Is the Fuel Cell Roller Coaster Heading Up or Down?

Author: Warren Leon, Clean Energy Group | Project: Clean Energy Innovation

blogphoto-Roller-CoasterFew clean energy technologies have seen sharper swings in their perceived appeal and popularity than fuel cells. In the years surrounding the millennium, fuel cells appeared to be making rapid technical and economic progress. Many industry representatives, analysts, and policymakers predicted that fuel cells would soon provide cost-effective power for stationary applications and motor vehicles. Significant venture capital funding and government support flowed into the industry.

But the technical challenges to large-scale deployment of fuel cells proved to be greater than anticipated and many of the early installations turned out to be less reliable or cost-effective than predicted. Investors started to get cold feet and state-level policymakers turned their attention elsewhere.

After the spotlight shifted away, the fuel cell industry continued to make steady, but slow progress. Fuel cell companies become more realistic about the challenges they faced and those states that continued to support fuel cell development retained few illusions about how quickly the technology could be widely commercialized.

There is now increasingly solid evidence that those steady efforts are paying off. Fuel cells are on the upswing, even if less dramatically than the earlier millennial predictions for the industry. A report this month by Fuel Cells 2000 on State of the States: Fuel Cells in America documents many promising developments:

  • Over the past year, more than 50 megawatts of stationary power have been either installed or purchased in the United States.
  • A competitive, self-sustaining niche for fuel cells has emerged related to forklifts and other materials handling equipment. Since early 2010, more than 1,500 fuel cell forklifts have either been deployed or ordered, and this trend should continue.
  • Many of the nation’s most important companies—including Coca-Cola, Walmart, and Whole Foods—have purchased fuel cells and are turning into repeat customers.
  • Additional states in all parts of the country, with bipartisan support, have taken steps that show that they view the fuel cell industry as important to economic development.

Last week witnessed the dramatic announcement that Bloom Energy would build a large East Coast factory in Delaware, creating 900 jobs. The Delaware state government is taking various steps, including qualifying natural gas fuel cells for the state’s renewable portfolio standard, to make this development a reality.

One of the significant factors helping fuel cells to gain traction in the marketplace is the increasing use of leases and other financial arrangements that require less up-front money on the part of purchasers. Along with improved warranties, these new financing approaches have shifted more of the performance and reliability risk from end-users to manufacturers and distributors. Although Bloom Energy has received the most attention for using a leasing model, other companies such as FuelCell Energy and UTC Power have also been experimenting with leasing programs.

So it increasingly appears that there is a solid foundation for future growth. Policymakers concerned about economic development have especially good reasons for considering how fuel cell technology can figure into their plans. For one thing, this is a domestic manufacturing industry in which the United States is the worldwide leader. In addition, unlike other clean energy technologies, there are few constraints on where fuel cells can be located. They provide base load power and are a way for businesses and institutions to benefit from clean energy development.

Nevertheless, it remains unclear whether the roller coaster will keep heading upwards. Publicly traded fuel cell companies have yet to be able to turn a profit. Competitors could emerge in other countries or American companies could be lured away to Korea or some other place that offers stronger financial incentives than the US. But, for the moment, the fuel cell industry is on the rise.

Google’s Clean Energy Tax Strategy: Other Companies Should Follow Suit

Author: Lewis Milford, Clean Energy Group | Project: Clean Energy Innovation

blogphoto-Money-TreeThe latest Google foray into clean energy could hold lessons for many other companies interested in clean energy investment.

It was announced a few days ago that Google has made what is reported to be a $280 million investment in SunCity, a company that leases solar panels to homeowners, thus eliminating a large up front capital cost. This leasing model has become an industry standard in solar and fuel cell projects. Bloom Energy, a much hyped fuel cell company, is using such a leasing model for its data center projects.

Once you dig a little deeper, this is not just a typical company investment. Rather, Google is reportedly setting up a “tax equity fund” that SunCity can tap to finance its projects. This is a way for Google to directly offset its corporate taxes with solar tax credits. It is most common for banks to be part of this kind of tax equity project finance to offset their profits- but with the financial crisis many banks pulled out of this market as they didn’t have large tax liabilities. This is one of the first examples of a large corporation using this vehicle.

The lesson from this new financial device? Virtually any large company with a serious balance sheet and corporate taxes to pay could use such a solar tax equity vehicle. This approach could open up billions of dollars of new equity for clean energy companies.

One of Google’s top energy officials, Rick Needham, confirmed as much in a recent article.

Needham thinks that there is a lot of opportunity for other large corporations, especially other technology companies, to make investments in renewable energy. If Google sparks interest from such sources of capital in providing equity, particularly tax-driven equity, to renewables, the knock-on effect on yields could be truly transformative. Google’s ability to break the tax equity oligopoly could be a market-moving event.

A major push should be undertaken to bring this new approach to the larger corporate community.

ARPA-E Needs Customers for its Clean Energy Breakthroughs

Author: Lewis Milford, Clean Energy Group | Projects: Clean Energy Innovation, Clean Energy Finance

blogphoto-ARPA-EThe Administration rightly has asked for increased funding for the DOE venture like funding of ARPA-E though the House budget decreases ARPA-E funding. Our friends at the Brookings Institution have supported the call.

That funding would be a good thing, but ARPA-E is missing something to make it truly a success – customers for its product.

Many new clean energy technologies that DOE now supports through loan guarantees or ARPA-E — such as storage or next generation solar — have no commercial markets today. The products are unproven, technically risky, and more expensive than fossil-fuel power sources.

That is as expected; they are designed to produce big payoffs further down the road.

But a program that focuses only on early research, while ignoring the longer-term, market realities, is problematic. Indeed, ARPA-E officials once said at a public meeting that they have a major problem with their program — they have no guaranteed customers for the projects they fund with hundreds of millions of federal research and development dollars.15 This is a major gap that can and must be overcome to make good on the excellent research funding that has been put in place.

The need for a customer was not a problem for the agency on which ARPA-E was modeled, the Defense Advanced Research Projects Agency (DARPA) of the Department of Defense (DOD). DARPA’s advanced military technologies had a ready customer — DOD itself. DOD served as marketer, guarantor, and ultimate customer to get these emerging technologies, regardless of cost, off the ground and into commercial readiness. DOD served all these key functions because national security was at stake.16

Unfortunately, in the case of energy security, no such customer exists for early-stage, clean energy technologies funded by ARPA-E and DOE. Unless the federal government steps in to fill this procurement role, these emerging technology investments may well languish in a research limbo, and the country will be the loser for it.

To overcome this gap, federal agencies, with states, could aggregate a small amount of their huge, annual electricity demand to pull early technologies into the market and at the same time prove their success to the private sector. Some of this gap could be filled by more creative requirements for utility procurement of emerging technologies, such as reverse auction mechanisms.

The federal government and the states together built the infrastructure we see every day – roads, bridges, highways, and rail. We need the same infrastructure partnership on clean energy, to create the power systems of this new century.