Several years ago, I predicted that Japan in the future had the potential to become a net energy exporter. With few oil and gas reserves, and any hydro capacity already tapped, this seemed a rather bold prediction. However, I was referring to the emergence of new materials technologies that will allow the world to create energy from the sun, wind, and water. While such technologies are not unique to Japan—indeed, many were not even invented here, the Japanese ability to refine, improve, and mass manufacture seems to ensure that those benefiting from commercialization will be the shareholders of Japanese companies.

This is why I believe the Japanese stock market offers such an attractive buy today. Many companies who will be foundation players in the next energy revolution are currently trading at record low prices. Yes, making such investments now is not a short-term flip, I’m talking 3-5 years for proper commercialization and resulting profits. However, the fleetest Japanese firms are already launching new products, and I believe that the sovereign funds of current energy producing nations, especially those of Russia and the Middle East, will be watching closely. I expect significant capital to flow to these companies over the next year or two.

Last week, Toto, a major manufacturer (400 billion yen company with 60% of the whiteware market), but which is currently trading at 30% less than its share price of one year ago, announced that it will introduce a solid-oxide home-use fuel cell that will sell for just 1 million yen per kilowatt output, about two-thirds cheaper than existing early-stage products. This is quite an amazing landmark, because it puts fuel cells much closer to the 2003 energy industry objective of 500,000 yen per kilowatt—something that was predicted would be achieved in or around 2015. It also offers a price point whereby fuel cells will be cheaper to install and operate over a 10-year period than conventional automatic gas-powered water heaters.

Toto won’t release products into the Japan market until 2011, but is apparently already shipping 200W and 500W units to the U.S. The company says it has been able to slash costs by doing away with platinum as a catalyst, and has also figured out a low-cost way to mass-produce the actual cells as well.

But if you can’t wait for Toto to introduce their units, Sekisui House has already announced that it will start selling houses this summer bundled with a fuel cell. They will be leasing the units out at a price of 100,000 yen annually for 10 years, saving home owners 190,000 yen a year, after costs, on utilities. As many readers will be aware, fuel cells take a hydrogen-rich liquid fuel such as methane, or a solid fuel such as hydrogenated aluminum, and react it with a catalyst such as platinum. The reaction separates the fuel’s electrons and protons and the electrons are converted to electricity. A lot of heat is also produced and can be used to heat water or provide warm air. Fuel cells are not batteries, in that they can’t store energy. However, the reaction can be controlled by limiting the incoming flow of fuel, and in this way, they can function as a “near on-demand” device.

Until now, fuel cells have been viewed as a clean, efficient portable power source for remote locations (NASA), and for the military (German subs run on fuel cells, for example). They have not been widely used for vehicles yet, because the supply of hydrogen into the transport economy requires complex and vast infrastructure, the fuel cells themselves are not particularly efficient as compared to an internal combustion engine, and you need a safe means of storing highly pressured hydrogen as well. They are, however, ideal for houses.

The challenges of using hydrogen are starting to be overcome—especially given the incentives of oil being over $100 a barrel, AND global warming (whether it exists or not) being taken up as a cause celebe by governments around the world—not least of all the Japanese government. Fuel cells are typically very clean, as they don’t combust the fuel but instead break it down to produce by-products such as heat, electricity, some carbon dioxide, and clean water.

The argument for fuel cells as a means of efficient heating and lighting is compelling. Because a given fuel, be it city gas, LPG, naphtha, or kerosene (all readily available fuels in Japan), is not combusted, the level of efficiency of usage climbs substantially. Tokyo Gas reckons that only 37% of electricity generated at a thermal power plant is actually used, with the remainder being lost during transmission or wasted during lulls in demand.

In comparison, an in-house fuel-cell co-generation unit converts 31% of the fuel’s energy into electricity and another 40% into heat—for a total usage level of 71%. Not only that, but a fully functional 1kW fuel cell cuts carbon dioxide emissions by 40% and energy consumption by 26% when compared to conventional water heaters. Tokyo Gas reckons that a typical household will save more than 60,000 yen a year, after amortizing the cost of their fuel cell unit.

Back in the early 2000s, the Japanese government decided to start subsidizing the sale of fuel cells for the home. Manufacturers are already receiving such subsidies, worth around 2 million yen per unit, and consumers are mooted to receive direct subsidies from 2009. Just as with solar cells, providing subsidies has been the commercial catalyst needed to get Osaka Gas, Tokyo Gas, Tokyo Electric Power Company, Sanyo, Matsushita, Ebara, Toshiba and a plethora of other huge companies to jump on the bandwagon. As a result, and with cheap units such as those from Toto now just coming available, the domestic market for cogenerator fuel cells is forecast to increase to several billion dollars for domestic customers within the next 3-5 years.

Perhaps better still, under the Kyoto Protocol, Japan is supposed to cut its CO2 emissions from FY2008-FY2012 by 6% to 1990 levels. Instead, domestic energy emissions have
actually increased by 30%. Thus, being able to cut domestic carbon emissions by 40% by installing fuel cells, there is a very real financial incentive for the Japanese government and industry to make fuel cells a “must-have” item in the home.

I think this is one industry that has a bright future, and where Japan can lead the way in terms of production and implementation.

8 Comments

• 

  romulus3 at 11:12 AM JST - 1st April

  I am bullish on Japan too. Cheap stock and massive potential.

• 

  Altria at 11:17 AM JST - 1st April

  Definitely underpriced - buy while the Nikkei is down!

• 

  WhatJapanThinks at 12:16 PM JST - 1st April

  Is power really that expensive?

  Sekushi House say that spending 100,000 yen rental for the device, you save 190,000 per year, and Tokyo Gas say 60,000 yen saved including device cost, so that means at the worst case you reduce power bills by 160,000 yen per year, or or 13,333 yen per month.

  Now, they also say that it reduces bills by 26% (hmm, a 1 kW unit won't sustain even one air conditioner, but let's ignore that), so that means that currently the average combined electricity and gas bill for a home is four times the saving above, so 640,000 yen per year or 53,333 yen per month, which is getting close to Al Gore-sized!

  Home owners, are you paying that much? Our relatively modern flat runs up about 25,000 yen for both at peak winter and summer, and down to about 15,000 or less in the Spring and Autumn.

  And of course, how does the cost-performance compare with double-glazing, cavity wall and loft insulation?

• 

  notimpressed at 10:10 AM JST - 2nd April

  yes Insulation in Japanese buildings would make a huge difference in energy efficiency. Amazing how the most simple of technologies get ignored. A bit of insulation in a home and it circumvents the need for air con during the more temperate months.

• 

  Zaphod at 12:11 PM JST - 2nd April

  No way, Jose. All this wind and water stuff is nice and fluffy and romantic, but not a replacement for the massive and controllable power offered by fossil fuels. Until something really revolutionary comes around, that is what the world depends on.

  However, it depending on the size of the Metro readership it might be a good idea to by some Toto stock in the short term, now that Terry has promoted it.

• 

  Sidwarwick at 04:07 PM JST - 2nd April

  Me thinks Terrie may have some Toto stock that is currently 30% underwater.

• 

  Altria at 04:15 PM JST - 2nd April

  Me thinks Terrie may have some Toto stock that is currently 30% underwater

  30% underwater? The company is flush with cash!

• 

  VoXman at 05:47 PM JST - 5th April

  This is one of those things you buy now and wait 10 years on. Their stock is selling at 6 EUR per. Which is a cheap stock. So you could buy for a little and sit on it for a while

Register or login to add a comment!