The Road to Profit in Alternative Fuels

Panelists and Strategic Premise

• The session featured Joel Kurtzman (moderator, Milken Institute), James Cameron (Climate Change Capital), Yossi Hollander (Fuel Freedom Foundation), Chris Hostetter (Toyota), and Andrew Littlefair (Clean Energy Fuels).
• The core objective was to evaluate the investment potential, technological viability, and infrastructure requirements for alternative fuels in the transportation sector.

Toyota's Hydrogen Fuel Cell Strategy

• Toyota has released 11 generations of fuel cell stacks, reducing size to the dimensions of a carry-on suitcase while doubling battery durability.
• A mid-size four-door fuel cell electric vehicle (FCEV) is scheduled for launch in California in 2015, with a 300+ mile range and a three-minute refueling time.
• Toyota projects that fuel cell vehicles will be more cost-effective than internal combustion engines between 2025 and 2030, potentially surpassing hybrid adoption rates similar to the Prius's 6 million global sales.
• Toyota distinguishes its strategy by assigning battery electric vehicles (BEVs) to small urban cars and FCEVs to larger, long-range applications where hydrogen's energy density offers a convenience advantage.
• The company aims to establish a business model in California with 60 hydrogen stations by late 2016 to support 10,000 vehicles, citing state subsidies covering 70% of capital expenditures.

Clean Energy Fuels and Natural Gas Infrastructure

• Andrew Littlefair's company, Clean Energy Fuels, currently operates approximately 500 fueling stations, initially baselined around airports, refuse trucks, and buses.
• The strategy targets the heavy-duty trucking sector, where 3 million of 8 million fleet trucks consume 35 billion gallons of diesel annually, a volume potentially replaceable by CNG/LNG.
• Unlike the fragmented retail gasoline station network (118,000 stations), the diesel depot network is concentrated with only ~5,000 sites, facilitating faster CNG infrastructure deployment.
• Market expansion is driven by economics, with natural gas fuel priced $1.50 to $2.00 per gallon, roughly $1 cheaper than gasoline, creating a "hell of a lot of jobs" and billions in global spending.

Fuel Freedom Foundation and Market Diversity

• Yossi Hollander advocates for a multi-fuel approach, rejecting the notion of a single "winner" in favor of consumer choice across ethanol, methanol, natural gas, and hydrogen.
• The foundation highlights that existing liquid fuels like ethanol and methanol cost approximately $2.00/gallon, about $1 cheaper than current gasoline prices.
• Hollander estimates that converting existing vehicles to run on these liquid fuels would cost under $300 per vehicle, though current EPA regulations currently prohibit such conversions.
• A 2012 study noted that U.S. natural gas production increases could theoretically replace $28 billion of gasoline if converted to methanol, leveraging a $6-7 billion value delta.
• Hollander argues that technological standardization is already forced by global regulations, allowing manufacturers to use software controls on a single engine platform to run different fuel blends.

Infrastructure, Regulation, and Investment Trends

• James Cameron emphasizes that the transition requires "beauty and allure" in products to drive adoption, predicting that refueling will occur at diverse locations like supermarkets and malls rather than traditional depots.
• The panel noted that while California invests $20 million annually in hydrogen stations, other regions (Germany, Japan, UK) are also scaling their networks, though a "chicken-and-egg" dynamic persists regarding station operator profitability.
• Cybersecurity is cited as a driver for distributed power systems; a decentralized grid with multiple energy nodes is viewed as more resilient to attacks than centralized fossil fuel grids.
• Safety concerns regarding hydrogen are addressed by its high buoyancy (escaping at 47 mph vs. pooling gasoline) and the use of carbon-fiber-woven tanks capable of withstanding 76 megapascals (approx. 11,000 psi).
• Methanol is noted for safety advantages in racing, burning at half the temperature of gasoline, and requires only ~$100,000 per station upgrade to existing pumps, compared to $1 million for CNG or hydrogen.

Future Outlook and Convergence

• Ford and other manufacturers are expected to field fuel cell vehicles by 2019-2020, with joint ventures already established between Toyota and BMW.
• The panel anticipates a divergence in outcomes rather than convergence to a single technology, predicting different fuel solutions will dominate based on regional resources (e.g., corn ethanol in Iowa, natural gas in LA, solar-hydrogen in Germany).
• Germany is highlighted as a model for using excess wind power for hydrogen storage, potentially storing energy underground to support both the power grid and transportation sectors.
• James Cameron warns that a monopoly on a single fuel solution is dangerous, drawing a parallel to the AT&T breakup which spurred 80% of US GDP growth in the subsequent 35 years.
• The group concluded that public policy must evolve to match technological potential, specifically regarding tax equity, EPA certification for conversions, and the removal of regulatory barriers to fuel choice.