Bloom Energy, the previously secretive fuel cell startup, is finally going public with its story, appearing on 60 Minutes last week. In an interview with Lux Research, Bloom’s Stu Aaron told us that the company intends to produce electricity from natural gas at a lower cost to the customer than the grid. Stu claimed the cost of electricity over the fuel cell’s 10-year life is $0.08/kWh to $0.10/kWh (when running as base-load for 24 hours a day), including government incentives and assuming a $7/mmBTU natural gas long-term contract. Stu also confirmed that the 100 kW fuel cell system’s price without incentives is in the range of $700,000 to $800,000.
Although their technologies are different, there are a number of similarities between Bloom Energy and Better Place, which leases electric vehicle (EV) batteries and provides charging infrastructure via a monthly payment plan. Both companies raised hundreds of millions of dollars: Bloom has received over $300 million in investment over its eight-year history, while Better place raised $700 million to date, including $350 million Series B in January 2010.
Both companies are also heavily reliant on subsidies. Bloom’s California customers achieve the quoted electricity costs only because they pay for just half of the system’s capital expense, based on the generous 30% U.S. federal tax credit and the $2,500/kW California rebate (New York and Connecticut also have generous rebate programs for fuel cells, as do many countries around the world). Without incentives, we calculate electricity would cost $0.13/kWh to $0.14/kWh, with about $0.09/kWh from system cost and about $0.05/kWh coming from fuel cost. Note that this is high compared to average retail U.S. electricity costs of roughly $0.11/kWh. In the case of Better Place, without subsidies, a U.S. customer would end up paying some $689/month over eight years, while a conventional gas-powered vehicle would cost only $443/month (see the February 10, 2010 LRPJ – client registration required). But massive government EV incentives could make EVs competitive in specific markets under Better Place’s model – Denmark has offered a tax credit of $40,000 or more per vehicle and Israel has similarly generous subsidies in place – although additionally generous government support is needed to put Better Place’s infrastructure in place.
However, the final similarity between these companies is the most significant one: both sport valuations of over $1 billion (Bloom’s Series F places the company at $1.45 billion, while Better Place’s Series B puts it at $1.25 billion). Niche markets do little to satisfy expectations this high, and both companies have not been shy in claiming that their technologies will eventually find a place in every home. While neither company will live up to its aggressive claims anytime soon, Bloom has a better shot at unsubsidized profitability in the long run. If it can successfully mass produce reliable systems and convince customers to take on the responsibility to produce their own electricity, Bloom should be able to bring down costs through high-volume manufacturing to the point where it will be competitive with electricity from the grid in many areas while providing relief to increasingly overtaxed transmission and distribution systems. While Bloom’s cells running on natural gas are not necessarily greener than combined-cycle gas plants, its economics justify a brighter long-term future than Better Place’s. However, whether it can do so quickly enough to justify its billion-dollar valuation remains to be seen – and will depend heavily on where government subsidies roll out.