(September 2014) Our annual ranking of shareholder performance tracks the long-term returns of leading utilities. But can it predict success in a transformed energy market?
Fuel Cells: White Knight for Natural Gas?
New technologies cloud the future for the traditional electric utility, but offer hope to the gas industry in boosting residential demand.
Investors apparently were paying attention in January when a Web-based analyst predicted Plug Power's stocks could gain 10,000 percent or more by 2010. Before month's end, the fuel cell manufacturer, which doesn't expect to turn a profit before 2004, saw a ninefold increase from the $16 closing day share price at its October initial public offering. That month Avista Corp. saw a sizable jump in its stock performance when Microsoft chairman Bill Gates took a 5.1 percent stake in the utility holding company. Analysts linked the investment to interest in Avista's fuel cell unit, Avista Labs.
The story has been much the same for any company doing work in fuel cells. Do the facts justify the hype?
Market potential is all over the board. Just one fuel cell design - a 200-kilowatt power plant from ONSI Corp., a United Technologies Corp. subsidiary - has reached commercialization. Nearly 200 of the units have been installed worldwide, but at about $4,000 per kilowatt, price remains a big drawback. On the residential side, EPRI has identified at least 10 fuel cell manufacturers positioned to field test products by next year. Vehicle applications could be deployed in the 2003-2005 time frame, according to EPRI. Batteries and standby power represent yet another fuel cell application. The National Fuel Cell Research Center predicts annual revenues will exceed $10 billion by 2010.
Despite potential risk, many Fortune 500 companies have invested substantial sums in fuel cell technology, including General Electric, DuPont, Honeywell and Westinghouse. Energy companies are following suit: DTE Energy, Sempra Energy, IDACORP Inc., KeySpan Energy and NiSource, to name a few.
"Some [energy companies] are taking a wait-and-see attitude," says Dan Rastler, area manager of distributed resource technologies at EPRI. "Others are really taking a serious look at it and coming to us for information to help them develop their strategies. ¼ As companies start developing their retail strategies, they're trying to understand if this is an option to include in their portfolio as they look at developing a retail service option."
But fuel cells and other distributed generation technologies have long been viewed as a threat to conventional generation. Some compare the advent of DG to the emergence of the personal computer, suggesting that on-site power eventually will replace the grid just as surely as PCs have eclipsed the mainframe. Although deregulation has prompted many energy companies to see DG as an opportunity rather than a threat, the fuel cell technology developed to advance electric generation ironically may hold the most promise for the residential natural gas market.
What are the implications of fuel cells for natural gas and electricity? Can issues of grid access and interconnection be resolved such that the tremendous investment in R&D pays off? More importantly, can customers be sold on the shift to on-site power and the attendant fuel considerations and up-front cost?
Salvation for Gas? It's an "Absolute Maybe"
Fuel cells run on hydrogen (or some hydrogen-rich fuel such