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Fuel Cells: Toying Around or Here to Stay?
Connecticut's fuel-cell industry has come to light - but is there enough investor heat?
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Business New Haven
9/3/2002
By: Nancy Barnes
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J. J. Smith, a Trinity College graduate who is a Windsor businessman, puts his hands on his hips, chin to the heavens, as he seeks to parse his confusion.
“I've heard a lot about cells lately, but they've all been Al-Quaeda,” he says. “This thing [the fuel cell] doesn't make sense to me. Is this producing fuel or using fuel? What's the deal here? Some words are self-referential. The term 'fuel cell' tells me nothing.”
Smith is not alone in his confusion. The fuel cell remains an enigma to most Americans. Yet it has been touted as key to the low-carbon, fossil-free future necessary to stanch global warming, itself a slow and imperfectly understood process.
Its promise of power without petroleum possesses an undeniable cachet for a society still heavily dependent on foreign oil, especially when tensions in the Mideast run high and oil prices run higher. And its allure for a planet that is expected to double its energy consumption by the year 2035 is undeniable.
In Connecticut, it is also the basis for an industry that, although able to attract ample investors in the late 1990s, hovers perpetually on the brink of realizing its potential.
The fuel-cell process was invented by Sir William Grove, a Welsh scientist who combined hydrogen and oxygen to produce electricity and water in 1839.
Half a century later, the term “fuel cell” was coined for the device when engineers attempted to convert coal gas and air into energy. But not until 1959 did a fuel cell gain a practical application, and that merely powered a tractor.
Only when NASA decided to use fuel cells to power its space missions did funding for fuel cell products begin to flow. NASA needed a clean, reliable source of power, so the NASA contracts went to the United Technologies Corp.'s Pratt & Whitney division, and that was the genesis of the fuel-cell industry in the state.
Today there are roughly 25 companies in Connecticut that are either involved in or dedicated to fuel-cell technology, according to fuelcells.org, an online information service about the fuel-cell industry.
“There are a number of reasons why we are paying special attention [to fuel-cell technology],” explains Subhash Chandra, director of technology at Connecticut's Clean Energy Fund, an investment fund created by the state legislature to promote the production and use of clean energy in the state in 1998.
“First of all,” he says, “the technology is very attractive because it has many applications, from stationary power generation for small houses and buildings and putting fuel cells in the cars to having fuel cells power laptop computers.
“It is very clean, with very little emissions,” adds Chandra. “It can use a variety of fuels.”
As a result, the Clean Energy Fund, which is administered by the quasi-governmental agency Connecticut Innovations Inc. (CII) and invests in both educational and business ventures, today spends 50 percent of its budget on fuel-cell initiatives. Expenditures for the fund, which have totaled $35 million over its nearly five-year life span, are expected to reach $35 million annually by 2004, according to its chief operating officer, Robert Green.
Among the once-fledgling companies to which Connecticut monies have gone is Proton Energy Sources Inc., a fuel-cell technology firm that recently relocated from Rocky Hill to a more spacious facility in Wallingford.
Founded in 1995, Proton Energy Systems is today a public company with a market capitalization approaching $300 million. FuelCell Energy Inc. of Danbury, another fuel cell company, has a market value of $91 million.
William Ellis, a senior fellow at Yale University's School of Environmental Studies and formerly chief executive officer of Northeast Utilities in Canaan, argues that such fuel-cell companies are sustainable because, “The fundamental product itself is needed so badly. [The industry] may have difficulties contending with economics that don't work in its favor right now. It's a costly device - but lots of devices are costly to start with.”
Costly, indeed - especially in the area of mobile fuel cells designed to power automobiles. Among industry observers, Ellis' numbers are conservative, but even he estimates that such a fuel cell may well cost $3,000 or $4,000 per kilowatt. The equivalent per power unit cost of a gasoline engine may well be less than $100, he says.
“It's an enormous ratio,” he acknowledges. “How can you compete?” Ellis' answer is multi-pronged. As simplistic as it sounds, he points first to public education.
“Americans have shown a real dislike for any real increases in energy taxes, let alone those high enough to make it easy for these energies to compete,” he says. Ellis notes that the price structure of fuel does not include the costs of burning fuels in America, such as the pollution that carbon emissions cause.
He adds that, although global warming is difficult to quantify, “What you really need is for the American public in general to allow public officials to fold such computations into price.”
Ellis concedes that, at this stage, the fuel-cell industry is still a cottage industry, in which fuel cells - much like the Rolls Royces of yore - are made one by one.
“If they were to become truly assembly line operations where you had a large volume, the cost per unit would drop significantly,” he says. “Probably not to $100, by any means, but certainly to the point where you would knock the wind out of $3,000 or $4,000 [per kilowatt].”
Increased volume and new technology - as well as making gasoline prices at the pump reflect its full cost - would bring the cost of using fuel cells down, Ellis concludes.
One undeniable benefit of a fuel cell is that it is a co-generator. That is to say, it not only produces electricity but is also capable of producing heat.
The New York Police Department station in Manhattan's Central Park, for instance, uses electricity produced by fuel cells, but the heat that is produced is a waste product of the fuel cell process.
In New Haven, co-generation was one of the deciding factors in a decision by the city's Water Pollution Control Authority (WPCA) to submit a proposal to the Clean Energy Fund for installation of a single 200-kilowatt fuel cell there.
According to David Ljungquist, a spokesman for the Middletown-based energy services company Nxegen Inc., which manages energy for New Haven, the WPCA disposes of fats, oils and greases for the city of New Haven and other shoreline communities by heating the sludge in a storage tank. In the process it liquefies the fat, which comprises only about five percent of the sludge, and decants the water.
The storage tank, Ljungquist explains, is nearly at capacity. The installation of a fuel cell, which Nxegen predicts will take place next spring, will provide enough heat to essentially double the capacity of heating the city's sludge processing facility, although it will generate only about eight percent of the facility's electricity.
New Haven, Ljungquist continues, is also a “non-attainment zone” as far as air pollution is concerned. That means that the city does not meet federal air-quality standards, and that the city operates with stringent restrictions concerning the installation of any devices that produce pollutants.
“We have been told that the emissions from the fuel cell are going to be cleaner than the air that the WPCA takes in,” Ljungquist says. The fuel cell for this operation, a PC-25, comes from United Technologies, which remains the acknowledged leader in commercializing fuel-cell systems globally. In Connecticut, six fuel cells from the UTC Fuel Cells division also powers the Connecticut Juvenile Training School in Middletown at what is currently the largest fuel-cell-powered installation in the world. There, the cells not only provide all the school's electricity but also provide space heating.
Globally, the PC-25 fuel cell that United Technologies produces has found a broad range of applications, from breweries in Japan to a bus transportation system in Italy.
“I'm less sanguine about the group than I was in 2001,” says Gary Holdsworth, an analyst with the investment firm of Wedbush Morgan Securities, referring to the businesses within the fuel-cell industry broadly. He adds that the individual companies may be sustainable if the capital markets give them enough time.
“In the last several years, the capital markets have been less interested in funding enterprises,” Holdsworth notes.
“They [fuel cell companies] are making progress in lowering costs, but their costs need to come down more,” he continues. “And the real kicker is volume. A lot of these companies have not yet reached a level of commercial sales. [The industry's growth] is coming slower than I had expected.”
Holdsworth - and industry observers generally - give high marks to some Connecticut companies. Deep pockets are important right now, and United Technologies has them. Both Fuel Cell Energy and Proton also have sufficient capital, he says.
The relatively bright outlook for Connecticut's fuel cell industry is especially welcome news because, as the Clean Energy Fund's Green points out, “Fuel cells are going to be with us for a long, long time.”
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