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Fuel Cells: White Knight for Natural Gas?

Fortnightly Magazine - March 15 2000

take a long time."

Residential adoption won't happen until the technology has advanced enough to be hassle-free, adds Ken Hall, manager of distribution activity at Edison Electric Institute.

"The last thing you want is to be watching the big game on Sunday and your energy source runs out of fuel." Hall says residential customers will demand that the technology provide electricity as seamlessly as the grid now provides it.

New Jersey Resources Corp. is looking beyond these technological questions. It sees in fuel cells and other distributed generation a means for increasing its gas throughput.

"It started with our view of the changes that are going on in the industry now," recalls Laurence M. Downes, NJR's chairman and CEO. The company viewed electric deregulation as an opportunity to expand beyond its primary business in natural gas distribution.

Speaking specifically about deregulation in New Jersey, Downes notes, "I think we have to be realistic in understanding there's a certain limitation in terms of the amount of savings that will be generated by the simple bundling and rebundling of the current model." In that context, he says, "Things like distributed generation begin to make more sense."

Downes says his company became aware of Plug Power and its residential fuel cells about two years ago. For NJR's strategy and customer base, which is 90 percent residential, the concept made sense for three reasons, says Downes: Plug Power provides an electric product for homeowners, reduces price volatility, and allows more efficient use of the company's gas infrastructure with no significant new capital investment.

On the commercial side, NJR made an equity investment in Capstone Turbine Corp., a manufacturer of microturbines.

"We want to get as many choices to the table here as possible, because from New Jersey Natural Gas' perspective, this helps our throughput without a significant amount of new capital investment," says Downes. "Most of our load is winter heating, and this is an opportunity for us to improve our load factor behind our citygate."

But Downes is quick to note that NJR does not view DG as a replacement for the electric company. "The grid is not going away," he asserts. "It's a complement and I think it's another choice for customers."

For Electricity, A Cost-Value Proposition

For the electric business, fuel cells and other distributed generation pose more uncertainty.

"We're at a threshold of an exciting era, but we aren't quite sure which way the era's going to go yet," says Chuck Linderman, director of energy supply policy at EEI.

Linderman concedes that the PC-mainframe battle is "probably a relevant analogy" for power production and distributed generation. But he shares the view of most experts that DG will complement, rather than replace the grid. Says Linderman, "It's going to depend on individual cost cases."

In other words, for large industrial facilities in regions where grid power is relatively expensive, DG technologies may make economic sense. Fuel cells also are being used where clean, reliable power is important, such as at call centers or other computer-intensive businesses.

For the energy company, fuel cells represent