Fuel cells for a sustainable future II

:
stakeholder attitudes to the barriers and opportunities for stationary fuel cell technologies in the UK

Michael Peters and Jane Powell November 2004

Tyndall Centre for Climate Change Research

Working Paper 64

Fuel cells for a sustainable future II
Stakeholder attitudes to the barriers and opportunities for stationary fuel cell technologies in the UK

Peters, M.D. & Powell, J.C.
Centre for Social and Economic Research on the Global Environment (CSERGE) University of East Anglia Norwich NR4 7TJ Email: m.peters@uea.ac.uk Tyndall Centre Working Paper No. 64 October 2004

This report is part of a Tyndall Centre project ‘Fuel Cells: Providing Heat and Power in the Urban Environment’ (IUD: TC1/IT1.36), being carried out jointly by the Energy Research Unit, Rutherford Appleton Laboratory and the Centre for Social and Economic Research on the Global Environment, University of East Anglia. Please note that Tyndall working papers are "work in progress". Whilst they are commented on by Tyndall researchers, they have not been subject to a full peer review. The accuracy of this work and the conclusions reached are the responsibility of the author(s) alone and not the Tyndall Centre.

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Summary Based on stakeholder interview findings this paper explores the opportunities and barriers to the development of stationary fuel cell technology in the UK. Stationary fuel cells offer a significant way forward towards sustainable energy but there is still a long way to go, at a technical and non-technical level, before they become an established, mainstream technology. Technically there is a need to extend the knowledge base for fuel cells, to improve their efficiencies, reliability, lifetime and material performances. Several issues also surround the sustainable production and storage of hydrogen and the development of a hydrogen infrastructure. Non-technical issues include cost, education and training, regulatory barriers, government commitment and issues surrounding the future of energy distribution. Increased Government support both in terms of legislative reform and financial support is necessary to enable fuel cells to reach commercialisation and to establish a sustainable position in the market. If stationary fuel cells are to be taken seriously a significant change of attitude is required within the government and the energy industry, combined with proactive action. Subsidies for demonstration models could be one way forward. More working demonstrations would not only display the government’s commitment to fuel cells but would also provide a test bed for independent assessment of their environmental and social impacts. Financial support for the integration of fuel cell CHP into new housing developments would provide an ideal opportunity, particularly if they are combined with other integrated forms of renewable energy. The project would need to be independently monitored and evaluated and the results publicised widely. Although fuel cells can provide environmental benefits associated with reduced local pollution and quiet operation there remains a question mark over the carbon implications. It is important to recognise that the environmental implications of this technology vary significantly depending on the source of fuel used to power them (e.g. natural gas) and their application. Fuel cells cannot be considered in isolation, a lifecycle approach is needed. Vehicular fuel cell applications have attracted high profile attention in recent times but it is felt that problems surrounding the establishment of a hydrogen infrastructure will slow down their large scale market emergence. In terms of niche market penetration mobile applications (e.g. phones) followed by smaller CHP units are thought to be more promising in the medium term.

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1. Introduction Fuel cells coupled with the hydrogen economy have been identified as key environmental solutions for the 21st century, enabling clean efficient production of electricity and heat from a range of primary energy sources. A range of fuel cell types suitable for different energy applications at varying scales have been developed but they have been slow to be accepted as viable contenders in the energy market. In addition to many technical teething problems associated with an infant technology a range of ‘non-technical’ barriers appear to be hindering the advancement of this technology. These could include investment and resource difficulties, regulatory complications and greenhouse gas emissions associated with the reformation of hydrocarbons (EC, 2003; Pehnt & Ramesohl, 2003).

The purpose of this research has been to explore the barriers and opportunities to the development of stationary fuel cell technology in the UK and to explore areas where initial fuel cell advances are most promising. This paper reports the results of a series of stakeholder interviews that were carried out to ascertain if there are specific problems delaying the development of the fuel cell market or if the participants considered the slow process as normal for a new application of this technology. The participants included fuel cell manufacturers, users and potential users and research experts – all stakeholders who have an on-going interest in the development and application of fuel cells and CHP in the UK. The interviews were also designed to discover the broader range of opinions held regarding barriers and opportunities for stationary fuel cell applications in the UK and to address the following key objectives: • • • • to gain an understanding of the participants’ background, knowledge and interest in these technologies; to find out what the participants think the main barriers are preventing fuel cells from taking on more prominence in the UK energy market; to ask participants how they see electricity generation in the UK evolving and where the most practical opportunities for fuel cells and related technologies are likely to be in the future, and to explore with them the broader implications and challenges posed by the introduction of a hydrogen economy.

Before reviewing the interview results, we provide an introductory background to some of the key issues related to the use of stationary fuel cells and the associated procurement of hydrogen. 2. Background Fuel cells produce electricity and water from a fuel (usually hydrogen) and oxygen. The main methods of producing the hydrogen are from natural gas, (using a processed called steam reformation), electrolysis of water using renewable or fossil based electricity, and production from biomass. The method used to produce hydrogen for fuel cells plays a significant role in how desirable they might become as an energy technology suitable for widespread uptake. For example steam reformation of natural gas continues to stand out currently as the most economically viable and practicable method for hydrogen production but carries with it the environmental price tag of green house gas emissions in the process. The environmental impact and economic prospect of power generation in a fuel cell is thus largely dependent upon the means by which this energy is produced (Rastler, 2000). Electricity from renewable sources provides the cleanest, least environmentally damaging option for producing hydrogen via the electrolysis of water (Pehnt & Ramesohl, 2003). However, the conversion of electricity from solar and wind generation into hydrogen and then back into electricity results in considerable energy losses and extra cost (Dutton, 2002). If renewable energy were to become more widespread excess energy could be used to generate hydrogen through electrolysis. However, this approach would only realistically be viable for

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distributed networks or when renewables form a greater proportion of grid electricity and present greater opportunities for energy storage (Pehnt & Ramesohl, 2003). It is also possible to operate fuel cells on biomass-derived fuels (Watkiss & Hill, 2002). Bio-fuel applications are most suited to powering fuels cell combined heat and power (CHP) technologies offering minimal greenhouse gas emissions. The heat produced by a CHP system after the generation of electricity is not wasted but is instead piped through district heating mains to housing and other users. This contrasts with conventional electricity-only generating plant, where excess heat is dumped, usually in the form of steam emitted from cooling towers (Webb and Gossop, 1995). In these applications fuel cells potentially offer the efficient use of limited, often costly biomass resources (Watkiss & Hill, 2002). Gasification, gas processing and fuel cells are still developing as technologies and thus leave the use of biomass as a long term option for 2020 and beyond (Pehnt & Ramesohl, 2003). The production of biogas from manure or sewage gas could however provide a potentially early market (Watkiss & Hill, 2002). Currently, as discussed above, hydrogen is produced from fossil fuels and nuclear power, but the greenhouse gas emissions associated with fossil fuels, and the waste disposal and safety risks surrounding nuclear fuel substantially reduce the appeal of these options. Having said this, fuel cells do have the potential to provide clean, quiet and efficient energy which can contribute to a reduction in local pollution even when fuelled by hydrocarbon fuels. The use of natural gas, the cleanest conventional hydrocarbon, in fuel cells can be considered to be an efficient method to aid the future transition to a renewable energy supply system (Pehnt & Ramesohl, 2003; EC, 2003). . The key to enabling this is entirely dependent on the ability to generate the operating fuel in a sustainable way, through for example the electrolysis of water using renewable energy. Although there remain many technical problems to be overcome, most of the barriers to the further development of fuel cells are considered to be non-technical (Pehnt, 2003). Several barriers to the development of fuel cells have been identified including; high cost and insufficient short term benefits to users (Lokurlu, 2003; EC, 2003), regulatory restrictions to distributive generation (Bathurst & Strbac, 2001), uncertainty surrounding the long-term development of the energy policy framework (Pehnt & Ramesohl, 2003), vested interests in the current system and uncertainty in the future role of hydrogen (Dutton et al, 2003). One regulatory restriction is the New Electricity Trading Arrangements (NETA) that came into effect in March 2001 (Bathurst & Strbac, 2001). Under NETA participating generators and suppliers have to submit contracts that define the amount of electricity they expect to produce over a given period. If they fail to keep to these commitments an imbalance price (or penalty) has to be paid for any difference between their actual position and what they had contracted to do. This system poses difficulties – and high associated imbalance penalty costs - for intermittent renewable sources (e.g. wind turbines) that are unable to forecast accurately their expected levels of generation (Bathurst & Strbac, 2001).

3. Methodology As described in the introduction, the aim of this project is to explore the barriers and opportunities to the development of stationary fuel cell technology in the UK. The method used was the construction and administration of a schedule of interviews designed to investigate with a range of stakeholders their thoughts on the key drivers and barriers to the development of fuel cells. The stakeholders included manufacturers (or ex-manufacturers), users, potential users and experts. Owing to time constraints and the desire to obtain good quality data from the stakeholders involved it was decided that an approach which drew on the methods and techniques of semi-structured interviewing would produce the best results. Other methods that might have alternatively been used include focus groups and unstructured interviews.

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There are many approaches that can be adopted when contemplating how best to formulate a questionnaire for a mainly qualitative study. One such approach (Hussey and Hussey, 1997) that has been adopted for this research, advises adherence to the following protocol for the purpose of semistructured interviewing: • • • • • • • the need to explain the purpose of the interview to all participants; the questions should be kept simple; jargon and specialist language should be avoided; vague, descriptive words should be avoided; only relevant questions should be included; leading or value-laden questions should be avoided if possible; brevity should be a key objective, without forsaking adequate coverage (Adapted from Hussey and Hussey, 1997: 165)

The selection of individuals (figure 1) for this piece of research was based on the identification of suitable participants mainly arising from work carried out for the complimentary literature review paper (Powell et al, 2004) and subsequent contacts established as a result of this research. Fig. 1: Categories and numbers of interview participants Category Fuel cell manufacturers/fuel cell component manufacturers Experts Users Potential users Industry funded fuel cell membership organisation Total Number of participants 3 2 2 2 1 10

Following the protocol described above, the interview questions (Fig. 2) were designed to be sufficiently open-ended to enable semi-structured discussions to take place where participants would feel able to develop their ideas and opinions within the scope of the interview. As the survey sample consisted of ten ‘elite’ participants this was deemed the best approach likely to enable the most information to be gleaned from each participant. The interviews were administered mainly on a face-to-face basis with the interviewer recording the details of what was said by taking down hand-written notes onto a piece of paper. Just two of the interviews were conducted as conference calls over the telephone as a result of difficulties regarding other commitments of the stakeholders involved. The decision not to record the interviews onto audio tape was taken mainly through previous experiences of conducting social science interviews. The principle of recording every word was found, in almost every instance, to be particularly restrictive and off-putting; both for the interviewer and the respondents.

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Fig. 2: List of key questions put to interview participants
1. Please outline your own interest in fuel cells and give a brief background to your organisation. 2. What do you see as being the main barriers preventing a swifter development and uptake of fuel cell technology? 3. On the specific issue of the regulatory regime what changes do you think might be necessary to give fuel cells and related technologies a better chance? 4. Where do you believe the most likely opportunities for fuel cells lie in the near future? 5. What will be the main driving forces enabling a realisation of these opportunities for the development and uptake of fuel cells? 6. As far as the UK is concerned do you see stationary application for fuel cells becoming a reality in the near future or is it more likely that other applications (e.g. transportation and smaller mobile applications) will be the main areas for market penetration and expansion? 7. It has been suggested by some that a move away from the centralised ‘grid’ energy system to a distributed network of ‘embedded islands’ would favour green energy technologies including fuel cells and CHP. Do you agree and/or think this is likely/a good idea? 8. What is your ‘ideal world’ forecast for fuel cells/CHP/renewables in the future?

This opinion runs counter to much of the established literature on interview techniques, which often points to the benefits of being able to concentrate on other aspects – such as body language, attitude and behaviour – while the tape machine accurately records the complete audio details of the interview (Bottorf, 1994; Quinn Patton, 1990). Seldon (1998) considers the three principal methods that can be deployed for the purposes of recording interviews – memory, note taking and the tape recorder – and concludes that “all methods have benefits and drawbacks: no one way is foolproof or ‘correct’” (p.12). One major benefit of audio recording is that it helps to overcome the weaknesses associated with note taking. These include the automatic screening and summarising of information, in addition to the various omissions and distortions that can sometimes occur during the process of taking notes. However, for the purposes of this project it was not considered necessary to make an audio recording during the interviews. It should also be pointed out that the process of note taking on its own does have a range of well-rehearsed benefits, the most significant one perhaps being the ability to record observations and responses to questions immediately while helping the interviewer to control the pace of the interview (Hussey and Hussey, 1997; Seldon, 1998). The specific detail of what was discussed with the participants for this project varied from interview to interview in accordance with the particular background and knowledge of the individuals concerned and the different organisations with which they were associated. Nevertheless, the core objectives (described in the introduction) together with the key question areas (Fig. 2) provided a ‘control framework’ for each separate interview. 4. Interview Results This section presents and analyses the results of the interviews. It is divided into the key question areas that were put to the participants (Fig. 2). While some of the sample were willing to be named and have their organisations identified in this paper others requested anonymity. For this reason in the first part of this results section where the participants are introduced and an outline of their background is given, those who wished not to be identified are simply referred to in terms of the category of the sample they represent. The other participants and their organisations are referred to by name. 6

4.1 Background to participants and the organisations they represented 4.1.1 Fuel cell manufacturers/fuel cell component manufacturers Manufacturer 1: Interviewee - Mrs Jean Aldous, co-founder and owner Fuel cell manufacturing company 1 was established in the 1930s when the interviewee’s colleague, the founder of the company, recognised this technology as a potentially clean and efficient energy carrier. In the late 1960s the company’s fuel cells were adopted by the US Apollo space programme. However, the founder also wanted to use their fuel cells for creating clean urban transport and clean energy for buildings applications. By the 1970s the organisation were designing electric road systems and received financial backing from a Belgian energy company. Together they developed alkaline fuel cell (AFC) buses, the benefit of AFCs being that they are not dependent upon precious metals. However, despite the progress made the company was still lacking a profitable commercial base from which to launch the new technology. The interview participant (who now owns and manages the company) said that this is a more pervasive problem that still forms a major barrier today to the unhindered market development of fuel cells. The company was transformed to focus primarily on hybrid vehicles – their products (alkaline fuel cells) being based mainly on load levelling vehicles. The engines of these vehicles store energy at times of low use to use when additional power is required. The motor company Ford showed considerable interest in selling ‘hybridised’ vehicles, but due to cut backs on Government funding for prototype development the project was unable to proceed. Following this the company went into receivership. Jean Aldous felt that this failure reflects the problem that fuel cells have never achieved widespread commercial success to date. Manufacturer 2: Interviewee – company director This company was established in 1994 but is also currently in receivership. Initially the company focused on vehicles, but went on to concentrate on fuel cells for stationary and marine applications. The company changed its focus in 1999, following the purchase of a Belgian company that developed alkaline fuel cells (AFCs) centring on the development of zero emission products: vehicles, marine applications and stationary generators. The company then grew very quickly but was heavily reliant on private investment. The fuel cell technology that the company were developing proved a very difficult energy market to compete in and the company ran out of working capital. The interview participant believes that the problems encountered by the company are also difficulties more broadly encountered by developers of fuel cells and the uptake and application of the technology in the UK energy market. Manufacturer 3: Interviewee – company director This company is building a portfolio of hydrogen technologies and Intellectual Property aimed at the hydrogen economy. Currently their lead technology is a cell that converts light and water directly into hydrogen fuel using photo electrolysis (the combination of photovoltaics, semiconductors and an electrolyser to generate hydrogen from water) and for which the company owns the world-wide exclusive rights. The intention is that this process will be used for transport and building applications. The company also owns rights to a process that enables the biological generation of hydrogen and are actively seeking to acquire compatible technologies in hydrogen generation and storage.

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4.1.2 Fuel cell experts Expert 1 The first expert participant has a background in engineering, with specialist knowledge of environmental considerations. He continues to be involved in energy and environmental research. His research focuses on: the legislative barriers to the introduction of new and renewable energy; the reasons why the New Electricity Trading Agreement (NETA) has proved obstructive; economic studies involving energy-related contingent valuation; and policy issues to do with energy supply and decision making. Expert 2 The organisation within which our second expert works caters for the training needs of professionals in the energy field. The interview participant said he has a personal interest in the potential for developing the hydrogen economy.

4.1.3 Fuel cell users Fuel cell user 1: James Farrell, Manager, London Hydrogen Action Plan, Greater London Authority (GLA) James Farrell manages the London Hydrogen Action Plan which was established under the Greater London Authority’s non-statutory Energy Strategy for London. The GLA’s recent purchase of three hydrogen fuel cell buses began a two year trial in January 2004. London is one of nine European cities taking part in the trial as part of a scheme to reduce local pollution, greenhouse gas emissions and noise. The GLA’s Energy Strategy has been designed to be delivered through an energy hierarchy where the pinnacle represents energy conservation and energy efficiency, the middle tier represents renewable energy and other/new technologies form the lower end of the hierarchy. The central aim of the Energy Strategy is to integrate with and build on key elements found in the series of other strategies drawn up by the Mayor’s office which include the Noise Strategy (main points of overlap here being buses and fleets), the Waste Strategy (main overlaps including fleets and end of life issues) and the Economic Development Strategy (energy decisions having a clear impact in the context of this strategy). James Farrell emphasised that these strategies reflect the desire of the GLA to work towards sustainable environmental and economic solutions to key issues and services, and that this has been met with considerable approval and positive anticipation. For example, the desire to encourage the introduction of hydrogen technology applications has gained considerable support from London’s Regional Development Agency (RDA). It encourages the manufacture of fuel cells through a longterm H2 partnership programme as part of their drive to promote a green economy and green businesses. The RDA have additional actions gathering support from industry, academia and action groups. James Farrell is very enthusiastic about all of these developments because of the positive implications for a more sustainable London “economically, socially and environmentally”. His particular interest is in expanding the GLA’s adoption of suitable fuel cell applications as part of its strategy.

Fuel cell user 2: Allan Jones MBE, Energy Services Manager, Woking Borough Council Allan Jones has provided critical guidance and drive for Woking’s innovative sustainable energy initiative. In December 2001 the Council became the first local authority to install a full scale fuel cell CHP system. The 200kWe CHP fuel cell is part of a larger project that also includes an 800kWe reciprocating engine, an existing 150KWe CHP, solar shading photovoltaic system and heat fired absorption cooling and thermal store, making a total CHP capacity of 1.15MWe. The individual components are connected by heat and chilled water mains and local distributive electricity. The 8

project produces sufficient heat and power to supply the swimming pool and leisure centre at Woking Park, plus is a net exporter of electricity (fuller details of the Woking project are given in Powell et al, 2003). Allan Jones believes passionately in the potential for fuel cells in the UK as a means to transform the current system of generation and distribution to a more sustainable future. He would like to see the reformation of regulatory barriers that currently hinder the proper market development of this energy technology and its associated applications. "Installing a fuel cell is a logical part of our ongoing efforts to promote and use sustainable energy sources. We are proud to be the first site in the United Kingdom to employ fuel cell technology in everyday use."

4.1.4 Potential fuel cell users Linda Boal, Planning Officer (Regeneration), Norwich City Council A new development of retail, housing and a swimming pool on an old industrial site gave Norwich an opportunity for considering a range of technology options for providing heat and power to their new leisure facilities. But unlike Woking the City Council did not consider utilising a fuel cell application. They did, however consider purchasing a CHP unit following the successful installation and use of such a system at the nearby Wymondham swimming pool complex. Eventually they decided against this plan primarily on three grounds: • • • there was to be no sports hall or other leisure facilities attached to the new Norwich pool and CHP units of a suitably small size were not available; the cost of installing CHP was considered prohibitive; the council did not want any ‘burdens’ associated with the new pool.

Eventually oil fired boilers were installed to provide the necessary heating. Colin Hale, Planning Officer, Norwich City Council As a Planning Officer Colin Hale is involved in the Greater Mile Cross Single Regeneration Budget project in Norwich. This area of Norwich (situated to the north of the city) is one of three Single Regeneration Budget (SRB) Projects. The SRB is a Government funded initiative to bring life back to areas which have both economic and social problems including areas of industrial dereliction. The Mile Cross scheme initially ran from 1995 to 1999. Funding was through a mixture of government grant, private sector money and other public funds. The purpose of this scheme is the regeneration of the area through community development, economic regeneration, environmental improvements and new housing on under-used, vacant or derelict sites. It aims to improve the quality of life, training and employment opportunities of people living there and contribute to the economic well-being of the city as a whole. An integral part of the project has been the promotion and implementation of energy conservation measures, including combined heat and power (CHP). The Mile Cross CHP unit in the city provides heat and power for 300 properties including three tower blocks and three four storey flats. The system basically involves a gas-fired CHP system that provides hot water at a high enough temperature to be used for space heating. Included is a heat exchanger that increases the efficiency of the system. In addition to the domestic properties the electricity produced is also used by the City Hall and the Police station. Excess power is sold to electricity suppliers yielding, on average, about £50,000 per year. The Mile Cross CHP which was installed in 1995 achieved 30% energy savings after the first year of it being up-and-running. As a member of the planning team Colin Hale is particularly keen to fulfil the energy objectives of the SRB project through environmentally sustainable means including the uptake of ‘alternative’ technologies.

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“The way ahead – to encourage an increase in the uptake of CHP and other more environmentally sound energy technology – will require a mix of capital funding, grants and private finance.”

4.1.5 Fuel Cell Trade Association Celia Greaves, Fuel Cells UK Fuel Cells UK was launched in May 2003 with initial funding from the UK Department of Trade and Industry. Their objectives are to construct a ‘capabilities guide’ for the UK fuel cell industry detailing information about fuel cell manufacturers and the manufacturers of fuel cell components (this has been published, available at www.fuelcellsuk.org); produce a fuel cell vision for the UK highlighting the benefits to the UK in taking a leading role in fuel cell development and deployment (also downloadable at www.fuelcellsuk.org); and to establish a range of industry focused activities building links to key organisations across the UK and beyond. Fuel Cells UK aims to open channels for dialogue and interaction between the UK’s fuel cell manufacturers and component manufacturers and develop into a trade and industry association. Celia Greaves looks forward to the realisation of the organisation’s aims in moving fuels cells forward in the UK. “The establishment of Fuel Cells UK shows a commitment to fuel cells from the Government. Fuel cells have had a relatively low profile up until now and this is a good indication of moving forward.”

4.2 Key barriers preventing a swifter development and uptake of fuel cell technology 4.2.1 Governmental/regulatory barriers One of the main lines of argument relate to the apparent lack of government support for the development of fuel cell technology in the UK to date. Although some participants believe that this situation seems to be slowly changing it was generally observed that a much larger attitudinal shift backed up with legislative changes is required for the fuel cell industry to thrive. “The UK government has traditionally shown considerable reticence when contemplating financial support for projects that lack the vital element of being likely winners, and those technologies that might be called ‘new, innovative, or unknown/untested.” Fuel cell manufacturer Many participants also suggest that European Union support for fuel cells should be strengthened to make project funding easier to obtain. Both lines of argument highlight a desire among the participants for a greater policy emphasis on the development of fuel cells together with appropriate funding and support mechanisms. It was pointed out that checking, testing and modifying are all part of the process of developing new technologies, and that financial investment for the manufacturing stage is essential. “People don’t understand the need for development. Until recently there has been and to some extent still continues to be a strong under swell against innovation and development. This is a barrier in itself.” Fuel cell manufacturer

The participant representing the fuel cell trade association believes that it is only relatively recently that the UK government has started to show tangible support for hydrogen fuel cells. This point was developed by two other participants who pointed out that gaseous hydrogen does not currently form an important enough focus of the government’s policy programme for sustainable energy. This would need to change if an infrastructure and market is to develop that might enable commercial viability for fuel cells. The component manufacturer participant feels that fuel cells are a low priority in the Energy White Paper. This participant did however point out that the PIU Energy Review and the Energy 10

White Paper have contributed to the establishment of numerous government-funded missions relating to fuel cells. These initiatives (e.g. Fuel Cells UK - a participant in these interviews) that are designed to highlight fuel cell developments in the UK, can be seen as a positive, if limited move forward. This type of initiative is thought to a large extent to mirror the objectives and progression of Fuel Cells Canada and Fuel Cells USA. “The Energy White Paper only gave fuel cells a small mention – main focus was on wind power and photovoltaics.” Fuel cell user In the context of regulatory barriers, very few participants are optimistic about the prospects for fuel cells in the future, reflecting the magnitude of difficulty posed by those specific barriers they identified. One fuel cell user who particularly considers regulatory barriers to be a problem, emphasised that opportunities for fuel cells in the short term are made more difficult by regulatory barriers. The participant did however consider that stationary fuel cells for domestic energy present an exciting and realistic alternative if solutions to these barriers can be arrived at. This participant and three others referred to the New Electricity Trading Arrangements (NETA – see section 2) and in particular to the penalties incurred by generators who do not meet their ‘advance contract commitments’. Under the NETA arrangements generators have to agree to provide a specific quantity of electricity. If they do not produce exactly the agreed quantity a generator has to pay for a shortfall at the System Buy Price (TBN, 2001) or if excess is produced this is paid for at the System Sell Price, which usually results in financial penalty. The participants pointed out that these imbalance penalties currently marginalise fuel cell and intermittent renewable technologies and have in extreme cases caused some CHP and renewable energy owners to switch their systems off in order to avoid penalty. This particularly occurs during periods when the System Buy Prices have been volatile and high combined with very low and negative System Sell Prices “The regulatory regime… inhibits small generators.”
Fuel cell expert

Related to this are issues the participants raised that relate to the structure of the distribution networks. Currently significant transmission losses occur due to energy being transmitted from a small number of large power stations throughout the country. The problems faced by many smaller generators were also highlighted, in particular the difficult and expensive process of connecting to networks that were not designed to accommodate them. Distributed generation is discussed further in section 4.6. “The Government makes statements but does act on them in a joined up way. NETA and the connection of small generators to the grid is a barrier to small generators in general, especially regarding the bureaucracy and costs involved.” Fuel cell user “Changing the current domestic supply situation will be a complex and difficult process but presents a healthy challenge.” Fuel cell expert

These participants clearly identify regulatory barriers as key to the slow progress of fuel cells and other more established renewable technologies that still only occupy a very small proportion of the overall UK energy market share. 4.2.2 Cost barriers Another major barrier cited by all the interview participants is that of cost. Currently the development costs involved in progressing the technology are prohibitive thus stunting development and restricting the commercial viability of potential product applications. “The issue of cost is the foremost barrier – if we could get cheaper fuel cells working in peoples homes we might be able to use excess industrial hydrogen to power them.” Fuel cell manufacturer

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“Capital cost is definitely one of the main barriers to the introduction of such technology for a local authority.” Potential fuel cell user

Most participants are of the opinion that there is often a long-term struggle to reduce the cost of new systems until the market is developed sufficiently for mass production. One of the expert participants believes that for fuel cells the ‘critical mass’ time (i.e. producing a sufficient number of fuel cells to penetrate the market and make a profit) will take years and that increasing the production rate of products such as fuel cells that require rare and specialist materials (e.g. precious metal catalysts) represent a major investment. This resonated with others who agreed that the marginal costs, coupled with the initial investment required are currently major barriers. The difficulty of obtaining certain specialist components was also seen as an obstacle. “The cost should come down as further advances are made in the technology and as a greater demand for fuel cells develops. However, with certain fuel cells, like Proton Exchange Membrane for example, the high cost of the precious metal (platinum) has to be overcome which will not be easy.” Fuel cell
expert

Another part of the cost barrier alluded to by several participants related to governmental barriers. Many participants believed that currently there is insufficient government funding for the wide scale establishment of pilot projects, or for substantive research and development of the technology.

“Funding is a real problem to most UK companies involved in the development of fuel cells, fuel cell components or auxiliary systems. The main problem is how do you move development into the manufacturing/commercialisation phase? Government funding is not there and private/venture capital sources are not forthcoming.” Fuel cell membership organisation representative

“The government does not fund the transfer of technology into the commercialisation/manufacturing phase. There is a need for more government-funded demonstration projects.” Fuel cell manufacturer

4.2.3 Technological barriers While some participants clearly felt that technologically fuel cells are as advanced as one could reasonably expect and that this did not of itself pose any particular obstacle others consider that the technology still has a long way to go. “Fuel cell technology still needs to advance considerably – especially in terms of prototype modelling, testing and monitoring – before the market for them will really be able to develop and take off commercially.” Fuel cell expert For those who identified technological problems, a major factor is that fuel cells and hydrogen technology more generally are still relatively young and unproven. As a result there are inevitably technological problems that have yet to be overcome. Participants feel that this may well delay the progression of fuel cells. “Wind power is already established and proven as a technology – fuel cells have yet to prove themselves in this sort of way.” Potential fuel cell user Some participants also mentioned the need for a hydrogen infrastructure to be established, particularly if fuel cells for vehicular applications are to become a wide spread reality.

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“Until the UK takes serious steps to develop a workable hydrogen infrastructure this will inevitably hinder the progress and uptake of fuel cells – particularly regarding vehicle applications. This is an area that probably requires government intervention/backing in addition to co-operation by the oil companies and private investors.” Fuel cell expert “We have the ability to produce components for fuel cells in the UK but at the present time there are no really successful fuel cell manufacturers per se in the UK.”
Fuel cell membership organisation representative

4.2.4 Other barriers In addition to the key barriers of government policy, regulation, cost and technology the participants highlighted several other areas where potential difficulties for the progression of fuel cells in the UK are present. These are listed below together with some direct quotations illustrating the various barriers. • • Electricity suppliers lack of interest in or support for hydrogen fuel cells. Fossil fuel suppliers are concerned that hydrogen could revolutionise energy supply and distribution away from fossil fuel exploration. It was the belief of this participant that these companies therefore want to be involved but on their own terms and to their own time scales, which may prove too late.

“UK industry for stationary power is run by a small number of incumbents (i.e. large electricity generating companies). They think that fuel cells and distributed generation are fascinating as concepts but are not convinced that they represent the way forward or are in their best financial interest.” Fuel
cell expert

“If one considers all small companies involved in the development of fuel cells in the last 25 years you realise that none of them have really succeeded in getting their products off the ground. This is regrettable and can be changed. It needs to be changed if fuel cells are to take their rightful place in the production and supply of energy in the UK.” Fuel
cell manufacturer

The motor industry also came under scrutiny. It was stated that the interest of large companies in new technology tends to be encapsulated in 5-10 year project plans. The example of BMW was given, who have indicated that they may well not be selling hydrogen cars for some years. The participant speculated that before fuel cell vehicles become commercially viable in a wide scale way BMW and similar manufacturers will want a hydrogen infrastructure developing with the oil infrastructure to a fairly advanced stage. Public perceptions. Several participants consider there needs to be a programme of education and persuasion to encourage the concept of clean energy among the general public. It is the public who will buy fuel cell vehicles and be the end users of fuel cell CHP community systems, so promoting an ethos of environmental awareness regarding energy will help in this respect. At the moment an underdeveloped market and lack of consumer demand all slow down the process of fuel cell applications emerging properly – both in terms of energy supply and private transport considerations. The environmental ramifications of reforming hydrocarbons, with the associated emission of harmful greenhouse gasses. i.e. the respondent was referring to the problem of generating hydrogen in ways that will still cause the emission of carbon dioxide when the fuel cell ‘solution’ is supposed to be a step forwards to more sustainable energy.

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“A life cycle assessment might reveal that it would be best to use a low carbon source (e.g. nuclear + hydro + some renewables). But it might be necessary to start hydrogen production with a carbon source to get the initial interest aroused.” Potential fuel cell user “Industry does not buy into Fuel Cells UK’s ‘vision’ because there is not much going on developmentwise in the UK other than small technology developments. We have no manufacturing capacity.” Fuel
Cells UK representative

Energy is cheap and therefore there is little incentive to develop alternative energy systems.

“There is no strict guidance or policy from the council on green considerations in planning. The council generally views green applications as problematic, especially if they turn out to be an expensive alternative to tried and tested cheaper solutions.” Potential fuel cell user “There should be regulatory incentives for green vehicles and incentives for the introduction of fleets such as ‘no emission zones’ that would favour lower carbon and fuel cell vehicles.” Fuel cell user • Safety concerns about hydrogen gas is a related issue that several participants’ raised, in particular the transport of hydrogen in built up cities. The introduction of local hydrogen reforming plants would probably need the ‘softening’ of current planning restrictions.

4.3 What are the necessary regulatory regime changes that might give fuel cells and related technologies a better chance? Increased regulation (particularly in terms of pollution/emissions targets) came across from the participants as having the potential to be a very strong driver. One of the main lines of argument was that in some other European countries (e.g. Germany and Scandinavia) environmentally-driven policies and regulatory measures seem have a much greater impact, encouraging the development of sustainable energy on a broader scale than in the UK. “Stronger, better designed legislative drivers are causing certain other EU countries to look very seriously into alternative energy solutions. This force will hopefully gather momentum in the UK as well where government support for fuel cells has been almost non-existent until recently.” Fuel cell
manufacturer

Planning and local planning interpretation are also considered important . One potential user was positive about the Government’s removal of fuel duty on hydrogen but points out that further reform of fuel duties is needed: “they should start to introduce a scale of duty regarding the source of the fuel.” One of the key problems identified is that, legislation sometimes sends contradictory messages. The central argument here is that although policy makers increasingly encourage the recognition of environmental considerations, as far as energy is concerned there appears to be a bias towards traditional, established means of generation and distribution thus making it difficult for technologies like fuel cells to get a proper ‘foothold’ in the market. Although this paper is primarily concerned with stationary applications for fuel cells, one fuel cell user participant suggests that the encouragement of both stationary and vehicular applications at the same time may be the most effective way to enhance their development and market position. The participant believes that this can be achieved through the implementation of new legislative drivers. “There should be regulatory incentives for green vehicles and incentives for the introduction of fleets such as ‘no emission zones’ that would favour lower carbon and fuel cell vehicles. Together with

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similar incentives for stationary applications this would provide the sort of boost and support necessary to give fuel cells a better chance.” Fuel cell user There is a general perception among the participants that government intervention is required to increase the likelihood of fuel cells becoming a viable alternative energy carrier. The interventions identified include properly designed policy incentives that encourage the development and deployment of fuel cell applications but also enforceable, realistic disincentives that make the use of fossil fuel generated energy increasingly unattractive. Four participants suggest that strengthened carbon targets would be a useful approach for the Government to continue.

“Legislation (particularly in terms of pollution/emissions targets) is potentially a very strong driver. Cultural and legislative drivers are very much interlinked.”
Fuel cell membership organisation representative

4.4 Main opportunities for fuel cells in the near future Some participants consider the market for stationary fuel cells and the mobile application market (e.g. portable energy for laptop computers) are the areas that will reach commercialisation first. It is interesting to note that most of the participants similarly state that the market for vehicles will come later despite the ‘good words’ and research undertaken by certain prominent car manufacturers in recent years. One of the manufacturer participants point out that the US seems to be driving hard towards the commercialisation of fuel cell vehicles, but in the UK this participant was still ”not convinced that this is where cars will go short term.” The participant believes there has already been problems with this fuel cell application. “Smaller scale CHP applications will be the first to become fully established, then progressing up to larger megawatt scale systems and beyond.” Fuel cell expert “Portable electronics will be the first major fuel cell application (possibly being introduced next year – 2004).” Fuel cell membership organisation representative One of the expert participants advises that it is important not to consider all the different types of fuel cell as the same, as some types are more suited to stationary application, some to transport applications and some to micro-mobile applications etc. This is a particular problem for planners and policy makers who may not be sufficiently knowledgeable of the technology. The participant affirms that some types of fuel cell will be able to proceed to competitive market status before others. For example, proton exchange membrane fuel cells are more suited to small and mobile applications (e.g. mobile phones and laptop computers) whereas others such as solid oxide fuel cells and multi-carbonate fuel cells are better suited to large stationary applications. “If fuel cells are thought of as a single generalised entity then local authorities and others in a position to incorporate them into various developments will be none the wiser as to the range of applications that the technology is actually suitable for.” Fuel cell expert A number of participants focused on the niche market opportunities for various applications involving fuel cells. The following niche market areas were identified: • • • • uninterruptible power supplies; standby power; power for computers; remote sites e.g. telecom masts in the countryside could be powered by fuel cells rather than diesel engines.

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“Fuel cells should be used where application possibilities exist – mobile phones and laptops for example (still a niche market).” Fuel cell manufacturer On the issue of different methods of hydrogen production for fuel cell applications most participants thought that conventional fuel options (e.g. natural gas) would be the primary source. This could be followed by the integration of renewables (e.g. wind/solar energy to fuel the process of electrolysis) if renewable energy continues to expand and have the spare capacity for this. Some participants also discussed intermittency (i.e. the variable nature of renewable energy sources) and efficiency. There is a general consensus of opinion that the intermittency problem will become a more pertinent challenge as traditional fuel sources continue to deplete and their prices subsequently rise.[Is intermittency seen as an opportunity for FC?] Indeed the depletion of natural fossil resources coupled with stronger environmental regulation and targets was seen as being a major window of opportunity for fuel cells and other ‘more sustainable’ energy alternatives.

4.5 What will be the main driving forces enabling a realisation of these opportunities for the development and uptake of fuel cells? The government subsidy of fuel cell research and development was cited by many participants as something desperately needed. The creation of a more favourable investment climate was also discussed. This will include political support and high profile financial encouragement from agencies such as the Carbon Trust with government and industry backed investment to enable the commercialisation of fuel cells. This would allow fuel cells to initially be more affordable, allowing the development of a strong market. Other driving forces are summarised below: • • • • • • The need for more case studies to inspire and encourage future developments was also highlighted. The development of a strategic policy framework geared towards greater recognition of the potential part that could be played by new energy technologies in building a more sustainable future; Government and organisations at all levels need to be involved in the development of skills, provision of training courses, and initiation of engineering expertise networks; Changes to planning regulations to enable the uptake of fuel cell technology to be more favourable; In particular easing the planning criteria used to identify where energy generation facilities can be sited Programmes of education are required to increase public awareness and acceptance; Government to lead and encourage the development of a hydrogen infrastructure for fuelling fuel cell vehicles.

Some of the participants suggest that the potential environmental benefits of fuel cells (given appropriate and sustainable sourcing of hydrogen) represent a driver on their own. It was widely considered that the culture of energy decision making at higher, governmental levels would almost certainly need to change for this to become a reality. “For fuel cells really to progress there will have to be large attitudinal shift among energy policy makers backed up with legislative changes.” Potential fuel cell user Several (but not all) participants emphasise the role that fuel cells might play in reducing carbon dioxide emissions. This feature could be developed as an element of a local authority’s attempts to meet local/national climate change targets.

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“Fuel cells could be used in a package of renewable systems to enable the reduction of carbon dioxide and other major greenhouse gases, helping to meet the targets set by central Government. This meeting of targets is also useful with respect to securing future funding, and so this should be seen as a key incentive for local authorities to really make an effort in setting up these sustainable energy systems.” Potential fuel cell user One fuel cell user participant highlighted the importance of fuel cell CHP as an example of available technology for demonstration projects. The widely accepted benefits of CHP could, in the opinion of this participant, enable a ready application potential for fuel cells where the combined benefits would be more tangible and opportunities for implementation fairly wide spread. The key points identified to accelerate the demonstration of fuel cell CHP to encourage interest and advances in the development of other fuel cell applications were: • Safety: Safety concerns about the use of natural gas as an energy carrier within the home are reduced but these may be replaced by new fears surrounding the use of hydrogen. This issue and that of major leaks from hydrogen pipelines would need to be fully addressed during the developmental stages of the technology; Environment: reduction of potentially harmful emissions into the atmosphere; Energy Efficiency: Fuel cell CHP can provide increased levels of efficiency and interior comfort. Fuel security: the replacement of oil-fired boilers can lead to reduced reliance on the insecurity of the oil industry. There might be scope for combining CHP, fuel cells and other renewable energy sources. This way economies of scale combined with the practicalities of installation would ease their introduction (e.g. for providing heat and power to housing developments and industrial developments). It was pointed out that this would almost certainly require long-term forward planning and a full acceptance of the efficiency/workability of the new, and hopefully more sustainable energy systems.

• • • •

Other key drivers described by the participants included the following: •

Cultural and legislative incentives and drivers. These are very much interlinked. The participants considered cultural issues (i.e. what people think about fuel cells and hydrogen – their fears and aspirations for this technology) could be a major incentive but it will require a great deal of carefully targeted education and awareness-raising to improve the profile and desirability of fuel cells and their various application potential. Allan Jones, Woking Borough Council’s Energy Services Manager believes that by taking a first step the innovative Woking example has unlocked a door to future fuel developments. But this needs to be strengthened by many other working examples so as to build the momentum and develop the market. Engagement with the general public. The public (and in terms of local authority housing schemes, tenants) are generally in favour of environmentally sound action. Experience has shown that local authority instalment of CHP does not equate to higher heating bills. So, explaining to the public what is going on and engendering their interest is another key driver in moving the whole sustainable energy concept forwards.

“Education at all levels is essential if fuel cells are to take on greater prominence and be accepted as a potentially clean source of energy. People will need to know all of the facts about this technology – its strengths and weaknesses – and pilot, prototype tests will have to prove that fuel cells really do work. Until cultural acceptance emerges it is difficult to envisage fuel cells making it as a serious option in the UK’s largely intransigent energy market.” Fuel cell manufacturer • Funding opportunities. Grants for fuel cells are available through the Energy Savings Trust to partly offset capital costs, thus giving a more competitive financial grounding for fuel cells and

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CHP systems to be tested and become better established. This was considered to be a major incentive provided that the opportunities are better advertised and communicated. “Subsidy incentive together with media/publicity value would enable authorities to consider buying and implementing fuel cells.” Potential fuel cell user •

De-regulation. Although the trend to date has been towards fewer, larger electricity suppliers, some participants felt that with time a deregulatory process will emerge. This may well result in the establishment of smaller electricity suppliers providing the energy needs of closer geographic areas and communities. Depletion of finite fossil fuel resources. Several participants believe that energy supplies will become scarcer and thus more expensive in the future. When other energy sources start dropping out this will become a key driver for the progression and development of fuel cells. Linked to this is security of supply which was also considered to be an important driver.

“The oil economy will die out before oil resources die out.” Fuel cell user

4.6 The move away from centralised ‘grid’ energy Approximately half of the participants thought that distributed generation (DG) networks offer a practicable opportunity for fuel cells in integrated systems, especially with the combination of CHP and other renewable energy. The other half did not consider distributed generation a practical option. This divide of opinion did not appear to be related to the type of participant. Many of the ‘pro’ distributed generation participants acknowledged that the Government do not yet support a DG system. “It is a question of whether people want to do it (i.e. make distributed generation a reality).” Fuel cell
expert

Participants in favour of distributed generation felt that there are exciting opportunities for stationary fuel cell applications if the UK moves towards this approach and away from the current grid system. For example, one such participant said “this would reduce utility generation infrastructure costs and could help to improve reliability.” “Power generation distributed across domestic dwellings would be a sensible approach. This however might be a threat to the major energy suppliers.”
Fuel cell membership organisation representative

By contrast another section of the interview sample did not think that distributed generation is good idea. Part of their argument was that economies of scale result in local systems tending to be oversized to deal with the differential of peak and ordinary demand. So, for example, during the winter months the same system is able to cope with the increased need for heating and light etc. that is not present in the summer and ‘ordinary’ periods. One participant said “it’s a bit like buying a car that is suitable for pulling a caravan even though 90% of the time it is only used by one person travelling to work and back.” There were a few participants who were more undecided in their responses on this subject. A central question that arose was that although distributed generation may technically be feasible would local suppliers be completely separate from the grid? They thought that distributed generation is perhaps a useful way of looking at the provision of energy for remote close communities, but that realistically for a nationwide distributed system, five or six small generators would probably be necessary for each

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county. This may present development difficulties and therefore the notion of changing to distributed networks still needs a substantial amount of thought and research. “Current electricity distribution is not geared towards the integration of small scale fuel cell systems. Distributed generation and being able to feed into the grid is an issue.”
Fuel cell user

4.7 Participants’ ‘ideal world’ forecast for fuel cells, CHP and renewable energy in the future “In an ideal world a variety of fuel cells would be functioning for many different applications. Alkaline fuel cells would be used for remote applications as they are robust and simple systems (for which reason they could have potential for developing world applications). Proton exchange membrane fuel cells would be incorporated into vehicles, and renewable energy (solar/wind/wave) systems where they could be used to produce and store hydrogen gas in a sustainable fashion.” Fuel cell
expert

“Fuel cell CHP applications will expand to start with enabling us to capitalise on lower emissions. Other applications including the vehicle sector will then follow. Fuel cells and hydrogen give us more flexibility in our approach to generating energy sustainably.” Fuel cell expert “I would like to see more demonstration projects leading to financially viable market opportunities for fuel cells. They should take on more importance as an element of sustainable energy for the UK.” Fuel
cell user

“Distributed generation is an attractive proposition that could include mini grids and provide certain building complexes (e.g. hospitals, offices etc.) with their own power sources. Fuel cell power stations supplemented by solar/wind feeding grids may well provide possibilities for the future.” Fuel cell user “We need to know all the facts [and] set that alongside the importance of scaling down fossil generation. We owe this to the future generation but [first] need to prove that the technology works.”
Potential fuel cell user

“Once people understand what fuel cell technology is they will support the alternatives over the old energy dinosaurs. In my ideal future we would see fuel cells being used in stationary, automotive and mobile situations together with a healthy mixture of wind, solar and tidal power.” Potential fuel cell user “What does future mean? Have we lifted more than 50% of our crude oil supplies yet? Once it is not there we have got to look to alternatives. This includes renewable energy, nuclear energy and coal. In 50 years time we will see renewable with better technologies however, further into the future nuclear or coal may have to be used to cope with an increasing population.” Fuel cell manufacturer “In reality fuel cells will never totally replace the current energy production and supply systems that we have in the UK but they will increasingly be able to represent an important aspect of a cleaner, greener energy system. Greater investment in the design and research of new and renewable energy is certainly required.” Fuel cell manufacturer “Different mix of fuels will be required to produce more electricity and more for transport. Distribute hydrogen through present natural gas system adding compressors to assist. Hydrogen has a high calorific value therefore not as much is needed as with carbon based fuels.” Fuel cell manufacturer

“I would like to see progress towards a hydrogen economy in an ideal future. This would present opportunities for fuel cells in all their different forms and application possibilities. Waste is a source of hydrogen that should be utilised and the process of pyrolysis requires further research and development.” Fuel cell membership organisation representative

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5. Discussion For the participants of this research the key barriers to the development of fuel cells relate to governmental and legislative issues. There is a strong feeling that insufficient governmental support has been given to enable fuel cells to develop properly as a credible alternative energy technology. It is generally considered that government intervention, in the form of legislative drivers and support are required to promote the development and commercial viability of fuel cells. Appropriate legislative reforms, particularly relating to the New Electricity Trading Arrangements (NETA) are also considered essential. During – and since - the time of carrying out the empirical research for this paper there have however been substantial reductions to the imbalance prices that initially caused problems for smaller generators, particularly CHP and wind operators. Since July 2002, changes to the calculation of imbalance prices under NETA have been made which have had the effect of reducing the spread between System Sell Prices and System Buy Prices. These reductions came about largely as a result of NETA being governed by industry (Piearce, 2004). In its initial set-up the DTI gave the energy industries involved the right to raise proposals for modifying the rules. Following on from the huge penalties that generators were paying for only slight imbalances in amounts of energy generated the industrial bodies instigated small procedural rule changes to NETA that have resulted in imbalance prices being reduced. In this sense some of the views expressed by participants who identified this issue as a major barrier have now to some extent been dealt with through the industry-regulated system. Reduction of the Balancing Reserve Level and shorter gate closer both came into effect in July 2002. In the 6 weeks before the changes the average spread between system sell and system buy price was 2.1p/kWh. In the 6 weeks after both the changes, the average spread was approximately 1.2p/kWh (DTI, 2004). These trends that seem to be moving more favourably towards smaller generators will be carried on under the proposed British Electricity and Transmission Arrangements (BETTA) which basically represents the extending of NETA to cover Scotland where currently almost all the generating capacity is allocated to the two major electricity companies operating there (Piearce, 2004, pers. comm.). Generation ownership in England and Wales is much more widely distributed with no single company owning more than 20% of capacity. The purpose of BETTA is to facilitate the creation of a single, integrated and competitive wholesale electricity market covering the whole of Great Britain. This will involve a single system operator, common rules and charging arrangements for connecting to and using the transmission system, and a common set of balancing and settlement arrangements (DTI, 2004). Currently differences in the rules and charging arrangements between Scotland and England and Wales limit competition between them and the absence of market based arrangements inhibits effective competition (DTI, 2004). BETTA ‘go live’ date is anticipated to be during April 2005. Several participants believe that some European countries, having developed environmentally-driven policies and regulatory measures, have had a much greater success in encouraging the development of sustainable energy in general than in the UK. Certainly at a European level the European High Level report (EC, 2003) provides an ambitious ‘roadmap’ to stimulate and fund research on hydrogen and fuel cell development. However, at the same time the DTI published a UK version (DTI, 2003), a discussion document intended to be the starting point for a UK fuel cell vision, but this was not mentioned by the participants. Although an offshoot of this, UKFC, an industrial organisation (and one of the participants) was considered useful (by the other participants) but mainly for awareness raising only. For most of the participants ‘government support’ includes financial support, through some form of subsidy or taxation. Despite funds from the DTI (£92M between 1992 and 2003 – DTI, 2003), the Carbon Trust’s Low Carbon Innovation Programme and the Engineering and Physical Science Research Council (EPSRC) cost factors were still considered to be a substantial barrier to fuel cell development. Participants highlighted the prohibitive development costs involved in progressing the 20

technology, in that it inhibits development and restrict the commercial viability of potential product applications. This supports the findings of the European High Level Group (EC, 2003) that recognises hydrogen and fuel cells do not currently offer sufficient short-term end-user benefits to justify their high costs compared to conventional technologies. The necessity of further governmental support for demonstration as well as development projects is considered vital in order to give fuel cell technology a better chance of market penetration and survival. It is interesting to note, however, that in some areas of the literature the price of the products (particularly in terms of mobile applications – a key emerging niche market) is not considered to be the main factor that will prevent consumers from deciding to choose a hydrogen/fuel cell product in preference to another (possibly cheaper) alternative (Evers, 2003). Rather, it is suggested that increased awareness of the technology will have the greatest consumer impact, encourage desire for hydrogen/fuel cell powered products and catalyse the development of other fuel cell products and services that are not currently available (Evers, 2003). However this would seem to apply more to products that are purchased for their lifestyle image (e.g. cars and laptops) rather than utility products like heating systems. A need to educate at all levels was identified by the respondents, with the purpose of drawing greater attention to the environmental damage caused by conventional energy generation and the depleting quantity of fossil fuels available as well as increasing awareness of the opportunities offered by fuel cells. This would raise the environmental benefit profile of fuel cells for potential users, policy makers and local planners. The need to keep stakeholders, such as the participants, informed is also important particularly regarding legislative reforms such as those identified above. Fuel cells are still regarded as being a relatively ‘young’ technology and therefore still have much to prove as an alternative means of energy generation. The practicality of developing fuel cells to a position of prominence in the energy market is also considered a barrier particularly when it is thought that there is a considerable vested interest for many large organisations to maintain the status quo. It was considered that if the government is seen to back the fuel cell industry this would help to overcome the perceived inertia of the energy industry. The lack of evidence that fuel cells are significantly less damaging environmentally than conventional power sources when fuelled by hydrogen produced from fossil fuels is of concern to several participants. However a number recognise the benefits from reduced local pollution and quiet operation, an important concern in an urban environment. If however alternative, more sustainable means of hydrogen production are deployed then fuel cells are considered to offer an attractive, environmentally beneficial energy alternative. There is however still the question of whether it is better to use renewable energy directly rather than to use it to make hydrogen for stationary applications. In addition it is recognised that the production of hydrogen from natural gas is currently the most economically viable method and that fuel cells may need to go through a transition phase of using natural gas before biofuels and renewables are used. It is interesting that the participants did not mention combining carbon sequestration with fuel cells using fossil fuel hydrogen as an alternative way forward. This may reflect the relatively early stage of development of carbon sequestration. A clear advantage, identified by some participants was that of overcoming problems of intermittency associated with several forms of renewable energy. Hydrogen can provide a useful means of energy storage to even out the fluctuating requirements of supply and demand but until renewables form a substantial part of the UK’s energy demand this can also be met by linking to the grid, so is only significant for isolated distributive systems. There was a diversion of opinion among the participants as to whether distributed generation (DG) is likely to become more predominant in the future. Some participants consider the current centralised grid system to be an inefficient means of distributing energy and that smaller, localised supply networks represent the only sensible approach for a sustainable future. Others argue that the practicalities of altering an already established grid network realistically precludes distributed 21

generation as a viable alternative in the foreseeable future. One participant considers that more governmental and regulatory support is required for distributed generation. This might have the effect of encouraging the development of technologies suited to smaller scale generation such as fuel cells and renewable energy. In the light of recent developments within the DTI, Ofgem and the government-industry Distributed Generation Co-ordinating Group, it would appear that distributed generation is now being considered by the UK Government as a major area for policy advancement. In a recent Ofgem strategy paper entitled “Distributed Generation – the way forward’ DG is clearly set out as a very positive and desirable approach to enabling the integration of more renewable and smaller-scale clean energy technologies into the distribution network (Ofgem, 2004). Ways of enabling this that are proposed include the following measures designed to remove existing barriers to connection: • • • Allowing generators the option of spreading connection costs; Establishing a standard connections procedure to ease the connection of domestic CHP generators to the networks; Reimbursing distributed generators some of the initial connection fee when another generator connects to some part of the network which they have already paid for (Ofgem, 2004).

It is also stated that the next distribution price control review should consider developing appropriate incentives for distributors to connect DG to their systems and that the difference between the amount generators are charged for connecting to the system and the amount they pay to put electricity onto the network should be set out more clearly. In addition, a key policy question that Ofgem would like to see developed is how DG should be taken account of within the distribution price control process. The fact that such policy-relevant discussions are being developed at this level together with the new price control from April 2005 reflects the increasingly attractive incentives for distributors to connect and integrate DG. The majority of participants consider that stationary and mobile fuel cell applications would be the most likely area for serious advances for fuel cells in the medium term. Although vehicular applications have attracted high profile attention in recent times it is felt that problems surrounding the establishment of a hydrogen infrastructure coupled with the long-term aims of car manufacturers and the oil industry would slow down the large scale market emergence of fuel cell vehicles for the time being. For this reason the participants believe that applications involving mobile phones, laptop computers and smaller CHP units will overtake automotive development in terms of niche market penetration. This largely concurs with the current literature that is developing on this issue. For example, in a commercial review of fuel cells, E4Tech (2004) project likely commercial introduction points for fuel cell applications. This recent forecast, carried out for the DTI and the Carbon Trust, is based on detailed assessments and prediction of technologies and markets. It comes to similar conclusions to this study, indicating that in the near future smaller fuel cell applications such as remote power and compact portable technologies will play an important role preparing the way for cost reductions, wider commercialization and the establishment of broader-scale applications in the energy market including domestic CHP and vehicular applications (E4Tech, 2004). 6. Conclusions The purpose of this paper is to explore the barriers to and opportunities for the development of fuel cell technology in the UK. A series of semi-structured stakeholder interviews were used to discover the opinions and ideas of individuals who have an on-going interest in the development and application of fuel cell technology. Their responses indicate that both at a technical and non-technical level there is still a long way to go before fuel cells are become an established, mainstream technology. The participants recognise the need to extend the knowledge base for fuel cell technologies, to improve their efficiencies, reliability, lifetime and material performances. However

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the research found there are also a significant number of non-technical aspects that need to be addressed. Three main conclusions can be drawn from this research. Firstly, the overall impression from the participants was that stationary fuel cells offer a significant way forward towards sustainable energy. However, although fuel cells can provide environmental benefits associated with reduced local pollution and quiet operation there remains a question mark over the carbon implications. In addition, there are several issues surrounding the sustainable production and storage of hydrogen and the development of a hydrogen infrastructure. It is important to recognise that the environmental implications of this technology vary significantly depending on the source of fuel used to power them (e.g. natural gas) and their application. Fuel cells cannot be considered in isolation, a lifecycle approach is needed. Secondly, it was widely felt that the Government has not shown sufficient support for fuel cells to date and that further backing – both in terms of legislative reform and financial assistance – will be necessary to enable fuel cells to reach commercialisation and to establish a sustainable market position for them. Although some moves have been made towards encouraging the fuel cell industry most participants did not consider the government was truly convinced by the hydrogen economy or fuel cells in particular. If stationary fuel cells are to be taken seriously a significant change of attitude will be required within the government combined with proactive action. Hopefully reforms within the new electricity trading regulations called BETTA (British Electricity Trading and Transmission Arrangements) will address some of the regulatory barriers identified by participants in this research. It is interesting to note that even for the research for this paper finding out clear information about BETTA was extremely difficult. Personal communication with the DTI (Piearce, 2004, pers. comm.) eventually enabled us to unearth the key facts but perhaps reflect a need for more transparency and improved provision of information by the government to aid understanding and knowledge of policy progressions. Thirdly, the lack of demonstration models in the UK is seen as extremely detrimental to their development. Currently the only example of fuel cell CHP in the UK is at Woking Council, although others are planned in the Tees Valley. More working demonstrations would not only display the government’s commitment to seriously considering fuel cells but would also provide a test bed for independent monitoring and evaluation of their environmental and social impacts. Financial support for the integration of fuel cell CHP into new housing developments would provide an ideal opportunity, particularly if they are combined with other integrated forms of renewable energy. The project would need to be independently monitored and evaluated and the results publicised widely. In terms of the future, most participants envisage a place for fuel cells as part of sustainable energy strategy. Although none could see fuel cells as being a panacea for a perfect, zero emissions energy future, there was a general feeling that important advances can to be made if they could be coupled with other technologies including renewable energy and combined heat and power.

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Dutton, A.G.(2002) Hydrogen Energy Technology. Tyndall Working Paper TWP 17. Tyndall Centre for Climate Change, University of East Anglia, Norwich. Dutton, A.G., Watson, J., Bristow, A., Page, M. & Pridmore, A. (2003) Integrating hydrogen into the UK energy economy, European Hydrogen Energy Conference, Grenoble, France, 2-5 September. DTI (2004) British Electricity Trading and Transmission. Regulatory Impact Assessment paper. Department of Trade and Industry, London. www.dti.gov.uk/energy/domestic_markets/electricity_trading/ria.pdf DTI (2003) A Fuel Cell Vision for the UK – The First Steps: taking the White Paper forward. Department of Trade and Industry, London. May, 2003. Downloadable from: www.dti.gov.uk/energy/publications/pdfs/index.shtml EC (2003) Hydrogen Energy and Fuel Cells: A Vision of our Future. Final report of the High Level Group for Hydrogen and Fuel Cells Technologies. European Commision. Downloadable at http://www.hynet.info/ecactiv/docs/highlg/hydrogen-report_en.pdf Evers, A.A. (2003) Go to where the market is! Challenges and opportunities to bring fuel cells to the international market. Int. Journal of Hydrogen Energy, vol. 28 pp 725-733. Hart, D. (2000) Sustainable energy conversion: fuel cells the competitive option? Centre for Energy Policy and Technology presentation paper series. Imperial College. London. www.ic.ac.uk/ICCEPT/. Hussey, J. & Hussey, R. (1997) Business research : a practical guide. Macmillan Business, Basingstoke. Jones, A. (2002). Woking: Local Sustainable Community Energy. A focus report by Woking Borough Council, UK. Lokurlu, A., Grube, T., Hohlein, B. & Stolten, D. (2003) Fuel cells for mobile and stationary applications - cost analysis for combined heat and power stations on the basis of fuel cells, Int. J. of Hydrogen Energy 28, pp703-711. Ofgem (2004) Distributed Generation “The Way Forward”. Strategy Paper. http://www.ofgem.gov.uk/temp/ofgem/cache/cmsattach/1020_factsheet0602_27feb.pdf Pehnt, M. & Ramesohl, S. (2003) Fuel cells for distributed power: benefits, barriers and perspectives, World Wildlife Fund. Piearce, A (2004) Personal Communication with Angela Pierce, Department of Trade and Industry, BETTA Run-Off Arrangements Scheme. 08/11/04. Powell, J. C., Peters, M.D., Ruddell, A. and Halliday, J. (2004) Fuel Cells for a Sustainable Future? Tyndall Working Paper No. 50. The Tyndall Centre for Climate Change Research, University of East Anglia, Norwich. Quinn Patton, M. (1990) Qualitative evaluation and research methods. Sage Publications, London. Rastler, D. (2000) Challenges for fuel cells as stationary power resource in the evolving energy enterprise. Journal of Power Sources vol. 86 1-2 pp 34-39. Seldon, A. (1998) Chapter 1 – Interviews. In Seldon, A, 1998 (ed.) Contemporary History: practice and method. Blackwell Publishers, Oxford. Watkiss, P and Hill, N. (2002) The Feasibility, Costs and Markets for Hydrogen Production. A study for British Energy Undertaken by AEA Technology Enviroment, Abingdon, Oxfordshire. Webb, A. & Gossop, C. (1995). Towards a sustainable energy policy. In: Blowers, A. ed. Planning for a sustainable environment. Earthscan, London.

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The trans-disciplinary Tyndall Centre for Climate Change Research undertakes integrated research into the long-term consequences of climate change for society and into the development of sustainable responses that governments, business-leaders and decision-makers can evaluate and implement. Achieving these objectives brings together UK climate scientists, social scientists, engineers and economists in a unique collaborative research effort. Research at the Tyndall Centre is organised into four research themes that collectively contribute to all aspects of the climate change issue: Integrating Frameworks; Decarbonising Modern Societies; Adapting to Climate Change; and Sustaining the Coastal Zone. All thematic fields address a clear problem posed to society by climate change, and will generate results to guide the strategic development of climate change mitigation and adaptation policies at local, national and global scales. The Tyndall Centre is named after the 19th century UK scientist John Tyndall, who was the first to prove the Earth’s natural greenhouse effect and suggested that slight changes in atmospheric composition could bring about climate variations. In addition, he was committed to improving the quality of science education and knowledge. The Tyndall Centre is a partnership of the following institutions: University of East Anglia UMIST Southampton Oceanography Centre University of Southampton University of Cambridge Centre for Ecology and Hydrology SPRU – Science and Technology Policy Research (University of Sussex) Institute for Transport Studies (University of Leeds) Complex Systems Management Centre (Cranfield University) Energy Research Unit (CLRC Rutherford Appleton Laboratory) The Centre is core funded by the following organisations: Natural Environmental Research Council (NERC) Economic and Social Research Council (ESRC) Engineering and Physical Sciences Research Council (EPSRC) UK Government Department of Trade and Industry (DTI) For more information, visit the Tyndall Centre Web site (www.tyndall.ac.uk) or contact: External Communications Manager Tyndall Centre for Climate Change Research University of East Anglia, Norwich NR4 7TJ, UK Phone: +44 (0) 1603 59 3906; Fax: +44 (0) 1603 59 3901 Email: tyndall@uea.ac.uk

Tyndall Working Papers are available online at http://www.tyndall.ac.uk/publications/working_papers/working_papers.shtml Mitchell, T. and Hulme, M. (2000). A Country-byCountry Analysis of Past and Future Warming Rates, Tyndall Centre Working Paper 1. Hulme, M. (2001). Integrated Assessment Models, Tyndall Centre Working Paper 2. Berkhout, F, Hertin, J. and Jordan, A. J. (2001). Socio-economic futures in climate change impact assessment: using scenarios as 'learning machines', Tyndall Centre Working Paper 3. Barker, T. and Ekins, P. (2001). How High are the Costs of Kyoto for the US Economy?, Tyndall Centre Working Paper 4. Barnett, J. (2001). The issue of 'Adverse Effects and the Impacts of Response Measures' in the UNFCCC, Tyndall Centre Working Paper 5. Goodess, C.M., Hulme, M. and Osborn, T. (2001). The identification and evaluation of suitable scenario development methods for the estimation of future probabilities of extreme weather events, Tyndall Centre Working Paper 6. Barnett, J. (2001). Security and Climate Change, Tyndall Centre Working Paper 7. Adger, W. N. (2001). Social Capital and Climate Change, Tyndall Centre Working Paper 8. Barnett, J. and Adger, W. N. (2001). Climate Dangers and Atoll Countries, Tyndall Centre Working Paper 9. Gough, C., Taylor, I. and Shackley, S. (2001). Burying Carbon under the Sea: An Initial Exploration of Public Opinions, Tyndall Centre Working Paper 10. Barker, T. (2001). Representing the Integrated Assessment of Climate Change, Adaptation and Mitigation, Tyndall Centre Working Paper 11. Dessai, S., (2001). The climate regime from The Hague to Marrakech: Saving or sinking the Kyoto Protocol?, Tyndall Centre Working Paper 12. Dewick, P., Green K., Miozzo, M., (2002). Technological Change, Industry Structure and the Environment, Tyndall Centre Working Paper 13. Shackley, S. and Gough, C., (2002). The Use of Integrated Assessment: An Institutional Analysis Perspective, Tyndall Centre Working Paper 14. Köhler, J.H., (2002). Long run technical change in an energy-environment-economy (E3) model for an IA system: A model of Kondratiev waves, Tyndall Centre Working Paper 15. Adger, W.N., Huq, S., Brown, K., Conway, D. and Hulme, M. (2002). Adaptation to climate change: Setting the Agenda for Development Policy and Research, Tyndall Centre Working Paper 16. Dutton, G., (2002). Hydrogen Energy Technology, Tyndall Centre Working Paper 17. Watson, J. (2002). The development of large technical systems: implications for hydrogen, Tyndall Centre Working Paper 18. Pridmore, A. and Bristow, A., (2002). The role of hydrogen in powering road transport, Tyndall Centre Working Paper 19. Turnpenny, J. (2002). Reviewing organisational use of scenarios: Case study - evaluating UK energy policy options, Tyndall Centre Working Paper 20. Watson, W. J. (2002). Renewables and CHP Deployment in the UK to 2020, Tyndall Centre Working Paper 21. Watson, W.J., Hertin, J., Randall, T., Gough, C. (2002). Renewable Energy and Combined Heat and Power Resources in the UK, Tyndall Centre Working Paper 22. Paavola, J. and Adger, W.N. (2002). Justice and adaptation to climate change, Tyndall Centre Working Paper 23. Xueguang Wu, Jenkins, N. and Strbac, G. (2002). Impact of Integrating Renewables and CHP into the UK Transmission Network, Tyndall Centre Working Paper 24 Xueguang Wu, Mutale, J., Jenkins, N. and Strbac, G. (2003). An investigation of Network Splitting for Fault Level Reduction, Tyndall Centre Working Paper 25 Brooks, N. and Adger W.N. (2003). Country level risk measures of climate-related natural disasters and implications for adaptation to climate change, Tyndall Centre Working Paper 26 Tompkins, E.L. and Adger, W.N. (2003). Building resilience to climate change through adaptive management of natural resources, Tyndall Centre Working Paper 27

Dessai, S., Adger, W.N., Hulme, M., Köhler, J.H., Turnpenny, J. and Warren, R. (2003). Defining and experiencing dangerous climate change, Tyndall Centre Working Paper 28 Brown, K. and Corbera, E. (2003). A MultiCriteria Assessment Framework for CarbonMitigation Projects: Putting “development” in the centre of decision-making, Tyndall Centre Working Paper 29 Hulme, M. (2003). Abrupt climate change: can society cope?, Tyndall Centre Working Paper 30 Turnpenny, J., Haxeltine A. and O’Riordan, T. (2003). A scoping study of UK user needs for managing climate futures. Part 1 of the pilotphase interactive integrated assessment process (Aurion Project), Tyndall Centre Working Paper 31 Xueguang Wu, Jenkins, N. and Strbac, G. (2003). Integrating Renewables and CHP into the UK Electricity System: Investigation of the impact of network faults on the stability of large offshore wind farms, Tyndall Centre Working Paper 32 Pridmore, A., Bristow, A.L., May, A. D. and Tight, M.R. (2003). Climate Change, Impacts, Future Scenarios and the Role of Transport, Tyndall Centre Working Paper 33 Dessai, S., Hulme, M (2003). Does climate policy need probabilities?, Tyndall Centre Working Paper 34 Tompkins, E. L. and Hurlston, L. (2003). Report to the Cayman Islands’ Government. Adaptation lessons learned from responding to tropical cyclones by the Cayman Islands’ Government, 1988 – 2002, Tyndall Centre Working Paper 35 Kröger, K. Fergusson, M. and Skinner, I. (2003). Critical Issues in Decarbonising Transport: The Role of Technologies, Tyndall Centre Working Paper 36 Ingham, A. and Ulph, A. (2003) Uncertainty, Irreversibility, Precaution and the Social Cost of Carbon, Tyndall Centre Working Paper 37 Brooks, N. (2003). Vulnerability, risk and adaptation: a conceptual framework, Tyndall Centre Working Paper 38 Tompkins, E.L. and Adger, W.N. (2003). Defining response capacity to enhance climate change policy, Tyndall Centre Working Paper 39

Klein, R.J.T., Lisa Schipper, E. and Dessai, S. (2003), Integrating mitigation and adaptation into climate and development policy: three research questions, Tyndall Centre Working Paper 40 Watson, J. (2003), UK Electricity Scenarios for 2050, Tyndall Centre Working Paper 41 Kim, J. A. (2003), Sustainable Development and the CDM: A South African Case Study, Tyndall Centre Working Paper 42 Anderson, D. and Winne, S. (2003), Innovation and Threshold Effects in Technology Responses to Climate Change, Tyndall Centre Working Paper 43 Shackley, S., McLachlan, C. and Gough, C. (2004) The Public Perceptions of Carbon Capture and Storage, Tyndall Centre Working Paper 44 Purdy, R. and Macrory, R. (2004) Geological carbon sequestration: critical legal issues, Tyndall Centre Working Paper 45 Watson, J., Tetteh, A., Dutton, G., Bristow, A., Kelly, C., Page, M. and Pridmore, A., (2004) UK Hydrogen Futures to 2050, Tyndall Centre Working Paper 46 Berkhout, F., Hertin, J. and Gann, D. M., (2004) Learning to adapt: Organisational adaptation to climate change impacts, Tyndall Centre Working Paper 47 Pan, H. (2004) The evolution of economic structure under technological development, Tyndall Centre Working Paper 48 Awerbuch, S. (2004) Restructuring our electricity networks to promote decarbonisation, Tyndall Centre Working Paper 49 Powell, J.C., Peters, M.D., Ruddell, A. & Halliday, J. (2004) Fuel Cells for a Sustainable Future? Tyndall Centre Working Paper 50 Agnolucci, P., Barker, T. & Ekins, P. (2004) Hysteresis and energy demand: the Announcement Effects and the effects of the UK climate change levy, Tyndall Centre Working Paper 51 Agnolucci, P. (2004) Ex post evaluations of CO2 –Based Taxes: A Survey, Tyndall Centre Working Paper 52

Agnolucci, P. & Ekins, P. (2004) The Announcement Effect and environmental taxation, Tyndall Centre Working Paper 53 Turnpenny, J., Carney, S., Haxeltine, A., & O’Riordan, T. (2004) Developing regional and local scenarios for climate change mitigation and adaptation, Part 1: A framing of the East of England, Tyndall Centre Working Paper 54 Mitchell, T.D. Carter, T.R., Jones, .P.D, Hulme, M. and New, M. (2004) A comprehensive set of high-resolution grids of monthly climate for Europe and the globe: the observed record (1901-2000) and 16 scenarios (2001-2100), Tyndall Centre Working Paper 55 Vincent, K. (2004) Creating an index of social vulnerability to climate change for Africa, Tyndall Centre Working Paper 56 Shackley, S., Reiche, A. and Mander, S (2004) The Public Perceptions of Underground Coal Gasification (UCG): A Pilot Study, Tyndall Centre Working Paper 57 Bray, D and Shackley, S. (2004) The Social Simulation of The Public Perceptions of Weather Events and their Effect upon the Development of Belief in Anthropogenic Climate Change, Tyndall Centre Working Paper 58 Anderson, D and Winne, S. (2004) Modelling Innovation and Threshold Effects In Climate Change Mitigation, Tyndall Centre Working Paper 59 Few, R., Brown, K. and Tompkins, E.L. (2004) Scaling adaptation: climate change response and coastal management in the UK, Tyndall Centre Working Paper 60 Brooks, N. (2004) Drought in the African Sahel: Long term perspectives and future prospects, Tyndall Centre Working Paper 61 Barker, T. (2004) The transition to sustainability: a comparison of economics approaches, Tyndall Centre Working Paper 62 Few, R., Ahern, M., Matthies, F. and Kovats, S. (2004) Floods, health and climate change: a strategic review, Tyndall Centre Working Paper 63

Peters, M.D. and Powell, J.C. (2004) Fuel Cells for a Sustainable Future II, Tyndall Centre Working Paper 64