After decades of struggle, the American fuel cell business may finally have its day in the sun -- and then provide critical grid support when the sun goes down.
Greentech Media’s Eric Wesoff has long maintained a tongue-in-cheek list of the top publicly traded profitable fuel cell firms. As of the last such update in April of this year, the list was still blank.
But FuelCell Energy, the biggest of the publicly traded U.S. fuel cell manufacturers, now appears poised to make that list after running losses since its IPO in 1992. According to Bloomberg, the company posted record sales, driving down its net loss on the fiscal third quarter of this year to just $5.6 million on revenues of $53.7 million, down from $9.9 million a year earlier, and its order backlog has ballooned to $380.8 million. The company is now within reach of being in the black.
I spoke with company CEO Chip Bottone and Vice President of Investor Relations Kurt Goddard at the end of July, and they were optimistic that profitability was finally within reach. “Fuel cells have overpromised and undelivered for decades,” Bottone said. “We’re now interested in making money the old-fashioned way: reduce capital costs, make margin, and be competitive with traditional power generation. We’re really trying to build credibility for the industry.”
The company now says its levelized cost of energy (LCOE) is $0.14 to $0.15 per kilowatt-hour, without subsidies, depending on the price of gas. Industrial consumers in the U.S. typically buy gas for around $4.50 per million BTU, the company says, with gas prices on the East Coast closer to $5.50. Wesoff quoted Bottone in April 2012 as saying that, “At $5 gas, we're at $0.135" per kilowatt-hour, and that every $2 drop in the price of natural gas translates to a penny lower in the price per kilowatt-hour. By those metrics, FuelCell Energy is already grid-competitive without subsides in Hawaii and Alaska in the industrial market, and in at least seven states in the commercial market.
With subsidies, such as the federal investment tax credit and the California state incentive, Bottone says their fuel cell system can produce power for $0.09 to $0.11 per kilowatt-hour, making it competitive with grid power in that state as well.
Bottone isn’t counting on subsidies to be competitive, however. “We don’t need more money from government,” he told me. “We just need to spend it better.”
At those prices, some might look at fuel cells as a potential competitor to other low-carbon technologies like wind and solar, but Bottone doesn’t see it that way. “We compete against people doing nothing, not against wind and solar,” he explained. “There’s no single solution to this stuff. Wind and solar and gas will always be there.”
“We compete with utility programs, and our IRR [internal rate of return] is the metric,” he continued. “On an unlevered basis, we need to make an IRR of 10 percent to 13 percent. With a little leverage, our payback is under three years. People can say yes to that. Adding CO2 offsets can get the payback down to a year.”
FuelCell Energy is very different from its better-known competitor, Bloom Energy.
FuelCell Energy’s main product line uses a molten carbonate technology, which scales up well. Bloom Energy uses solid-oxide technology, which doesn’t scale well, but whose greater power density makes it attractive for applications where a small physical footprint is important.
FuelCell Energy is focused on large systems (over 1 megawatt in size), where the economics can be more attractive. It sells units with a long-term service contract for about $3,000 per kilowatt of capacity, excluding installation, as compared with Bloom Energy’s reported $8,000 per kilowatt, excluding installation and subsidies.
The larger plants make them better suited to running on fuels like waste gas and biogas, because of the cost of the equipment needed to clean up the gas. Sulfur, siloxanes (which result from things like cosmetics), and water must be removed from the gas. Sulfur is the hardest contaminant to remove, because the gas must have no more than 30 parts per billion of it before it is used in the fuel cell. “You’ve got to have enough gas to pay for the gas cleanup unit,” Bottone explained, a cost which typically runs around three cents per kilowatt-hour. “There isn’t a clean solution below 1 megawatt that will pencil out. It’s marginal at 300 kilowatts -- you need to have a lot of intangible benefits.” Generally, Bottone claims that his units are more tolerant of contaminants than are competing fuel cell technologies.
FuelCell Energy has a larger customer base, with around 80 units operating in more than 50 separate locations in nine countries. Bottone expects to have a total portfolio of 150 megawatts to 200 megawatts in operation by the end of the year. The company also has a much longer track record, with 1.8 billion kilowatt-hours of operating time in the field, according to Bottone.