The dream of hydrogen transportation got a little jolt on Thursday, when Toyota (NYSE: TM) announced it is teaming up with FuelCell Energy (NASDAQ: FCEL) to build hydrogen fuel infrastructure at the Port of Long Beach in California to supply a growing hydrogen fleet. The companies will ultimately turn waste products like manure into clean hydrogen fuel and power for the electric grid.
A single hydrogen generation plant won't upend transportation as we know it, but Toyota sees it as a proving ground for a broader hydrogen play. Here's what investors need to know.
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FuelCell Energy's hydrogen plant in Long Beach
The press release announcing the Port of Long Beach hydrogen generation facility didn't go into detail on fuel, outside of saying it would use "methane-based fuels such as renewable biogas," but I'll note that the Sanitation Districts of Los Angeles County is nearby. That would be a logical source of fuel.
It's not only hydrogen that will FuelCell Energy's SureSource Hydrogen plant will produce. It will also supply electricity to the grid under the California Bioenergy Market Adjustment Tariff program. Here's a look at how the process might look for generating hydrogen.
Flexibility to supply both hydrogen fuel and electricity to the grid should make it easier for the project to make money and doesn't lock any party into a potential boondoggle if hydrogen fuel doesn't take off.
Toyota's hydrogen plans in California
For Toyota, the plant will give a constant supply of hydrogen fuel for a limited number of Mirai hydrogen cars that are being tested in California. The company is also testing a Class 8 proof-of-concept semi truck.
The truck, in particular, could be important for providing a path forward to long-haul hydrogen semi trucks. Unless battery density, charging speed, and costs improve rapidly, electric semis will have a hard time competing in the trucking market beyond short-haul routes. That could provide an opening for hydrogen if the fuel can be generated cost-effectively and a fueling infrastructure is built.
Fuel sources from renewable biogas should be readily available across the country, so this could be a model for fueling hydrogen fleets across the country.
Is this a break for hydrogen or a one-off project?
For FuelCell Energy, the Toyota project could be a model for projects it could build in the future. And the growth of hydrogen as a fuel would drive the company's growth long-term.
But we've seen fits and starts in hydrogen fuel before and projects like this may never move beyond the pilot phase. As a result, this doesn't make FuelCell Energy a buy on the Toyota deal alone, but it makes the company worth watching over the next few years. If hydrogen fuel is a viable alternative to diesel for Class 8 semis and can beat electric semis in the long-haul market, this could be a great growth opportunity. Only time will tell if the potential of hydrogen fuel turns to reality.
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