Fortune 500 Firms Embrace Bloom Energy’s Fuel Cell Technology

Bloom Energy, a fuel cell company which aims to help homes and businesses generate their own electricity, publicly unveiled its technology and an impressive list of  Fortune 500 customers, at a February 24 press conference attended by California governor Arnold Schwarzenegger and former U.S. Secretary of State General Colin Powell.

The Sunnyvale (Calf.) company, which was named a World Economic Forum Technology Pioneer in December, has been in the headlines again this week after being featured on CBS News’ 60 Minutes (click here to see the video). Turns out customers already using the technology  include Google , Coca-Cola, eBay, Walmart, Staples, Bank of America, Cox Enterprises and Fedex Express, an operating company of FedEx,  further fueling excitement about the company.

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

Bloom Energy appears to have a lot in its favor: It 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, managing director of Morgan Stanley, and T.J. Rodgers, chairman of Sun Power. And some of America’s biggest companies are  installing its modular  power -plant- in-a-box system, lulled by Bloom’s promises that they will be able to efficiently generate their own electricity on site, reducing their carbon footprint while lowering energy costs and mitigating power outage risks.

But industry analysts remain skeptical, pointing to a list of fuel cell companies that have never been able 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 ten years,” says Michael Liebreich, chief executive of Bloomberg New Energy Finance, a research outfit. “We already have a lot of those solutions.”

Take the case of two companies that make the same type of fuel cells as Bloom Energy.  Ceramic Fuel Cells Limited, 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 publically listed British fuel cell company founded in 2001. It  reported £1 million in revenue in 2009 with losses of £8 million.

Fuel Cell Energy, an established Danbury, Connecticut company which uses a different flavor of fuel cell, has also struggled. The company’s power plants have generated over 340 million kilowatts of power using a variety of fuels including renewable wastewater gas, biogas from beer and food processing, as well as natural gas and other hydrocarbon fuels, for big business customers like Pepperidge Farms. Yet, the company reported $80 million in revenues in 2009, with losses of $72.5 million.

The key to Bloom Energy’s success will be whether it can sell its energy servers for more than it costs to make them, say analysts. Bloom Energy says it will succeed where others have failed because its product is distinct in four key ways: it uses lower cost materials,allowing it to be more easily mass produced, helping to cut costs and widen its market potential; is more efficient in coverting fuel to electricity; has the ability to run on a wide range of renewables or traditional fuels and is more easily deployed and maintained.

Bloom executives say they know that fuel cells have under-delivered on their promise. That is why the eight-year-old company has been so secretive. It wanted to first demonstrate real field experience with solid customers to prove it really is different. That is why it waited until now to reveal that since the first commercial installation in July 2008 Bloom’s boxes have collectively produced more than 11 million kilowatt hours of electricity, with CO2 reductions estimated at 14 million pounds – the equivalent of powering approximately 1,000 American homes for a year and planting one million trees.

This is only the start. The company has grand ambitions. It doesn’t want to just fuel businesses. It also wants  to fuel individual homes. And, since one of the byproducts of the Bloom fuel cell is hydrogen, the device could be used to create fuel for cars. Even if hydrogen fuel cells vehicles are never made, Bloom boxes could generate electricity for hybrid or electric cars. In addition to reducing dependence on power grids and gas stations in the developed world, Bloom wants to bring power and light to remote villages that are now cut off from power supplies, bringing access to education, clean water and refrigeration, says Sridhar.

That said, Sridhar acknowledges that 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.

Right now, the focus is on big business customers in the U.S., who  use the “energy servers”  as a compliment to traditional power grids. Already Bloom says it can offer power cheaper than traditional fossil fuels.  The systems, which cost $700,000 to $800,000 and have a three to five year payback period, are able to generate electricity for 9 to 10 cents a kilowatt hour, cheaper than the 13-14 cents per kilowatt hour typically paid by customers connected to the grid.

“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 predict that Bloom is likely to do well in states like California, New York and Connectict, which subsidze alternative energy technologies..  For example. California’s Self-Generation Incentive Program, which has been extended to 2015, provides appricimately $83 million for clean power technologies annually, including fuel cells. Fuel cell projects up to 3 megawatts are eligible for up to $4,500 per kilowatt when operating on biogas and up to $2,500 per kilowatt on 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.



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