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November 28, 2016

Fuel-cell makers strike out on major CT deals

HBJ PHOTO | Matt Pilon Doosan Fuel Cell execs Sathya Motupally (left) and David Giordano say they are disappointed none of the company's energy projects were selected in two state energy procurements.
HBJ PHOTO | Matt Pilon Fuel-cell company execs discussed their industry outlooks this month in Hartford.
PHOTO | HBJ File A Doosan fuel cell in Hartford.

Connecticut over the years has nurtured its fuel-cell industry perhaps more than any other state, offering policies and financial perks that have made the miniature power plants more economical to manufacture and purchase. But two major state clean-energy procurements, which failed to select fuel-cell projects, have revealed the potential limits of that support and dealt a setback to the industry.

The Department of Energy and Environmental Protection (DEEP) last month notified winning bidders in the state-run energy programs, which are expected to lead to the purchase of nearly 800 megawatts of clean-power generation by utilities in Connecticut, Massachusetts and Rhode Island, helping each state reach toward their renewable-energy goals.

Solar developers that bid into the request for proposals (RFP) were the main winners in the selection process, while about a dozen proposed fuel-cell projects were left on the sidelines. That includes bids involving South Windsor's Doosan Fuel Cell, Danbury's FuelCell Energy and California's Bloom Energy — some of the largest manufacturers of stationary fuel cells in the world.

State officials said the fuel-cell bids were more expensive compared to other proposals, and could have led to higher energy prices for individual and business consumers at a time when the state's high energy prices are already a major concern.

The results represent a blow for an industry that has steadily gained traction, particularly in Connecticut, California and New York, but has struggled to turn a profit.

Connecticut fuel-cell manufacturers viewed the state procurements as unique opportunities to capture significant new business and revenues. The RFPs offered the rare chance to build large fuel-cell plants, whose power could be sold to utilities under long-term contracts.

Traditionally, Connecticut incentives have focused on smaller fuel-cell projects with generating capacities of only several megawatts.

FuelCell Energy, to which the state has pledged as much as $30 million in loans and tax credits to expand its Torrington factory, hoped to sell and service 63 megawatts of its fuel cells to a proposed development in Beacon Falls.

Instead, FuelCell's share price plummeted 28 percent when it announced Oct. 25 that the project had not been selected as part of the RFP process. Its shares have not recovered since, and the Beacon Falls project's viability now remains in question.

“If you want a clean-energy economy, you've got to focus on the economy side of it, as well as clean energy,” FuelCell Vice President Frank Wolak said during a panel discussion this month in Hartford hosted by the Northeast Electrochemical Energy Storage Cluster (NEESC).

Meanwhile, four bids involving privately-held Doosan could have grown the South Windsor company's Connecticut installations to more than 50 megawatts, an increase of approximately five-fold. None were selected.

“Connecticut saying 'we're the world capital of fuel cells and not supporting fuel cells is very disappointing,' ” Sathya Motupally, Doosan's chief operating officer, said at the NEESC conference.

Motupally's comments came shortly after Gov. Dannel P. Malloy addressed attendees at the Nov. 17 event, explaining that DEEP's evaluation team determined the fuel-cell bids were simply too expensive when compared with other technologies, mainly solar.

Since DEEP will direct utilities to purchase electricity from chosen projects, awarding contracts to fuel-cell developments could have translated to higher energy bills for businesses and consumers.

“One of the things you don't want to do is burden the people of Connecticut with higher long-term energy costs, because that's actually something we've worked very hard at combatting and made substantial progress on,” Malloy said in an interview after his speech.

The governor said he is open to a discussion of how the state evaluates and compares such bids. In the recent procurements, 75 percent of the scoring was based solely on price, which put fuel-cell projects at a disadvantage. Other benefits, such as positive impacts to the state's economy, were less relevant in the selection process.

Malloy said he wants state government to work more closely with the industry — which claimed 3,400 direct, indirect and induced jobs in 2015 — to figure out ways the state can help boost both the major manufacturers and the hundreds of firms that supply them with parts.

“We've got to find ways to work together beyond the grants the state's made to some of you, beyond the investments we've made with some of you,” Malloy told industry executives. “I think we have to put our heads together to figure out how we can drive more acquisition of fuel-cell and hydrogen technology.”

Discussions about new ways to boost the industry could start in January, as DEEP begins to update the state's overall energy strategy.

Joel Rinebold, chair of NEESC, which is administered by the Connecticut Center for Advanced Technology, said he would support a different methodology for evaluating fuel cells.

“We do need to take into consideration price, but we also have to take into consideration the value these machines bring in for clean, reliable energy and also the job creation aspects of it here,” Rinebold said.

Malloy highlighted the state's financial incentives for fuel-cell-powered “microgrids” launched after major storm-related power outages in 2011. An 800-kilowatt microgrid went live in Hartford's Parkville neighborhood this year, which will provide power to select buildings if the grid fails.

In addition, Malloy said there may be ways for the state to encourage pairing fuel cells with wind or solar technology.

Rinebold said he was “pleased the governor is thinking in those terms.”

DEEP Commissioner Rob Klee, whose agency has overseen three clean-power RFPs since 2013, said he was struck by the competitive pricing in the recent rounds.

“The pricing, particularly for folks who made the cut, was really dramatic and continues to demonstrate there is plenty of cheaper and cleaner [power] out there,” Klee said.

Klee declined to disclose how much more expensive fuel-cell power would have been, but said DEEP is determined to help find “the right fit” for fuel cells and a variety of other energy technologies, from anaerobic digesters to battery storage.

More than price

Fuel-cell company executives acknowledge that their technology remains more expensive than other clean-energy options, even though prices have been dropping.

That gap could be exacerbated in the coming year, since solar energy will have a federal tax credit and fuel cells may not. Congress has not renewed the investment tax credit for fuel cells, which expires next month.

Manufacturers argue that fuel cells — which use natural gas or biogas to produce electricity through an electrochemical process — have unique benefits that should be weighted more heavily by DEEP.

They say fuel cells are one of the cleanest and most efficient ways to produce constant power using fossil fuels. Solar and wind are cleaner energy sources, but produce energy intermittently because they rely on sunny or windy days.

“Fuel cells will not catch solar on a levelized cost of energy basis,” predicted Adam Forni, a senior research analyst at market research firm Navigant, who covers the sector. “Where they do have an advantage is they can operate 24-seven.”

Forni said fuel cells may have a sweet spot between 200 kilowatts and 2 megawatts. Massive projects, such as the Beacon Falls park, have steeper (and often cheaper) competition.

“The 63-megawatt park sounds nice, but at that size you're butting up against large natural gas turbines,” Forni said.

Besides hoping state officials will score future procurements differently, fuel-cell manufacturers also called for the state to renew one of its marquee industry-incentive programs, known as LREC, or Low Emission Renewable Energy Credit.

Headed into its fifth and penultimate year, LREC has approved incentives for approximately 50 megawatts worth of fuel cells, according to reports submitted by Eversource and Avangrid to the Public Utilities Regulatory Authority.

While there is uncertainty ahead at both the state and federal levels, Doosan's Sathya said Connecticut still feels like a good home for fuel-cell makers. “Connecticut has probably been the best state for fuel cells over the past few years,” he said. “Our hope is it will continue to be a very good state.”

Editor's note: DEEP released its full list of RFP selections on Monday, after this story went to press.

Read more

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FuelCell’s 4Q loss climbs on weak sales

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