This post is one in a series of feature stories on trends that shape advanced energy markets in the U.S. and around the world. It is drawn from Advanced Energy Now 2017 Market Report, which was prepared for AEE by Navigant Research.

Growth in hydrogen fueling transportation infrastructure and fuel cell vehicle (FCV) sales is advancing the concept of a true “hydrogen highway” – and ultimately the potential for more rapid growth in retail hydrogen fuel sales. Commercial sales for hydrogen transportation fuel are not included in the market sizing estimate as this data is just beginning to become available, for two reasons. First, there are relatively few commercial sales of hydrogen fuel. The infrastructure is mostly limited to pilot sites or regionally concentrated in countries like Germany, the United States, Japan, Korea, and Denmark. Though retail networks are growing, both pilot and retail sites remain intrinsically linked to automaker deployment plans. Hence, steady station growth is necessary before more FCVs hit the roads.

Second, new FCV owners typically receive pre-paid fuel cards and are not individually paying for fuel directly. For example, Toyota and Honda both provide three years of fuel (capped at $15,000) and Hyundai offers free fuel as part of its lease arrangement for the Tucson ix35. Today’s new stations are mostly being built at existing gasoline stations, and in California required to be open 24/7 with point of sale (credit card) payment.

California and Japan hold the most near-term prospect for hydrogen fuel sales. In California, there are now 25 retail hydrogen stations (compared to non-retail stations, which charge for fuel via business-to-business arrange-ments). True Zero Network, the company operating at least 16 of the retail stations, mostly located in Northern and Southern California, claims that by late 2016 more than 12,000 charges totaling 33,800 kilograms of hydrogen were conducted at its facilities. The State of California has committed funding for 100 stations, expected by 2020 to support the growing vehicle sales.

As with solar in China and biofuels in the United States, Japan is driving domestic fuel cell markets for both stationary and transportation applications as a policy priority. In 2016, the Japanese Ministry of Economy, Trade, and Industry (METI) revised its Strategic Roadmap for Hydrogen and Fuel Cells, providing a major boost to Honda and Toyota’s domestic market. The new Roadmap calls for 40,000 FCVs on the road by 2020, 200,000 by 2025, and 800,000 vehicles by 2030. This corresponds with similarly scaled targets for infrastructure – 60 hydrogen stations by 2020, and about 320 stations by 2025.

Toyota, the company largely credited with launching the hybrid-electric vehicle market 20 years ago with the Prius, is doubling down on its commitment to hydrogen. Toyota released what it calls the first “mass produced” zero-emission FCV, the Mirai, offering a 312-mile range and mileage equivalent to 67 miles per gallon. The four-door sedan debuted at €66,000 in Europe and $57,500 in the United States, before incentives. In late 2016, the Mirai’s lease price dropped from $499 to $349 per month, though it maintains the same Manufacturers Suggested Retail Price (MSRP). Nearly 700 Mirai were sold or leased as of September 2016. Honda, is also expanding its FCV offerings. The Japanese automaker released the next generation of the Clarity Fuel Cell in Japan and the American market last year, which has a slightly higher horsepower, extended driving range (366 miles), and extra seating (5 passengers) compared to the Mirai for a similar selling price. Honda Clarity Fuel Cell launched December 2016 in the U.S. market and to date has delivered over 60 vehicles. This vehicle is “lease only” in California and is offered at $369 per month with the offer of a Hydrogen Fuel Card with up to $15,000 of fuel over the three-year lease. Honda is also poised to release a PEV and HPEV variant by the end of this year.

Not to be outdone by its neighbor across the Sea of Japan, South Korea is also positioning itself to go big on hydrogen. It now offers an incentive for FCVs of over $23,000, with the aim to place as many as 630,000 on the road by 2030.

The country also aims to increase the number of refueling stations to 520 by 2030. Currently, only the domestic brand Hyundai sells an FCV in this market, while Kia (which is also part of the Hyundai Motor Group) is aiming to release one by 2020.

Unlike many other major vehicle markets, Japan and South Korea are heavily dominated by domestic automakers. Additionally, PEVs have had a slower start in both these markets relative to other developed markets. Under these conditions, government support of FCVs may secure a path for the domestic automakers to bring FCVs, infrastructure, and fuel costs down through economies of scale, eventually making FCVs more competitive internationally with PEVs, hybrids, and conventional vehicles. Both PEV and FCV manufacturers are targeting a sub-$30,000 price point for consumers. While PEVs such as the Ford Focus Electric, Chevrolet Volt, and Nissan Leaf are all at or near this target, FCV models are still pricier.

Hydrogen fuel has advantages and disadvantages, and vehicles that run on it will face fierce competition with electric vehicles, which are growing fast. Cost is key: FCVs, infrastructure, and fuel are now too expensive on their own, relative to conventional or alternative fuels, to consider growth potential without significant continued government support. While Japan and South Korea offer incubation for these technologies, other markets are steadily moving forward with PEVs, which have clear paths to achieving competitive cost advantages over conventional vehicles in the foreseeable future. If FCVs can capitalize on hydrogen’s fast refueling capabilities and longer range, and an infrastructure network can be established to solve hydrogen fueling station paucity, and if the cost of both vehicles and fuel come down, hydrogen could have role to play in an advanced transportation system, even if only in regional markets.

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