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‘Net Zero’, which eliminates net carbon emissions at all, has emerged as a hot topic in the industry. There has been a consensus that a production system that pollutes the environment cannot guarantee the permanence of mankind.
Energy is the core axis of Net Zero. The steel and oil refineries are industries with high greenhouse gas emissions. These industries inevitably emit greenhouse gases. The same is true that other manufacturing industries must also participate in Net Zero. Manufacturing plants do not go out 24 hours a day. It also requires huge amounts of electricity to run the facility.
In the era of’Net Zero’, even factories must turn to eco-friendly energy. The most powerful energy source is hydrogen. Hydrogen obtained from natural or by-products can be used as an energy source by loading it into a fuel cell. Global distribution companies such as Amazon and Wal-Mart are equipped with hydrogen fuel cells in their forklifts.
Korea Fuel Cell Fuel Cell Power Plant. (Photo = Korea Fuel Cell)
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Domestic companies have also built power generation facilities using hydrogen fuel cells. Daesan Green Energy and Gyeonggi Green Energy are power plants constructed by supplying hydrogen fuel cells by Doosan Fuel Cell and Korea Fuel Cell (formerly POSCO Energy). Daesan Green Energy is the world’s largest hydrogen fuel cell power plant and is said to be supplying enough electricity to 160,000 households. Looking at this, it feels like the era of the’hydrogen economy’ has come.
However, looking at the progress of the’hydrogen economy’, it was not only smooth. Looking at the case of Korea Fuel Cell, you can see that it is not easy to convert to a hydrogen economy. If you are a company that promotes equity investment or MOU, there are many things that you should consider as a’half-side teacher’.
Korea Fuel Cell started business in 2007 as the first fuel cell company in Korea. We built fuel cells seven years earlier than Doosan Fuel Cell, the No. 1 industry. Doosan FuelCell entered this business when it acquired FuelCell Power in the US in 2014. As of the third quarter of last year, Doosan FuelCell ranked first with 64%, while Korea FuelCell fell to 25%. Until just 6 years ago, Korea Fuel Cell’s market share reached 90%, but it reversed.
Korea FuelCell promoted localization by transferring fuel cell production technology from Fuel Cell Energy in the United States. In its 2007 business report, POSCO ENERGY stated that “fuel cells are expected to grow indefinitely as a core power generation facility in a hydrogen society.” In October of the same year, a fuel cell production plant was built in Pohang with a cost of KRW 28.1 billion.
Korea Fuel Cell predicts that the fuel cell business will accelerate when the New Renewable Energy Compulsory System (RPS) is implemented in 2012. RPS is a system in which power generation operators with power generation facilities of 500MW or more cover a certain portion of their power generation with renewable energy.
At that time, Korea Fuel Cell had a 90% market share in Korea as the fuel cell market’First Mover’. I believe that if the market grows with RPS, etc., Korea Fuel Cell will be able to meet the demand. Sales reached 13.8 billion won in 2008, which was the beginning of the business, and 209.7 billion won in 2014. In six years of starting the business, sales have grown more than 15 times.
Korea Fuel Cell Fuel Cell Sales Trend, (Source = Financial Supervisory Service)
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While selling fuel cells, Korea Fuel Cell signed a long-term service contract (LTSA) to provide long-term maintenance with buyers. To succeed in localization, we developed fuel cell cells, stacks, and BOPs. By 2018, we have supplied fuel cells (160.6MW) to more than 20 locations including Noeul Green Energy and Byucksan Engineering.
In the fuel cell business, the prospect of’rosy’ seemed overflowing. But now, 13 years later, the outlook has deteriorated to the point of worrying about the business disruption. What happened to Korea Fuel Cell, which was the’First Mover’? And can we continue the fuel cell business in the future?
US Fuel Cell Energy announced on the 6th that it would end cooperation with POSCO Energy (including Korea Fuel Cell) through a statement from the CEO. Jason Pew, CEO of Fuel Cell Energy, announced, “We believe that the relationship between the two companies is confused due to the division of POSCO Energy’s fuel cell business.
Fuel Cell Energy has announced that it will not sell fused carbonate fuel cell modules (MCFCs) to Korea Fuel Cell and will not provide technology transfer. This is the de facto end of the 13-year partnership between POSCO Energy and Fuel Cell Energy.
Korea Fuel Cell Fuel Cell Business Diary (Source = POSCO Energy, etc.)
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In 2007, POSCO ENERGY invested $29 million (KRW 32 billion) in Fuel Cell Energy to secure a 5.6% (382 million shares) stake. POSCO ENERGY decided to pay royalties because there was no technology for MCFC fuel cells. Instead, POSCO ENERGY secured a monopoly on fuel cell sales in the Asian market. Since then, we have invested an additional $55 million (60.7 billion won) to increase our holdings to 10.5%.
It goes back to 2015, when the two companies began to sound dissonance. The problem began in Gyeonggi Green Energy, which started commercial operation in 2013. The quality defect occurred two years after the stack, a key component of a hydrogen fuel cell, was installed. A stack is a device that generates electricity by reacting hydrogen and air. Gyeonggi Green Energy raised quality issues to POSCO Energy.
Sales plummeted when the product became known to be defective. The number of researchers has been reduced from 92 to 40. In order to localize it, we have to invest a lot of money in R&D, but rather, we drastically reduced the R&D field. At that time, POSCO ENERGY’s fuel cells were in the red.
Fuelcell Energy’s complaints arose as Korea’s FuelCell was passive in domestic sales. At the time, the government subsequently approved the establishment of fuel cell power plants. I was dissatisfied that POSCO ENERGY was not selling fuel cell energy even though there was a demand for fuel cells.
POSCO ENERGY suffered a loss (damage loss) of 87.5 billion won as the value of its stake in Fuel Cell Energy declined. The deficit in the fuel cell business grew more and more. POSCO ENERGY sold 1.3 million shares of Fuel Cell Energy in 2018. In 2019, 500,000 shares were disposed, and 63794 shares (0.2%) remained in the stock merger (consolidation ratio 12:1) in May of the same year.
In November of the same year, POSCO ENERGY established Korea Fuel Cell by dividing physically to strengthen expertise in the fuel cell business. POSCO ENERGY said, “We will establish a management system suitable for the fuel cell business and strengthen the expertise of the business.”
Fuel Cell Energy made a problem with the division of POSCO Energy’s fuel cell business. In fact, it seems that the issue of material division is not as important as the cooperation between the two companies is over. The joint venture discussions that the two companies discussed until June of last year are also in the process of breaking down.
More importantly, it seems important whether Korea Fuel Cell is willing to run the fuel cell business. Looking at the financial statements, there seems to be no commitment to the fuel cell business.
POSCO ENERGY did not hand over cash to a new company in the process of establishing Korea Fuel Cell in November 2019. The new company was launched with zero cash assets. In the new company, 54.1% of all assets were in inventory. 22.4% of all assets were counted as tangible assets such as factory facilities.
Financial comparison before and after the physical division of Korea Fuel Cell. (Source = Financial Supervisory Service)
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The new company’s debt ratio is 98.8% and the current ratio is 175.2%. In terms of financial figures, it is no different from other companies, but in reality, it is a company that has no debt or cash and only stocks. In order to reinforce the expertise of the fuel cell business as POSCO ENERGY’s purpose of division, it is necessary to raise funds from the outside and also own cash. According to the 2019 business report released by Fuel Cell Korea in April of last year, cash was 5.3 billion won and short-term borrowings were 25 billion won. Financial activity seems to be more active than before, but it is not enough to be sure of the continuity of the business.
The POSCO Group announced in a press release last December that it will lead the era of decarbonization by establishing an annual production system of 5 million tons of hydrogen. The press release contains POSCO Group’s hydrogen business plan. However, there was no plan to strengthen Korea Fuel Cell’s expertise and expand its fuel cell business.
Korea Fuel Cell is the first affiliate in the group to launch hydrogen business. Nevertheless, I fell into the group’s’hydrogen economy’ strategy. Looking at this, it does not appear that the POSCO Group will continue the fuel cell business.
Currently, latecomers of the hydrogen economy, such as SK Group and Hanwha Group, are vying for the hydrogen business. The two major groups are actively promoting M&As and equity investments in overseas companies. It seems that the two major groups should take the case of Korea Fuel Cell as a teacher on the other hand. This is because there is no guarantee of the future even if the business started with the strategic interests of the two companies.
In particular, hydrogen is an energy source with low profitability (power generation cost), and it is very difficult to store and move. It’s still a field full of uncertainty. Hydrogen has sufficient value as an eco-friendly energy source in the future, but there are many barriers to overcome in order to commercialize it. If you have made hydrogen as a new business, it seems necessary to look at the history of Korea Fuel Cell at least once.
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