Tag Archives: Bloom Energy

Steven Chu maintains conservative stance on fuel cells

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The U.S. Department of Energy (DOE) recently announced that it “is accepting applications for a total of up to $74 million to support the research and development of clean, reliable fuel cells for stationary and transportation applications.” This relatively small number is not much of a surprise, since the head of the DOE, Steven Chu, has previously made clear that he feels the “hydrogen economy” is not the future of transportation, and he has slashed budgets accordingly (see the May 13, 2009 LRPJ – client registration required). 

Indeed, under the Bush administration, the Department of Energy’s (DOE) budget for fuel-cell-vehicle development, including hydrogen-storage technologies, infrastructure, and various demonstration projects averaged hundreds of millions a year. Specifically, it was about $250 million annually in FY 2008 and FY 2009, and totaled $1.3 billion in the last 10 years. Following Chu’s appointment, the same budget dropped to about $70 million in FY 2010.

However, it’s significant that the recent grants are for both “stationary and transportation applications” because Chu – and Lux Research – believe that stationary applications for fuel cells are much more promising in the near term than fuel-cell vehicles. In a 2009 interview with MIT’s Technology Review, Chu said, “I think that hydrogen could be effectively a ‘battery’ in the sense that suppose you had a way of using excess electricity – let’s say a nuclear plant at night, or solar or wind excess capacity, and there was an efficient electrolysis way of turning that into hydrogen, and then we have stationary fuel cells. It could effectively be a battery of sorts.”

Lux Research will be looking into the “battery”-type applications for hydrogen in more detail in an upcoming report on distributed storage. In the meantime, we believe the best near-term opportunity for stationary fuel cells is not as an enabler for hydrogen storage, but rather a means to provide combined heat and power (CHP) in distributed applications (see the Lux Research Report, “Finding Fuel Cells’ Real Future.” Client registration required). To be sure, fuel cell makers like Bloom Energy, Plug Power, and Nordic Power Systems still confront numerous hurdles as they seek to sell into the embryonic CHP market – high cost being first among them. But CHP remains a more likely driver for significant adoption of fuel cells by 2015 than the applications that Honda and Toyota are pursuing.

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Will PetroAlgae and Gevo poison the IPO pond for other biofuel and biomaterial developers?

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In early August, PetroAlgae filed for an immodest $200 million IPO with the U.S. Securities and Exchange Commission (SEC). The filing contains a number of aspects that warrant closer scrutiny.

The company grows “selectively bred” strains of an aquatic algae-like plant called duckweed in open ponds. PetroAlgae claims its process yields up to 14,000 gallons of oil per acre per year (see the March 24, 2009 LRBJ – client registration required), and that its production is “economical versus $20/barrel oil.” Its prospective yield compares favorably with competitors’ claims, like Solix’s 2,200 gallons of oil per acre per year. But unlike Solix, PetroAlgae has had no success producing oil.

According to the company’s S-1 filing, it experienced net losses of $8.3 million, $20 million, and $30.3 million in 2007, 2008, and 2009, respectively, on zero dollars in revenue, ever. Even firms with much more significant product revenues have struggled in the current market. Solyndra withdrew its filing (see the June 24, 2010 LRSJ*), A123Systems’ stock is off over 60% from its initial pricing, and Codexis has shed 40% of its IPO value in just four months. So accompany with no revenue to date and very uncertain prospects for producing an economically competitive product is unlikely to be a winner. Despite its lofty claims, expect PetroAlgae to either withdraw its IPO, or flop mightily.

Gevo, which also filed for an IPO in early August, is looking to raise $150 million. Underwriters include UBS, Goldman Sachs, and Piper Jaffray. Gevo develops yeast to ferment corn, cane, or cellulose-derived sugars in order to produce butanol and isobutanol (see the August 11, 2009 LRBJ*). This filing does not come as a surprise, as we heard from our network several months ago that a Q3 filing was forthcoming (see the April 27, 2010 LRBJ*). This news comes only a few days after Gevo announced the acquisition of a Minnesota ethanol facility it planned to retrofit into an isobutanol production plant. The retrofit will cost $17 million, and will produce 18 MGY of isobutanol when complete in Q1 2012. According to Gevo’s S-1 filing, its net accumulated deficit is $50.3 million, with a net loss of $8 million in Q1 2010 alone. 

Although Gevo’s (relatively) capital light business model is a reason for praise, its S-1 indicates that it will need to invest another $17 million in the Minnesota plant to retrofit. That’s in addition to the $20.7 million for the plant itself – a steep bill to foot with no revenues in sight for almost two more years, even if all goes as planned. In its filing, Gevo reports it “expects our relationships with customers such as Total Petrochemicals, Lanxess, Toray Industries, and United Airlines to contribute to the development of chemical and fuel market applications of our isobutanol.” The relationships that Gevo develops with these companies (and other commercial chemical and fuel companies) will make or break the company – but the large losses and long time to revenue its asking investors to stomach might be enough to sink this IPO.

Both offerings are indeed risky in this environment, as we have seen Codexis shares drop from $13 per share at IPO to about $8 currently. Clients should maintain some healthy skepticism as these two firms prepare for risky and uncertain public offerings. Although Gevo has a better chance of success than PetroAlgae, both firms have the potential to poison the biofuels and biomaterials pond for years to come. On the heels of Codexis’s shaky debut, it won’t take much more bad news for investors to sour on the biofuels space. What’s more, with other recent IPOs like Tesla (see the June 23, 2010 LRPJ*) and IPO candidates like Bloom Energy (see the June 30, 2010 LRPJ*) looking uncertain, on top of disappointments like A123 and debacles like Solyndra, the “cleantech” theme risks ending its run as a Wall Street darling.

*Client registration required

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Is Bloom Energy a Better Place redux?

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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.

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