The Silicon Valley green startup is selling power by the watt, with no up-front cost
With its compact fuel cells that can generate electricity with low carbon emissions, Bloom Energy is one of the most hyped companies among Silicon Valley's growing roster of green startups. Bloom unveiled its generator on 60 Minutes last February and boasts A-list investors (John Doerr of Kleiner Perkins Caufield & Byers), board members (Colin Powell), and customers (Google, Coca-Cola).
Yet it has long been unclear whether Bloom could generate power at competitive prices on a large scale. On Jan. 20, Bloom announced a new payment option that it says moves it closer to that goal. A program called Bloom Electrons offers 10-year contracts for metered electricity at 5 percent to 20 percent below the grid rate in California. Before Bloom's new payment method, customers had to pay $700,000-plus for a unit that provides 100 kilowatts of electricity (about what 100 U.S. homes might use).
Paying off that investment typically takes at least three years, says KR Sridhar, Bloom's chief executive officer and creator of its fuel-cell technology. Now, "we give them instantaneous payback," Sridhar says, "without them having to put any capital up front." Wal-Mart Stores, Coca-Cola, and Caltech, among others, have signed up for the program. "The economics were an obvious win," says Dean Currie, vice-president for business and finance at Caltech. Bloom's plants already supply half the power needs at two Walmart stores in California, and the retailer plans to add them elsewhere under the new payment plan.
For now, Bloom's technology is available only in California, where state subsidies of up to $2.50 per watt for fuel-cell installations help the company undercut grid prices. Bloom Electrons operates as an independent company, buying fuel cells from Bloom and selling electricity to customers. The new company, with more than $100 million in funding from Credit Suisse Group and Silicon Valley Bank, receives federal grants for up to 30 percent of what it spends on the fuel cells.
Research from Bloomberg New Energy Finance estimates Bloom can produce power at 14c per kilowatt-hour over 10 years vs. the average U.S. commercial rate of about 10c per kWh. However, with long-term natural gas contracts and state and federal incentives, Bloom can get its price below 7c. Sridhar promises even lower rates soon. "In three to five years we will have a product that requires no subsidy," he says.
The heart of Bloom's technology is a fuel cell a bit bigger than a playing card that generates enough power to run a light bulb. These are stacked and bundled into modules, then arranged in a box about the size of a shipping container that can produce 100 kW. Each cell consists of a ceramic electrolyte coated on both sides by proprietary inks. Unlike most hydrogen fuel cells, they require no precious metals; Bloom uses zirconium oxide powder, which is readily found in beach sand. The cells are fueled by natural gas or biogas captured from landfills. The gas passes over one side of the cell while air heated to more than 800 degrees Celsius passes over the other. This triggers a chemical reaction that releases electricity, steam, and carbon dioxide. The air is initially heated by burning gas, but after the first few hours the cell recycles heat.
With their compact size and clean, quiet operation, Bloom's fuel cells can be installed almost anywhere, eliminating the need for transmission across a grid, where roughly 10 percent of power is lost. And the conversion from fuel to electricity happens in a single step. A typical power plant, by contrast, burns fuel to produce heat, which spins a turbine that creates a charge in copper coils—losing energy at each conversion. Bloom says its cells using natural gas emit 30 percent to 60 percent less carbon than a gas-fired power plant does.
The challenge for Bloom is scaling up production to meet growing demand. "The manufacturing of a fuel cell is a really complicated process," says Bloomberg New Energy Finance analyst Shu Sun. "It's not a hard science. It's more trial and error." Bloom currently makes one 100 kW box per day at its pilot plant in Sunnyvale, Calif. Sridhar acknowledges that the output is tiny but says it's growing fast. "Two years ago, we used to build one box a month," he says. "We are honing this here in the U.S. with the hope we will be able to deploy this model across the world."
The bottom line: The Valley's Bloom Energy believes a new payment model, with no initial investment from customers, will boost the market for fuel cells.