Thursday, February 25, 2010

Fuel Cell Déjà Vu

A small start-up company just launched an amazing new product to much fanfare: a novel fuel cell device capable of running on natural gas and potentially small enough to fit in your basement and power your entire home, replacing the electricity you buy from the grid. That proposition looks so compelling that builders will start incorporating them into new houses, so that the cost of the fuel cell would be absorbed into the mortgage a buyer takes out, making monthly power bills a thing of the past; you just pay your mortgage and your gas bill. Would it surprise you to learn that I'm not describing the "Bloom Box" fuel cell featured on last Sunday's "60 Minutes", but rather a home fuel cell designed by a small company in upstate New York called Plug Power Inc. in the late 1990s? Plug Power is still in business, and they still sell fuel cells of various sizes, including a home model, but the revolution in distributed power that their device was expected to launch hasn't occurred, at least not yet. The reasons why might shed some light on the hype surrounding Bloom Energy.

The late-90s' arrival of residential fuel cells that I mentioned above was a development that intrigued me in my professional capacity as a strategist and scenario planner for Texaco, Inc. Small fuel cells looked like a clever way to circumvent grid bottlenecks and reliability problems, using a platform that might eventually allow them to be built more cheaply and require less maintenance than either micro-turbines or the gasoline or diesel generators that dominated the small generator market. They also had the potential to increase the size of that market tremendously. (Rooftop solar was another attractive distributed power option, but without lots of expensive storage it wasn't and still isn't a recipe for 24x7 independence from the grid.)

I'm sure there are many explanations for the failure of home fuel cell sales to take off then or subsequently, including the high cost of the units, which was partly driven by the precious metals requirement of the Proton Exchange Membranes at the heart of these small fuel cells, which were similar to those being developed for cars. Bloom may have cracked this part of the puzzle by using lower-cost raw materials and choosing solid oxide fuel cell technology that can run directly on more complex fuels like methane, rather than requiring the fuel source first to be reformed into pure hydrogen--a step that adds to investment and operating costs and consumes some of the energy in the fuel, reducing overall efficiency.

Another key element of the economics of fuel cells relates to their operating costs, chiefly fuel. This was a problem for Plug and it remains a problem for Bloom, particularly at the residential level. While industrial users and commercial sites can negotiate gas supply contracts at competitive long-term rates that should allow cost-effective power production onsite, residential customers pay somewhat more and are exposed to significant seasonal and annual price volatility--much more than on electricity rates. Through November the average US residential natural gas price last year was $12.86 per thousand cubic feet (MCF). That's close to the weighted average I paid last year of $12.46, which was quite a bit lower than the $15.55 I paid in 2008, thanks to lower gas commodity prices. Based on that price and knowing the unit's "heat rate"--the amount of gas required for each kilowatt-hour (kWh) produced--I can calculate the fuel cost of power. At the stated 6,610 BTU/kWh, and using last year's US average residential gas price, that works out to $0.085/kWh. So even if the device were free, that's the least I'd have paid for electricity coming out of it last year. If you live in California or Long Island, that's pretty cheap power. However, if you live somewhere like Virginia, where my average electricity rate last year was just under $0.12/kWh, all-in, the savings would be much smaller. At just under 10,000 kWh per year of usage, that would have saved me about $340, setting a pretty low upper limit on what I'd be willing to pay for a Bloom Box, even after factoring in the various federal and state tax credits available.

Now, we can argue all of the benefits of producing your own power, particularly if you live in an area subject to power outages during storms or heavy snow. Self-sufficiency is an appealing idea for many. And there's clearly an emissions benefit here; just how large depends on your local generating mix. At 0.77 lb. of CO2 per kWh the Bloom Box beats the national average by about 40%, though it's hardly on par with rooftop solar or residential wind--a singularly expensive distributed energy technology--or indeed with what your regional grid emits if it includes a high proportion of hydro or nuclear power. Potential purchasers of Bloom Boxes will need to assess what such attributes are worth to them.

The enthusiasm that surrounds a new (or at least new-seeming) technology such as this is understandable, and I can't help being infected by it to some degree. At a minimum, it reminds me of how jazzed I was about these possibilities the first time I encountered them more than a decade ago. However, for Bloom and other small fuel cell suppliers to fulfill that potential, a lot of things will have to break their way, including moving rapidly down the cost curve to make these devices as cheap as possible, as well as some good luck concerning the overall economy, and particularly the housing market, especially its new-construction segment. Meanwhile, if the price of rooftop solar continues to fall, fuel cells could face stiff competition, while restrictions on the production of shale gas could boost natural gas prices and thus the net cost of electricity from a home fuel cell. I'll be watching Bloom Energy's progress with great interest as they attempt to develop this market.

1 comment:

PLUG stock quote said...

This really is what I've been finding all day about Plug Power is still in business thank you for sharing..