Insight: Hydrogen hurdles: a deadly blast hampers S.Korea's big fuel cell car bet

DY Deokyang

25/09/2019 24:00

* With no profits in sight, operators giving up on stations 
    * Hydrogen blast that killed 2 fuels safety concerns and
protests 
    * Govt set to spend $1.8 bln on hydrogen cars, stations over
5 yrs

    By Hyunjoo Jin and Jane Chung
    SEOUL, Sept 25 (Reuters) - Aiming to cash in on a major push
by South Korea to promote fuel cell vehicles, Sung Won-young
opened a hydrogen refuelling station in the city of Ulsan last
September. Just one year on, he's thinking about closing it
down. 
    Sung's new hydrogen station is one of five in Ulsan, home to
Hyundai Motor Co's  005380.KS  main plants and roughly 1,100
fuel cell cars - the most of any South Korean city.
    The government paid the 3 billion won ($2.5 million) cost -
six times more than fast charging equipment for battery electric
cars - and the two pumps, located next to Sung's gasoline stand,
see a steady flow of Hyundai Nexo SUVs daily.
    Even so, Sung hasn't been able to turn a profit, hamstrung
as the equipment can only refuel a limited number of cars each
day and by the government's decision to set retail hydrogen
prices low to bring consumers on board.
    "All hydrogen stations will have no choice but to shut down
unless the government subsidises operating costs," Sung, 32,
told Reuters. "Otherwise, this place will just become a 3
billion won chunk of steel." 
    If those impediments to commercial viability were not
enough, a fatal hydrogen storage tank explosion this year has
spurred protests against the government and Hyundai's ambitious
campaign to promote the zero-emissions fuel. 
    Calling hydrogen power the "future bread and butter" of
Asia's No. 4 economy, President Moon Jae-in has declared himself
an ambassador for the technology and targeted 850,000 fuel cell
vehicles (FCVs) on South Korean roads by 2030.  
    That's no mean feat given fewer than 3,000 have been sold so
far. Japan, also a big proponent of FCVs and with an auto market
three times larger, plans 800,000 in the same timeframe.
    The challenges of building out refuelling infrastructure in
South Korea underscore the long and uphill battle FCVs face to
widespread adoption at a time when electric cars are stealing
much of the green car limelight. 
    And for the government and Hyundai, the only automaker
selling a fuel cell car in the country, it is an expensive
project with no guaranteee of success.
    Moon is set to spend $1.8 billion in central government
funds to subsidise car sales and to build refuelling stations
for the five years to 2022 at current subsidy levels, Reuters
calculations show.
    Subsidies cut Nexo's price by half to about 35 million won
($29,300) and sales of the model, launched in March 2018, have
surged this year. In contrast, Japanese subsidies fund one third
of Toyota Motor Corp's  7203.T  Mirai FCV, bringing its price to
around $46,200.
    Some critics argue Hyundai is the main beneficiary of the
government's ardent backing, but the automaker also has much at
stake. With its suppliers, it plans to invest $6.5 billion by
2030 on hydrogen R&D and facilities.
    "There are risks that come with the need to make large-scale
investments in building (hydrogen car) production facilities,
securing supply channels and establishing sales
networks," Hyundai said in an e-mailed statement.
  
  
    HIGH PRESSURE
    In May, a hydrogen storage tank at a government research
project in the rural city of Gangneung exploded. It destroyed a
complex about half the size of a soccer field, killing two and
injuring six. A preliminary investigation found the blast was
caused by a spark after oxygen found its way into the tank. 
    "One victim was blown away by pressure and then killed after
being hit by rock," said Kong Gikwang, a lawyer who represents
the family of one of the two who died in a lawsuit against the
research complex.
    One month later, there was an explosion at a hydrogen
refuelling station in Norway. This week, a hydrogen gas leak and
subsequent fire at a South Korean chemical plant caused three
workers to suffer burns.
    Such safety concerns have fuelled protests by South Korean
resident groups worried about hydrogen facilities being built in
their areas. 
    Kim Jong-ho, who began a month-long hunger strike against a
planned fuel cell power plant in the port city of Incheon two
days before the Gangneung blast, said the explosion refocused
attention from pollution risks of hydrogen production to safety.
Incheon has since agreed to review the safety and environmental
impact of the plant. 
    Potential station operators have also gotten cold feet since
the explosions.
    Pyeongtaek city in April picked two gasoline stand operators
to run hydrogen stands but within three months, both decided to
bow out, forcing the city to restart its search.
    "At first, I had great interest. But once I looked closely,
I realised the government was pushing for something that can't
make profits," one of the prospective operators said, asking not
to be identified.
    "And I couldn't live worrying about whether there would be
an explosion." 
    To counter such fears, the government is holding briefings
for residents, while Hyundai said it is working to convince
consumers of hydrogen's safety with information promoted through
Youtube and social media.
    
    'VALLEY OF DEATH'
    Despite government plans for 114 hydrogen stations - key for
the widespread adoption of FCVs - to be built by end-2019, only
29 have been completed. Difficulties in gaining funds from local
governments or businesses meant to help shoulder half the costs,
delays in finding sites and opposition from residents have also
hobbled efforts.
    Those constructing the stations know they are in for a slog.
 
    "There will be a period of going through the valley of
death," Yoo Jong-soo, CEO of a consortium which has been tasked
with building 100 stations but which does not expect to make
money until 2025, said in a June presentation.
    The consortium, which includes Hyundai, has also called on
the government to subsidise operating costs for hydrogen stands.
Such a move is under consideration, an industry ministry
official told Reuters, declining to be identified as the plan
has not been finalised.
    "This will only increase the burden for taxpayers who have
to pay for the government's hydrogen society splurge," said Ryu
Yen-hwa, a former Hyundai Motor engineer and auto analyst who
believes FCVs do not make commercial sense.
    Just last month, Moon's administration announced it would
more than double spending on the 'hydrogen economy' to over 500
billion won next year.
    That includes 359 billion won on FCVs and refuelling
stations, up 52% from this year and a huge leap from the 29.8
billion won spent in 2018.
    
    DRIVER FRUSTRATIONS
    Hyundai, which touts the Nexo as an "air purifier on the
road", is banking on Seoul's aggressive targets to help it
achieve economies of scale and bring down costs.
    It aims to cut the cost of a hydrogen car before subsidies
to 50 million won once annual FCV production reaches 35,000. It
hopes to make 40,000 per year by 2022, compared with plans for
11,000 next year.
    In the meantime, however, the constraints around refuelling
and the limited number of stations are causing much frustration.
    Hydrogen stand operator Sung said while refuelling itself
takes about 5-7 minutes, the next driver must wait another 20
minutes before sufficient pressure builds in the storage tank to
supply the hydrogen or the car's tank will not be full.
    That means he can only service about 100 fuel cell cars a
day, compared to up to 1,000 at his gasoline stand. Many drivers
can also not be bothered to wait 20 minutes and leave without a
full tank.
    Choi Gyu-ho, who bought his Nexo to take advantage of low
fuel prices, also noted that a lack of stations elsewhere made
it hard to leave Ulsan.
    "It is very inconvenient. I feel anxious when I drive out of
the city," he said.
  ($1 = 1,194 won)

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
EXPLAINER-Why Asia's biggest economies are backing hydrogen fuel
cell cars     urn:newsml:reuters.com:*:nL3N26F1CM 
FOCUS-Toyota banks on Olympic halo for the humble bus to keep
hydrogen dream alive     urn:newsml:reuters.com:*:nL8N24G0M2
GRAPHIC-South Korea's push for a hydrogen economy     https://tmsnrt.rs/306wC2h
GRAPHIC-South Korea's push for a hydrogen economy (interactive) 
   https://tmsnrt.rs/308ntX2
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Hyunjoo Jin and Jane Chung in Seoul; Additional
reporting by Kevin Buckland in Tokyo; Editing by Jack Kim and
Edwina Gibbs)
 ((hyunjoo.jin@thomsonreuters.com; 82-2-3704-5685))