Allow oxygen to meet hydrogen at your home, and you’ll get electricity and hot water cheaper and with less pollution.

An advertisement for fuel-cell energy for home use could read something like that.

Backed by the government, some fuel suppliers and electronics manufacturers are racing to clear technological hurdles to be the first to launch a fuel-cell system for home use. They’re hoping to reach the finish line sometime in the next two years.

Companies see huge business potential in the new technology, and the government hopes home-use fuel cells can help combat global warming and provide a more secure supply of energy.

“This is a great opportunity for us to enlarge the household market for natural gas,” said Shinichi Koike, a technician at Tokyo Gas Co., noting that the use of gas is currently limited to producing thermal energy.

Fuel cells produce electricity through a reaction between oxygen in the air and hydrogen derived from fuel gas.

Some automakers have developed fuel-cell cars and have been leasing them to the government and academic institutions for promotional and experimental purposes. But quite a few hydrogen filling stations would need to be in place for fuel-cell cars to become popular with consumers.

By contrast, a home-use fuel-cell system could spread more easily because the existing gas infrastructure would be used to supply the hydrogen, industry officials say.

Although a similar system has already been developed for corporate use, the government and businesses are lavishing most of their attention on residential systems because of their far-reaching environmental advantages and market potential.

At least a dozen companies, among them electronics and machinery makers and fuel suppliers, have entered the race. Six of these firms, including Matsushita Electric Industrial Co. and Nippon Oil Corp., have participated in an annual field-test that the government has been sponsoring since October.

Most developers are using natural gas as a source of hydrogen, but Nippon Oil, which is developing its system alone, is utilizing liquefied petroleum gas.

Tokyo Gas Co. and Osaka Gas Co. lead the natural gas camp. They are conducting joint developments with manufacturers and are eventually expected to each choose two manufacturing partners.

Natural gas is delivered through pipelines to some 25 million households, about half the nation’s total. LPG is supplied in tanks to most of the remaining households.

Fuel cells for residential use adopt the so-called co-generation system, in which heat produced in the process of generating electricity is used to heat water.

This allows for more than 80 percent of fuel to be converted into energy, as opposed to 35 percent with conventional power generation.

Most firms are developing 1-kilowatt fuel cells that work with tanks — ranging in capacity from 160 liters to 200 liters — to store the hot water.

For the moment, the systems are being designed to be installed outside of detached houses but not apartments.

The 1-kilowatt units can create two-thirds of the electricity consumed by the average family of four and provide enough heat to fulfill their daily demand for hot water. The system can be used alongside a conventional electricity-supplying system.

According to Tokyo Gas, a fuel-cell generator could reduce household fuel consumption by 18 percent and help cut annual utility expenses by an average of 30,000 yen to 50,000 yen per household. It could also slash the emission of carbon dioxide — believed to be a major cause of global warming — by 25 percent per household.

With people becoming more environmentally conscious, developers believe that fuel-cell generators will eventually replace conventional hot-water heaters.

A survey conducted in 2002 by Yano Research Institute Ltd. predicted the market of home-use fuel cells will expand to 265 billion yen, or 850,000 units, by 2010.

Aside from the fuel-cell market itself, manufacturers are also interested in the ripple effects on the industry, according to Nomura Securities Co. analyst Naoto Hashimoto.

Given the high energy-efficiency of the technology, “People would not have to be stingy about consuming energy,” meaning they would be able to pursue higher energy-consuming lifestyles while saving money and damaging the environment less, said Hashimoto.

That would push up demand for such products as home electric appliances and floor-heating facilities, he said.

Despite the bright outlook for residential fuel cells, the industry needs to clear two hurdles: durability and cost.

To replace conventional hot-water heaters, which lasts for about 10 years on average, the new system should be able to work as long.

The industry’s consensus price target is around 500,000 yen per a 1-kilowatt system, compared with around 300,000 yen for a conventional hot-water supply system. The 200,000 yen gap can be recovered in five to six years with savings on utility expenses, industry officials said.

However, the two goals seem next to impossible to attain within a year or two, said Tsuneo Shibata, general manager of the fuel-cell development section at Matsushita Electric. But the firm recently announced a plan to release a home-use fuel-cell system in 2005.

“Even if our product is not perfect at the time of commercialization, it will still be important to release it on the market” sooner than the others and while the public is paying attention, Shibata said.

Hashimoto of Nomura Securities agreed. “Anyone in the race can be a winner. The question is who comes first.”

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