This document discusses PEM fuel cell systems for distributed generation applications. It notes that distributed generation is growing due to concerns about fossil fuel shortages, emissions and energy security. PEM fuel cells are well-suited for distributed generation because they are efficient, scalable, low emission, and able to provide base load power and load following. The document identifies potential market applications including using by-product hydrogen from industrial processes to power fuel cells, providing power to remote communities currently relying on diesel generators, and enabling energy storage for renewable power systems.

1. A Discussion of PEM Fuel Cell Systems
and Distributed Generation
Jeffrey D. Glandt, M. Eng.
Principal Engineer, Solutions Engineering
May 2011
The information contained in this document is derived from selected public sources. Ballard does not guarantee the
accuracy or completeness of the information and nothing shall be construed as a representation of such a guarantee.
Ballard accepts no responsibility for any liability arising from use of this document or its contents. Nothing in this
document constitutes or should be construed to constitute investment advice. Any opinions presented are subject to
change without notice.

2. A Discussion of PEM Fuel Cell Systems and Distributed Generation 1
THE TREND TOWARD DISTRIBUTED GENERATION
The global grid-connected electricity market grows in capacity by approximately one
hundred gigawatts annually1
. In the past, this demand would have been met through the
continued development of centralized power plants, with extensive transmission lines to
distribute the power. Power distribution based on this centralized grid structure features
high emissions and poor efficiency, as a result of mainly fossil-based primary energy sources
and power-line losses during transmission.
Now, with concerns regarding the shortage of fossil fuels, global warming due to greenhouse
gas emissions, and energy security, users are turning to alternative energy sources to meet
this growing demand for electricity. Distributed generation using renewable energy sources
is seen as the best means of meeting such increased demand while simultaneously
increasing efficiency, reducing emissions and reducing the burden on the existing grid.
Smaller scale power plants (from the low kilowatts to multi-megawatts) are located closer to
the point of demand, allowing users to control their production and demand, and improving
efficiency by reducing losses through transmission and distribution. Energy security is
enhanced through lessened dependence on a single source of power, with diversified mix of
sources dispersed throughout a region. In addition, distributed power generation provides
more opportunities for cogeneration, with heat generated by power plants captured and
used for industrial and district heating applications. This reduces the total amount of energy
required for electricity and heating purposes, improving overall system efficiency.
FUEL CELLS FOR DISTRIBUTED GENERATION
Fuel cell and hydrogen technology are important components of the evolving distributed
power generation landscape. Fuel cells, combined with hydrogen storage, have the potential
to save energy and reduce emissions when compared to other conventional systems.
Fuel cell systems are two to three times more efficient than internal combustion engines and
can be scaled in power output to match the fuel supply. Fuel cells also maintain a very high
efficiency at all power levels whereas diesel and gas turbine generators have very poor
efficiency when “turned down” in power level.
When operated on pure hydrogen, fuel cells do not emit carbon dioxide, carbon monoxide,
particulate matter, or other emissions at the point of use. This zero emission technology can
greatly facilitate siting relative to conventional distributed generation power systems. In
addition, fuel cells are quieter, more reliable and have lower maintenance costs than most
technologies used for distributed generation.
Proton exchange membrane (PEM) fuel cells, in particular, have the unique ability to meet
the power demands of distributed generation. In comparison to other types of fuel cells, PEM
fuel cells are one of the few capable of providing both base load power and load following
capabilities. As a result of many years of focused development for transportation
applications, PEM fuel cells feature the capacity for fast startup and dynamic operation. This
allows the systems to closely follow electricity demand, further heightening efficiency.

3. A Discussion of PEM Fuel Cell Systems and Distributed Generation 2
MARKET APPLICATIONS
Market analysis has identified potential distributed generation applications for PEM fuel cell
systems, including:
Industries generating by-product hydrogen - the system provides base load power,
using by-product hydrogen to produce electricity that is either sold back to the grid
through the electricity utility or used to offset power demand on site.
Remote communities - off-grid communities in remote locations can be served
through a combination of hydrogen production using renewable energy and fuel cell
power, displacing diesel generator noise and emissions.
Renewable energy producers - when coupled with a wind or PV system, the fuel cell
system can provide large-scale energy storage using hydrogen produced during off-
peak times.
Industrial Processes Generating By-Product Hydrogen
Certain chemical processes, such as chlorine and sodium chlorate production, generate
hydrogen as a by-product. In cases where this by-product hydrogen is flared (vented) or
burned for its heating value, the chemical producer is failing to maximize the full value of
this hydrogen. There is an opportunity to produce clean, zero-emission electricity that is
either sold back to the grid, through the electricity utility, or used to offset power demand
on site. Because the hydrogen is a by-product of another process, the economics of using
the hydrogen with a PEM fuel cell system is quite attractive.
For example, a one-megawatt system utilizing hydrogen from a nonrenewable source will
qualify under California’s Self-Generation Incentive Program (SGIP) for funding of $2,500
per kilowatt. Federal incentives of up to 30% of capital expenditures are also available.
These incentives, coupled with the high base electricity rate of $0.12/kWh and a hydrogen
opportunity cost of $0.60/kg (natural gas equivalent lower heating value price), drive an
internal rate of return of approximately 20% over fifteen years.
ASSUMPTIONS:*
Power output 1 MW
Hydrogen source By-product hydrogen
California’s Self-Generation Incentive
Program (SGIP)
$2500/kW up to 1 MW
Federal stimulus 30% of capital expenditures, less SGIP grant
Kilowatt hours generated 8,320 MW hours per year, per MW installed
Amount of H2 consumed 63kg/hour
Up-time >95%
*California’s SGIP requires that power be used on-site, not sold to the grid.
An estimated 1,000 MW of this by-product hydrogen is available globally, sufficient to power
up to one million homes a year. In addition, industries that utilize hydrogen in their
processes, such as refineries and ammonia production plants, could capture excess
hydrogen that is flared or vented for pressure control and use it instead in a PEM fuel cell
system for onsite power generation.

4. A Discussion of PEM Fuel Cell Systems and Distributed Generation 3
In addition, approximately 700 miles of hydrogen pipelines are currently operating in the
United States2
and over 900 miles in Europe3
. Owned by merchant hydrogen producers,
these pipelines are located where large hydrogen users, such as petroleum refineries and
chemical plants, are concentrated (for example, in the Gulf Coast region). Other industries
located near hydrogen pipelines can take advantage of easy access to this hydrogen,
installing a PEM fuel cell system to generate lower cost power during times of peak demand
and high electricity prices.
Renewable Power Systems for Remote Communities
Around the world there are many remote communities not connected to a large, stable
electrical grid. Canada, for example, has approximately 300 of these remote communities4
and it is estimated there are up to 4,000 such communities globally. Typically, these small,
isolated communities, having (at best) unstable grid connectivity, generate much or all of
their electricity using diesel generators.
While diesel generators have a relatively favourable capital cost, they have exceptionally
high operating costs due to their low efficiency combined with the high cost of transporting
diesel fuel to these remote sites, often under very difficult circumstances. Furthermore,
diesel fuel prices are expected to increase further in the coming years. In addition, diesel
generators emit harmful greenhouse gas emissions. Remote communities are interested in
improving utility service to support social well-being and, at the same time, reducing their
dependence on diesel-powered electricity for social and environmental reasons. In addition,
governments are looking at ways to create job opportunities in these remote communities,
leveraging alternative energy as a job creator.
Renewable sources of electricity, such as wind, hydropower and solar are particularly
attractive for remote communities since they offer a clean source of power in locations that
cannot be economically served by means of a grid extension. A significant issue in relation
to renewable power systems, however, is their intermittency and unpredictability. Often they
cannot be relied upon to meet 100% of power demand, particularly during peak usage
periods, but also relative to base power requirements.
These issues of intermittency and reliability can be effectively addressed by storing surplus
off-peak power for use during peak power periods. Off-peak energy can be stored in the
form of hydrogen (produced using renewable energy and electrolysers), which will produce
power during peak times by means of a PEM fuel cell system.
While renewable power systems typically have relatively high capital cost, their operating
costs are very low in comparison to diesel generators. Therefore, they have lower life-cycle
cost and associated levelized cost of energy. Short term payback periods for renewable
power systems relative to diesel systems are achievable, when combined with fuel cells. For
an in-depth economic analysis, see Ballard’s white paper entitled “Fuel Cell Power as a
Primary Energy Source for Remote Communities”.
Energy storage in the form of hydrogen (using renewable sources and electrolyser
technology) combined with power production using a fuel cell system can enable remote
communities to meet all – or a significant proportion – of their power needs in a highly
economical manner.

5. A Discussion of PEM Fuel Cell Systems and Distributed Generation 4
Energy Storage for Renewable Power Systems
The evolution of the smart grid is facilitating distributed generation, providing an advanced
management system that has the capability to balance electrical loads from diverse, and
often intermittent, alternative generation sources. Prior to the integration of renewable
energy sources like wind and solar to the electrical grid, the task of load-balancing was
simpler, with conventional centralized power plants producing a predictable amount of
energy on demand. Renewable energy sources, however, are subject to the natural
conditions they encounter. Wind, solar and wave energy may only produce power during
certain times, often not timed to match peak energy demand. A key component of the smart
grid is the capacity to store electrical energy and to draw upon it when needed.
Fuel cells coupled with electrolysers can offer a cost competitive grid scale energy storage
solution. An economic analysis comparing the capital cost of a hydrogen energy storage
system (electrolysers, compressors, storage tanks, and fuel cells) to a sodium sulfur (NaS)
energy storage system for which off-peak electricity price is assumed to be $0.04/kWh. The
results of this analysis are shown in Figure 1.
Figure 1: Cost of hydrogen versus NaS energy storage system.
Beginning at approximately nine hours of energy storage required, hydrogen systems can
offer both a lower capital cost and lower levelized cost of energy compared to NaS systems.
This is mainly due to the fact that in order to increase energy storage duration of NaS
systems, additional (and expensive) batteries must be added. However, to increase the
energy storage duration of hydrogen systems, only additional storage tanks (which are
inexpensive) need be added. Additional electrolysers and fuel cells, the highest cost
components, are not required to increase the energy storage duration.

6. A Discussion of PEM Fuel Cell Systems and Distributed Generation 5
CONCLUSIONS
When used in distributed generation applications, PEM fuel cell systems have the potential to
save energy and reduce emissions over conventional power generation technologies.
Compared to diesel and gas turbine generators, PEM fuel cell systems are more efficient,
have lower greenhouse gas emissions, are readily scalable to meet power requirements and
maintain high efficiency at all power levels during “turn down”. PEM fuel cell systems are a
better choice for distributed power generation than other fuel cell technologies because they
are capable of both load following and fast startup, at the lowest capital and operating cost.
Market analysis has identified key distributed generation applications for PEM fuel cell
systems. For industries that vent or burn by-product hydrogen, more value can be extracted
using a PEM fuel cell system for electricity and heat. In remote communities, hydrogen
powered PEM fuel cell systems can offer cleaner, more reliable source of energy than diesel
and gas turbine generators. And, for grid scale energy storage applications that require
significant durations of energy storage, hydrogen systems can offer a lower capital cost and
levelized cost of energy than battery systems.
REFERENCES
1
Sustainable Development Technology Canada
(http://www.sdtc.ca/sdtc_projects/index_en.htm)
2
U.S. Department of Energy
(http://www1.eere.energy.gov/hydrogenandfuelcells/delivery/current_technology.html)
3
Hydrogen Fuel Cars & Vehicles
(http://www.hydrogencarsnow.com/blog2/index.php/infrastructure/hydrogen-pipelines-
are-already-part-of-infrastructure/)
4
Renewable Energy in Canada’s Remote Communities, Kim Ah-You and Greg Leng,
Renewable Energy for Remote Communities, Natural Resources Canada
(http://canmetenergy-canmetenergie.nrcan-rncan.gc.ca/fichier.php/codectec/En/1999-26-
27/1999-27e.pdf)