese government wants to see 50,000 such vehicles on the road by 2010, and 5 million a decade later. Plenty of hurdles remain, though. The biggest: sticker shock. The cars cost nearly $1 million to build. Prices, though, will come down if engineers can replace expensive platinum used in today's cells with less pricey alternatives. Another problem will be building enough filling stations to supply hydrogen for all those cars.

Fuel cells are just what a resource-poor country like Japan needs -- a clean, efficient source of energy that doesn't require huge imports. So this year, the government has set aside $280 million to fund fuel-cell projects, up 40% over 2002. Ultimately, though, Japanese companies will have to wean themselves from state support and make fuel-cell production profitable. If they can, there will be a double dividend: a new stream of profits for Japan Inc. and cleaner air over the nation's cities.

By Irene M. Kunii in Tokyo

    Before it's here, it's on the Bloomberg Terminal.