Fuel cells have attracted interest due to their low degree of pollution and high (theoretical) efficiency. Since the chemical energy of the fuel is directly converted to electricity, fuel cells are not influenced by the Carnot efficiency limit like combustion and heat engines. When chemical energy is converted to electricity via heat (by fuel combustion), the maximum theoretical efficiency is limited by the operating temperatures: 

For fuel cells the theoretical efficiency can be expressed, among many alternatives, as the relationship between chemical energy available (free energy change of the fuel cell reaction, DG) and the higher heating value of the fuel cell reaction (enthalpy change of the fuel cell reaction, DH). 

Over a large temperature and power range fuel cells have a potentially higher efficiency than Carnot technology, see the figure below. Combustion/heat engines are well suited for operation under constant conditions, as they have a limitied maximum power range. Outside this range, the efficiency drops considerably. Fuel cells, however, have high efficiency over a large power and temperature range and are thus perfect for dynamic load cycles. The high efficiency at very low loads is particularly valuable.

To understand the difference between the two types of technology one can consider the case of driving a car. During highway cruising, the combustion engine operates in the high-efficiency range, the right-hand section of the red curve. In city traffic however, the car often starts and stops, which corresponds to going up and down the left-hand section of the red curve. This corresponds to the well-known fact that city traffic is more polluting due to the low efficiency. Following the same example with a fuel cell (green curve), one sees that the fuel cell has its highest efficiency already at low loads. A fuel cell would operate much more favourably in city traffic but is also highly efficient under constant load.

Fuel cells are not always more efficient for all applications than heat engines/turbines. For large stationary applications, where high-temperature fuel cells are used (SOFC and MCFC), the two types of technology complement each other perfectly and are combined. The excess heat from the fuel cell is fed into a heat turbine which is able to extract more electric power.

The losses in fuel cells are related to the power output. As more current is drawn from a cell, the losses increase. This can be seen as the cell voltage drops from the open circuit voltage with increasing current. A typical current-voltage diagram for a hydrogen PEMFC is shown below.

If there were no losses in the fuel cell at all, the cell voltage would maintain the theoretical voltage, independent of cell current. This ideal cell voltage (E_rev) of a fuel cell can be calculated from the available free energy, DG.

where DG is the free Gibbs energy, n is number of electrons transferred in the electrochemical reaction and F is the Faraday constant (94685 C/mole). The E_rev is also dependent on operating conditions like temperature, pressure and concentration of reactants. The difference between the ideal cell voltage and the operating voltage is called overvoltage, and represents the losses in a fuel cell. The relationship between the theoretical E_rev and the actual operating voltage (E_cell) is a more correct way to express the efficiency of a fuel cell. 

The losses in a fuel cell can be divided into fuel crossover and internal currents, activation losses, ohmic losses and mass transport losses. Fuel crossover and internal current losses result from the flow of fuel and electric current in the electrolyte. The electrolyte should only transport ions, however a certain fuel and electron flow will always occur. Although the fuel loss and internal currents are small, they are the main reason for the real open circuit voltage (OCV) being lower than the theoretical one (E_rev).

Activation losses are caused by the slowness of the reactions taking place on the electrode surface. The voltage decreases somewhat due to the electrochemical reaction kinetics. This can be seen in the left-hand section of the current-voltage curve above.

The ohmic losses result from resistance to the flow of ions in the electrolyte and electrons through the cell hardware and various interconnections. The corresponding voltage drop is essentially proportional to current density, hence the term "ohmic losses".

Mass transport losses result from the decrease in reactant concentration at the surface of the electrodes as fuel is used. At maximum (limiting) current, the concentration at the catalyst surface is practically zero, as the reactants are consumed as soon as they are supplied to the surface.

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