Hydrogen hurdle: Sparks fly over Seoul’s gamble on fuel cell cars

A Hyundai Nexo hydrogen car refuels at a hydrogen station in Seoul. Low prices mean station operators are struggling to turn a profit. (Reuters)
Updated 25 September 2019

Hydrogen hurdle: Sparks fly over Seoul’s gamble on fuel cell cars

  • Deadly explosions and profit concerns turn Hyundai and South Korea’s FCV dream into a million-dollar nightmare

SEOUL: Aiming to cash in on a push by South Korea to promote fuel cell vehicles, Sung Won-young opened a hydrogen refueling station in the city of Ulsan last September. Just one year later, he is thinking about closing it down.

Sung’s new hydrogen station is one of five in Ulsan, home to Hyundai Motor Co’s 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 subsidizes operating costs,” Sung, 32, said. “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 is 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 refueling 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 refueling stations for the five years to 2022 at current subsidy levels.

Subsidies cut Nexo’s price by half to about 35 million won 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 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 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 refueling 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 fueled 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 backtracked 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 realized the government was pushing for something that can’t make profits,” one of the prospective operators said. “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.

Despite government plans for 114 hydrogen stations — key for the widespread adoption of FCVs — to be built by the end of 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 finalized.

“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 refueling stations, up 52 percent percent from this year and a huge leap from the 29.8 billion won spent in 2018.

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.


Turkey interest rate cut to dampen foreign investor appeal

Updated 19 January 2020

Turkey interest rate cut to dampen foreign investor appeal

  • The latest 75 basis point cut on Jan. 16 follows four consecutive cuts during the last four monetary policy meetings that were held last yea

LONDON: Turkey’s move to cut interest rates highlights the country’s economic fragility and its exposure to geopolitical risk, say analysts.

The latest 75 basis point cut on Jan. 16 follows four consecutive cuts during the last four monetary policy meetings that were held last year. In a bid to stimulate growth, President Recep Tayyip Erdogan also hinted recently about the forthcoming interest rate cuts. 

However, low interest rates are expected to undermine Turkey’s ability to appeal to domestic and foreign investors.

Foreign direct investment remains muted, totaling about $5.9 billion in 2019, and mostly concentrated on the real estate sector. Iraqi citizens were the main buyers of Turkish properties last year, followed by Iranians, Russians, Saudi Arabians and Afghans.

The current account deficit is also alarming for many economists and investors. 

Struggling to recover from an economic recession since the summer of 2018, the Turkish lira lost more than a third of its value against the dollar over the last two years.

The aggressive foreign policy moves of Turkey’s government, first in Syria and now in Libya and the eastern Mediterranean, may also increase the country’s economic fragility especially considering impending sanctions from the US over its purchase of a Russian missile defense system. The deployment of Turkish forces and their ongoing training process, along with the drones and armaments that are being sent to support them, are also a burden to the economy. 

Wolfango Piccoli, co-president of Teneo Intelligence in London, said the rate cut had shown once more that the government’s priority remains growth and not regaining credibility. 

“The positive external backdrop means that Turkey is likely to get away with limited costs. However, this won’t last forever. There is still no indication that the government is serious in tackling the long term challenges the economy faces,” he told Arab News.

The Turkish Central Bank’s next Monetary Policy Committee is set for Feb. 19.

The dismissal of the former governor of the Central Bank, Murat Centinkaya, by President Erdogan in July sparked criticism about the independence of the bank and was considered a sign of Erdogan’s determination to keep lower interest rates by appointing a new figure closer to him.