Global concerns about fossil fuel stocks and security of supply have stimulated governments and industry to explore the development of alternative sources of energy. This has led to the emergence of liberalised markets for energy and the growth of de-centralised generation and distribution systems. Within this context, the use of a sustainable technology, such as fuel cells, as a generator of heat and electricity for the residential market, is a significant market opportunity. Using a set of framework conditions to explain the diffusion of renewable energy technologies, this paper analyses recent developments in four leading industrial countries, and concludes that Japan and Germany are competing to be the lead country for the introduction of this technology. In the process, we highlight the impact of government and the extent to which the development of a fuel cell industry is being driven by incumbent large firms acting independently or in collaboration with a range of other companies across the value chain. (c) 2006 Elsevier Ltd. All rights reserved.