Fuel Cells for Stationary Power Generation BUSINESS PLAN

Fuel Cells for Stationary Power Generation
BUSINESS PLAN
The University of Oklahoma Fuel Cell Corporation Eric Daugherty Justice Diven
Caroline Ihejiawu Kristen Martinez
Thu Nguyen Lola Soyebo Jennifer Treece
100 E. Boyd Street, Suite M206 Norman, OK 73019-0628
May 5, 2004
Τηε ΟΥΦΧΧ

BUSINESS PLAN

1.1 Objectives

The OUFCC will fill the need for a source of electricity that is:

Clean and produces few toxic emissions, depending on the type of fuel used. If pure hydrogen is used as the fuel, the only products of a fuel cell are electricity, water and heat.

Reliable and not susceptible to black-outs or power surges. This is an excellent selling point for areas where the supply of electricity does not meet the demand, such as New York or California.

Independent of a power grid for use in rural areas or in emergency situations.

Optionally dependent on fossil fuel which helps cut dependence on foreign oil, and promotes the use of renewable energy resources.

1.2 Mission

The OUFCC will strive to provide a quality product at a competitive cost. Our company will promote a positive and safe working environment for all employees. The OUFCC will be an equal-opportunity employer.

1.3 Keys to Success

The keys to success will serve to promote the mission statement of The OUFCC. The
following are The OUFCC’s keys to success: ƒ ongoing market analysis ƒ continuing optimization of the manufacturing process ƒ biennial HAZOP studies ƒ competitive salaries and employees benefits ƒ hiring of the most qualified employees regardless of age, gender,
race, or ethnicity

1.4 Business Timeline

The chart shown outlines the approximate amount of time allotted for each task, as well as the order in which the tasks will be completed.

The following is the key for the business timeline:

Earliest Duration Earliest

Start

Finish

Activity Description

and Identifier

Latest Start

Float

Latest Finish

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0 30 30
Hire a Financial Planner and/or Accountant

PERT diagram 120 60 180
Acquire Necessary Permits
(7) 30 90 120

Obtain Project Funding or

150 30 210

Completea10Year Schedule

(Also ava240ila15 b2l55e

Purchase Business Insurance

210 30 240

(Liability and Property)

465 225 480

Hire a Builder

separately)

0

0 30

30 0 120

120 90 210

210 0 240

240 240 480

480 30 510

Purchase Land

Construct Plant and Office Facility

Hire First Line Plant Supervisor

120 0 210

240 0 480

480 0 510

120 15 135 135 30 165 PurchaseInsurance(Workers HireHumanResourcesTeam
Comp, Group Health) 120 0 135 135 0 165

165 30 195 Hire Mechanical Engineer(s)
450 285 480
165 30 195 Hire Chemical Engineer(s) 450 285 480
165 30 195 Hire Computer Programmer(s)
540 375 570

480 90 570 Purchase Manufacturing
Equipment 480 0 570
480 30 510 Purchase 3 Months of Raw
Materials 540 60 570

510 30 540 Hire Maintenance Workers
(Machinery) 540 30 570
510 60 570 HireTeamof Plant
Employees and Assemblers 510 0 570

165 30 195 Hire Patent Attorney
165 0 195

195 60 255 File a Patent
510 315 570

165 60 225 Hire Advertising Agent(s) 367 202 427

427 365 792 Create Advertising Strategy
427 0 792

792 425 1217 Run Advertising Campaign 792 0 1217

165 30 195
Hire Sales Representative and/or Distributor
165 0 195

195 30 225 Purchase Fleet of Trucks (24)
195 0 225

225 60 285 Hire Truck Drivers
510 285 570

165 30 195 Hire Market Analyzer 822 657 852

570 282 852 Manufacture and Sell Product
570 0 852

852 80 932
Continue to Manufacture and Sell Products
852 0 932

852 60 912 Reevaluate Market Conditions
852 0 912

912 20 932 Hire Additional Employees 912 0 932
912 20 932 Purchaseor UpgradeExisting
Equipment 912 0 932

Repeat this block annually.

932 3 935
Implement Process and Employees Changes
932 0 935

935 282 x

Manufacture and Sell Product

935 0

x

x 80 x

Continue to Manufacture and Sell Product

x

0

x

x 20 x

Hire Additional Employees

x 60 x

x

0

x

Reevaluate Market Conditions

x

0

x

x 20 x

Purchaseor UpgradeExisting Equipment

x

0

x

x

3 4220

Implement Process and Employees Changes

x

0 4220

4220 282 4502
Continue to Manufacture and Sell Product
4220 0 4502

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2. Company Summary
2.1 Company Ownership
The University of Oklahoma Fuel Cell Corporation (The OUFCC) will be legally structured as a corporation. For the first year, control will be exercised solely by the seven founders of the corporation. Following the first year, 51% of the control will depend upon stock ownership. During this time, control will be exercised through regular board meetings, the board consisting of the seven founders and the chief executive officer, and an annual stockholders’ meeting. Dr. Miguel Bagajewicz will be the chief executive officer.
2.2 Start-up Summary
The start-up expense is about $41.2 million, which allows for initial legal expenses, licenses, utility patents, and permits. This amount will come from the company’s loan. In addition to these start-up costs, approximately 20% will be to the company account for emergency purposes; this money will come from an investor. All additional money needed will either be received from investors before the onset of the project (see business timeline), or will be promised by investors, and a schedule of payments will be made.
The fixed capital investment (FCI) is the capital needed to provide the necessary manufacturing and plant facilities. This investment represents the capital required to purchase and install process equipment including piping and insulation within each fuel cell manufacturing process. It also covers overhead costs such as land, transportation, and administration needed. Cost indices were used to calculate the FCI based on our estimated cost of machinery.1 We estimated that it would cost about $3,988,100 to purchase equipment for the three different production lines of the maximum capacity of 1000 fuel cells for each type. These production lines are for the solid oxide fuel cells, phosphoric acid fuel cells and the proton exchange membrane fuel cells. The working capital (WC), which is the capital needed for the operation of the plant, was $ 5,368,430.
The total capital investment (TCI), which is the sum of the fixed capital investment and the working capital, was also calculated. Based on the fixed capital investment, we estimated that The OUFCC will have a total capital investment of approximately $41,157,930.
The net present worth of the project is approximately $83.2 million and the rate of return is 23%.
1 Peters, M.S. & Timmerhaus K.D., Plant Design and Economics for Chemical Engineers, McGraw-Hill, New York (2002), p165
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2.3 Company Location and Facilities
The company will be located in Wyoming in order to reduce the cost of transporting raw materials and in order to best target our predicted market. Besides these two factors, there are several others that decide the company location. The office space is estimated to be 10,000 square feet. A dedicated telephone and fax line as well as a high-speed internet connection will be installed. An interactive website will also be developed which will serve as a marketing tool. The domain name of "www.oufcc.com" has already been reserved.
3. Services
The OUFCC will offer innovative and economical design services so that the fuel cell can be installed in the optimal location within the business since the fuel cells that we produce will be used in buildings such as:
- Banks - Post Offices - Police Stations - Hospitals
We will meet our client’s needs on all sizes for those building applications in the future. The OUFCC will now focus on producing 200-250kW fuel cells. However, our equipments are capable of producing 100kW fuel cells, which may be considered as our future products in order to reduce cost.
3.1 Service Description
Project Consulting: Project Consulting is proposed and billed on a per-project and permilestone basis. It offers a client company a way to harness our specific qualities and use our expertise to develop and/or implement plans, from conceptual planning to turnover. Proposal costs will be associated with each project. The business may be offered special low-interest loans and grants by the government for the purchase.
Forensic Investigation: A group of engineers will be responsible for troubleshooting buildings where damage of catalyst, electrolyte, and electrode and/or failure due to unexpected technical error during manufacturing process may occur. Our reports will outline the description of the problem, the nature of the mechanism which has caused damage and/or failure, and a list of options for remedial action including estimated budget costs for implementation
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3.2 Technology Competitive Comparison Our company will provide the customers with the benefits that some other competitive technologies do not have2. Higher Efficiency: Fuel cells operate at approximately 60% efficiency, and may operate at up to 85% efficiency with the implementation of cogeneration. Mainstream power generation methods, for example combustion turbines, operate at only 20-45% efficiency. Quiet Operation: This is especially beneficial to businesses such as banks that require communication with the customer. Utilizing a back-up fuel cell rather than a generator would provide quiet operation that would not disrupt business in the building. In the event that a generator is used for back-up power generation, this could be noisy depending on the vicinity of generators and possibly cause the business to lose customers. Cogeneration: Cogeneration will produce both electricity and thermal energy. This thermal energy may be used for any purpose from heating the building to providing hot water. Fewer maintenance costs: Fuel cells have no moving parts, and therefore rarely require maintenance. The only scheduled maintenance is the replacement of the catalyst, which usually occurs 6 to 10 years after implementation of the fuel cell. Usually at this time, the fuel cell unit is replaced by the consumer.
3.3 Technology Fuel cells are electrochemical devices that convert a fuel’s chemical energy directly to electricity. A typical fuel cell consists of three main parts: an anode, a cathode, and an electrolyte. Both the anode and cathode are two electrodes at opposite sides of the fuel cell. The anode is negatively charged and the cathode is positively charged. The electrolyte is in the center of the fuel cell, or in-between the anode and cathode. The electrolyte is generally a substance that can be liquid, solid or a porous membrane. These main parts of a fuel cell may be seen in Figure ii below:
2 Website Source: http://www.energy.ca.gov/distgen/equipment/equipment.html
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Figure ii. Structure and Operation of a Fuel Cell3
Fuel cells are called electrochemical devices because there are two chemical reactions taking place at the electrodes. They use hydrogen as the fuel and oxygen as the oxidizing agent. Hydrogen can be reformed from natural gas, methanol or other fuel sources in a reformer before it enters the fuel cell. Hydrogen flows to the anode side of the fuel cell while oxygen flows to the cathode side, where electrochemical reactions take place. These two reactions require catalyst to occur. The catalyst is coated at the interface of each electrode with the electrolyte.
The type of catalyst used depends on the operating temperature of the fuel cell. At the anode, the catalyst helps to split the hydrogen molecule into hydrogen ions (positive protons) and negative electrons. If the electrolyte is a porous membrane or a liquid solution, it allows only the positive protons to pass through it to the cathode side. The anode repels electrons and electrons cannot pass through the electrolyte; as a result, electrons follow an external circuit to the cathode and create an electric current. At the same time, at the cathode side, the catalyst breaks down the oxygen molecules and facilitates the electrochemical reaction between hydrogen ions, electrons, and oxygen that produces heat and water. In the case where the electrolyte is a solid, the ion exchange occurs due to the ionic conduction of oxide ions.
3 Website Source: http://www.rmi.org/sitepages/pid537.php
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3.4 Future Services In the future, we will also offer the following services to satisfy our customers’ demands.
Quality Control and Assurance: Serving the needs of our customers, we will ensure that our employees are qualified to perform specific tasks. For this purpose, we will work toward the plan of opening an employee training program. On-site inspections are required four times per year.
Fabrication and Detailing Drawings: Serving the special needs of customers on specific sizes and types of fuel cell, The OUFCC will be working toward offering more advising services in the future.
Toll-Free Communications: We will provide our clients a toll-free number for technical support 24 hours a day.
4. Market Analysis Summary
4.1 Market Segmentation
The market consists of small commercial businesses and government-funded institutions that would benefit from a constant supplementary power source or a source of back-up emergency power. The major client within the territorial governments is the Department of Energy. The business participants are small commercial buildings such as banks, post offices, police stations, and hospitals, as shown in Figure iii below:

Police Stations 13%
Post Offices 21%

Other 3%

Hospitals 8%

Banks 55%

Total Number of Businesses: 150,116 Figure iii. Market Analysis by Business Application

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4.2 Competition and Buying Patents
Pricing of projects and billing rates are variable. In consulting at this level, it is easier to be priced too low than too high. However, there may be clients and potential clients who expect to pay substantial fees for the best quality professional advice, the total price including advising can not be too low and it will includes 2% - 5% more of the fuel cell price.
The most important element of general competition, by far, is what it takes to keep clients for repeat business. It is worth making huge concessions in any single project to maintain a client relationship that brings the client back for future businesses.
4.3 Main Technology Competitors
So far, the following technologies have been considered as competitors of fuel cell technology.
Microturbines: Microturbines have an advantage of small size, low emission levels, and low maintenance4. However, they have low thermal efficiencies of 15-30% while those of fuel cells are at least 35%. In addition, microturbines have a limit on the number of times they can be turned on and shut down. This requires that the systems run continuously, which could waste energy if they are used for individual areas or as autonomous units, especially when residents do not need all the energy. They are noisy and can cause large amounts of noise pollution for nearby residents5.
Combustion Turbines6: Combustion turbines have the advantage of being a mature technology and inexpensive; and therefore, are strong competitors of fuel cells. However, they have low thermal efficiency of 20 – 45%.
Reciprocating Engines7: Reciprocating engines are also strong competitors of fuel cells because they are becoming the most common and the most technically mature of all distributed energy resource and available from small to large size. However, they have low thermal efficiency of 25 – 45% and require emission control for NOx and CO.
Stirling Engines8: Stirling engines are not currently commercially available. Their strengths are low noise, low emissions, and low maintenance. However, they have a very low efficiency of 12 – 20% and are expensive.
Photovoltaic Systems9: Although photovoltaic systems are commercially available and environmental friendly, they have a very low thermal efficiency of 15 – 25% and are very expensive.
4 Website Source: http://www.visionengineer.com/mech/microturbines.shtml 5 Website Source http://www.its.caltech.edu/~sciwrite/journal03/A-L2/Arcia.html 6 Website Source: http://www.energy.ca.gov/distgen/equipment/combustion_turbines/combustion_turbines 7 See Ref. 5 8 See Ref. 5
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Wind Systems10: Wind systems are currently commercially available. They have no emissions and require simple installation. However, they become a strong competitor to fuel cells only in specific high-wind areas and they cause a high bird mortality rate.
4.4 Market Forecasting
In the first few years of operation, as a new technology, the cost of fuel cells is expected to be high. However, it will be reduced in the last few years of project life time. In the future when the fuel cell technology will become more popular and widely accepted the production of fuel cells will be increased. In addition, due to the possible market incentives, the cost of fuel cells is expected to be reduced. Based on these two expectations, we forecast the cost of fuel cells in the next ten years as following:

Cost of Fuel Cells ($/kW)

6000 5000 4000 3000 2000 1000
0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Years
Figure iv: Projected Cost/kW of Installed Capacity11

PAFC PEMFC SOFC

9 See Ref. 5 10 See Ref. 5 11 Vanston, John, Elliot, Henry. “Fuel Cell – A Technology Forecast.” Technology Future Inc.
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