Facing the energy crisis, a Chinese company finds a smart solution in water.

Alongside a higher national income and an improved average standard of life, China’s booming economy has brought about some less desirable consequences, including the country’s current energy crisis. Coal mining cannot meet the market’s energy demand, which is estimated to be nearly 40 gigawatts higher than the supply in 2011. Chinese industry’s reliance on fossil fuel also directly caused the emission of over 7 billion tonnes of CO2 in 2009.

Hydrogen-based energy holds the potential to become a reliable and renewable answer to China’s energy issues, because it is a clean secondary energy source. Primary energy sources – the sun and the wind- are directly used in power generation, but their performances are unstable since nature does not work in a predictable pattern. As a secondary energy source, hydrogen must rely on technologies for extraction, but its performance is extremely stable once it has been turned into a fuel cell. After earning a graduate degree in engineering and spending several years working with fuel cells, Mr. Tao Shi started Shanghai Pearl Hydrogen Technology Co., Ltd with two friends of similar backgrounds. “We saw the limitation of the industry chain and just wanted to change it”, said Mr. Shi.

Hydrogen energy fuel cells generate electricity through the counter reaction of water electrolysis. Prior to Pearl Hydrogen, China could not utilize hydrogen energy for two main reasons. First, hydrogen itself was too costly, and was fundamentally unaffordable for the majority of consumers. Additionally, the conventional hydrogen-power fuel cells had low efficiency and a complex structure, and needed to be recharged or maintained frequently. Pearl Hydrogen targeted these two weaknesses and developed a new generation of hydrogen-power fuel cells for small and medium power application.

Pearl Hydrogen was able to lower the cost per kilowatt of fuel cells to $1000 USD through technological development. Pearl Hydrogen has also significantly simplified the structure of the fuel cells. Traditional fuel cells include the water-cooling systems that function on electricity generation units greater than 10 kW power. However, on the units with smaller power capacities, this structure becomes unnecessary. Pearl Hydrogen has replaced the water cooling systems with air-cooling systems, thus simplifying the cells.

Pearl Hydrogen has achieved great success in both the Chinese and the European markets, becoming one of the top three hydrogen fuel cell manufacturers in the world according to Mr. Shi. Most of its clients belong to the industry sector and rely on Pearl Hydrogen’s products for niche transportation solutions or for back-up power sources. Today, the hydrogen fuel cells are widely used in fork trucks and tourist cars. After 6-8 hours operation, the cells take three minutes to refill their hydrogen tanks instead of the 4-6 hours it would take to recharge on a lithium battery or lead-acid battery. Used on a bicycle, the fuel cell power system can make the bicycle cover 140 km with one charge, almost four times the distance a lithium battery-powered bicycle can travel. Telecommunication companies use Pearl Hydrogen’s fuel cells as back-up energy sources to reduce costs. The fuel cells have very few negative impacts on the environment during their life cycles. After use, 90% of the parts can be recycled.

Pearl Hydrogen is looking to expand. The company wants to recover its costs and pay back its investors as a short-term growth goal. Looking to a longer timeframe, Pearl Hydrogen hopes to widely promote the sustainable use of hydrogen-based energy. However, receiving financing from within China is the company’s biggest obstacle. Investors in China have yet to see the value of the commercialization of hydrogen energy and therefore are unwilling to commit their resources to the industry. Consequently, more than half of the investment that Pearl Hydrogen receives comes from overseas.

Adding to the company’s investment difficulties is the lack of knowledge in China on hydrogen and fuel cells, according to Mr. Shi. To many Chinese consumers, understanding of hydrogen comes from middle school textbooks where this chemical element is described as “extremely inflammable, may cause explosion,” explained Mr. Shi. Now, the company is trying to shift people’s understanding of this new clean energy. Pearl Hydrogen is manufacturing hydrogen energy education tool kits for middle and high schools in Shanghai. The kits demonstrate that the technology can safely convert hydrogen energy to electricity, and are considered the first step of familiarizing the Chinese market with the green energy.

New Ventures is currently investigating the possibility of establishing an impact fund within China, an opportunity that excites Mr. Shi. “Such a fund would be extremely helpful for us and many other businesses like us out there in the market,” he said.