Fuel Cell Maker Bloom Energy Opens the Kimono

Posted by: Jennifer L. Schenker on February 25, 2010

Bloom Energy, a fuel cell company that aims to help homes and businesses generate their own electricity from hydrogen and oxygen, publicly unveiled its technology and an impressive list of major customers at a Feb. 24 press conference attended by California governor Arnold Schwarzenegger and former U.S. Secretary of State General Colin Powell.

The Sunnyvale (Calif.) company, which was named a World Economic Forum Technology Pioneer in December, was in the headlines again this week after being featured on CBS News’ 60 Minutes on Feb. 21. It turns out that Bloom Energy has already signed up customers including Google, Coca-Cola, eBay, Wal-Mart, Staples, Bank of America, Cox Enterprises, and Fedex Express, a unit FedEx—further fueling excitement about the startup.

It’s no accident Schwarzenegger was invited to the Feb. 24 press conference. K.R. Sridhar, Bloom Energy’s Indian-born co-founder and chief executive, hopes government agencies and cities in California will start using the company’s portable power plants, called Bloom boxes or energy servers. “We will be in touch with them to make that happen,” Sridhar says.

Privately-held Bloom Energy has already gained significant momentum: The company says it has raised “hundreds of millions of dollars” in venture capital from the likes of venerable Silicon Valley firm Kleiner, Perkins, Caulfield & Byers. Board members include Powell; Eddy Zervigon, a managing director at Morgan Stanley; and T.J. Rodgers, the chairman of solar cell maker SunPower. And some of America’s biggest companies are installing Bloom’s modular power-plant-in-a-box system, attracted by the promise of being able to efficiently generate their own electricity on site while reducing their carbon footprint, lowering energy costs, and mitigating the risk of power outages.

Some industry analysts remain skeptical, pointing to a long list of fuel cell startups that have never managed to turn a profit. "I am pretty sure that when we learn more about Bloom Energy we will see that it works technically, but the costs are unapproachably high for the next 10 years," says Michael Liebreich, chief executive of Bloomberg New Energy Finance, an energy research consultancy. "We already have a lot of those solutions."

Consider the case of two companies that make the same type of fuel cells as Bloom Energy. Ceramic Fuel Cells Ltd, an Australian solid-oxide fuel cell company created in 1992, is still not profitable, says Jacob Grose, a senior analyst specializing in alternative power and energy storage in the New York office of Lux Research. Neither is Ceres Power Holdings,a publicly-traded British fuel cell company founded in 2001. It reported losses of £8 million ($12.24 million) last year on revenues of £1 million ($1.53 million).

Fuel Cell Energy, an established Danbury (Conn.) company that uses a different flavor of fuel cell, also has struggled. The company's power plants have generated more than 340 million kilowatts of electricity for big business customers like Pepperidge Farm (a unit of Campbell Soup) using a variety of fuels, including wastewater gas, biogas from beer and food processing, and natural gas and other hydrocarbon fuels. Yet the company reported just $80 million in revenues in 2009, with losses of $72.5 million.

The key to Bloom Energy's success will thus be whether it can break this pattern and sell its energy servers profitably. Bloom Energy says it will prevail where others have failed because its technology is distinct in key ways. The company claims to use lower-cost materials, allowing its boxes to be more easily mass produced and affording them a wider potential market. Bloom also says its solution is more efficient at converting fuel to electricity; is more easily deployed and maintained than alternatives; and has the ability to work with a wide range of renewable or traditional energy sources.

Bloom executives concede that fuel cells have so far under-delivered on their promise. That's why the eight-year-old company has been so secretive until this point: It wanted to demonstrate solid experience with real customers to prove it's really different. Bloom has now revealed that it made its first commercial installation in July 2008, and that since then, its boxes have collectively produced more than 11 million kilowatt hours of electricity and saved 14 million pounds of carbon dioxide—the equivalent of powering 1,000 American homes for a year and planting one million trees.

The company's ambitions go beyond fueling corporations to powering individual homes. Bloom boxes also could reduce dependence on gasoline-powered vehicles by generating electricity for hybrid or electric cars. And when the cells are run in reverse, they output hydrogen, which could power hydrogen vehicles, if they ever take off. Sridhar is especially excited about the potential for Bloom boxes in emerging economies, where he says they could bring power and light to remote villages now cut off from the power grid—potentially boosting education, health care, and access to clean water and refrigeration.

That said, he acknowledges it will take at least three to five years before Bloom boxes reach "grid parity" for home use, or price competitiveness with traditional residential-scale electric supplies. And no timetable has been announced yet for an international rollout of the technology.

For now, the focus is on big business customers in the U.S., who use Bloom's energy servers as a complement to traditional power supplies. The company says that in commercial applications, it can already generate power more cheaply than via traditional fossil fuels—for about 9 to 10 cents a kilowatt hour, vs. typical rates of 13 to 14 cents for power from the grid. Bloom's corporate boxes cost about $700,000 to $800,000 and have a three- to five-year payback period, the company estimates. "We are twice as efficient as the U.S. national grid, which means we can produce the same amount of electricity for half the fuel and half the carbon footprint," Sridhar says.

Analysts say that Bloom could do especially well in U.S. states that subsidize alternative energy technologies, such as California, New York, and Connecticut. California's Self-Generation Incentive Program, for instance, provides approximately $83 million for clean power technologies annually, including fuel cells, and has been extended to 2015. Fuel cell projects up to 3 megawatts are eligible for subsidies of up to $4,500 per kilowatt of capacity if they run on biogas and up to $2,500 per kilowatt if they use natural gas.

What's more, in October, 2009 California's governor approved a new feed-in tariff for renewable power generation installations, a mechanism for utilities to buy energy that customers produce on site. "In California the economics might work out very well for Bloom and the same might be true in New York and Connecticut," says Lux Research's Grose. "But you won't see it have nearly so much success in other states."

Like other alternative energy companies, Bloom still has to prove that it can scale and be competitive without subsidies if it really wants to bloom wherever its boxes are planted.

Guest blog post from Jennifer L. Schenker.

This blog post was adapted from www.informilo.com. Click here to read the original posting, provided courtesy of Informilo.