Connecticut's fuel cell industry braces for potential change
Connecticut's fuel cell industry braces for potential change
Monday, July 2, 2012
Before the clean energy world knew about fuel cells, United Technologies knew about them. UTC pioneered the modern fuel cell for NASA beginning with the Apollo space program in the 1960s through the end of the shuttle program last year.
But UTC's love affair with fuel cells could be about to end. In the last several weeks UTC's CEO and CFO have made statements indicating that the sale of its storied fuel cell unit, UTC Power, is under consideration to raise capital for its purchase of Goodrich.
While UTC has declined to comment further on the subject, the situation has given rise to more than a parlor game of "will-they-or-won't-they." It magnifies issues related to the U.S. fuel cell industry as a whole. It also poses potentially serious questions for Connecticut, where the largest fuel cell supply chain in the world has grown up anchored by UTC Power based in South Windsor and FuelCell Energy with headquarters in Danbury and manufacturing in Torrington.
"What we've tried to do is not to help a particular company, but to build an industry," said Joel Rinebold, director of energy initiatives at the Connecticut Center for Advanced Technology. He said there are nearly 600 companies in Connecticut with ties to the fuel cell industry accounting for more than 2,500 jobs and nearly $500 million in total revenue. "When you build an industry companies will come to you and I believe that's happened."
The question is, will they stay?
Mini power plants
Fuel cells use hydrogen and oxygen to make energy in a noncombustion process that also produces byproducts of water and steam that can be used for hot water and heat. This makes them extremely efficient. While they are considered "clean" energy, they are not "renewable" energy, because in most cases the hydrogen is produced using natural gas.
UTC Power and other companies have developed fuel cells for automotive applications, but Connecticut's fuel cell industry is largely stationary fuel cells: essentially mini power plants that run and heat large industrial facilities, college campuses and other structures.
UTC and Fuel Cell Energy make the largest units in the world, 400 and 300 kilowatts, respectively. Several can be stacked to supply power to the electric grid, a practice that has garnered far more interest outside the U.S., though Connecticut may be close to sanctioning its first such facility.
It's by no means certain that UTC Power will be sold or that if it is, new owners would leave the state or even the country. But the situation is a reminder that without broad nurturing, the U.S. fuel cell industry could suffer the same fate as the solar industry and be snatched up by another nation that better recognizes its potential.
Countries like South Korea have policies that embrace for fuel cells, and it's become a huge market for UTC Power and Fuel Cell Energy, which has partnered with the Korean energy giant POSCO for several years. Just last week, Fuel Cell Energy finalized a joint venture with Fraunhofer IKTS in Germany, one of several European countries that support fuel cell use and development.
While 80 percent of UTC Power's business has been in the United States, the other 20 percent is in Korea. FuelCell Energy said its business has been evenly split in and out of the U.S. But its entire backlog, its largest since the company was founded in 1969, according to Vice President Frank Wolak, is overseas.
"Ideally we'd like to develop federal policy to advance the fuel cell industry as whole as Korea has," he said.
The worry is that as markets develop offshore, it will be more efficient and cheaper to locate fuel cell manufacturing closer to them. And that a player of UTC Power's size -- just over 400 employees, though down from recent years and now smaller than FuelCell Energy, which has more than 500 employees -- would fuel an exodus were it to leave the state.
"I think we've created a pretty good ecosystem here in Connecticut for development of fuel cells," said Trent Molter, a 28-year industry veteran and founder five years ago of fuel cell-related Sustainable Innovations. "But anytime you have a disruption in the ecosystem, there's going to be ripples. What those ripples will be -- hard to say."
A global viewpoint
She said her home base -- Edinburgh, Scotland -- gave her a unique global view of the fuel cell industry. "In the end of the day this is an industry for the entire U.S. to lose," she said, calling concerns about the fuel cell industry within Connecticut's borders "small-thinking."
"Looking at the size of the fuel cell industry," she said, "there is a solid base of fuel cell companies in the U.S. that could be global leaders. And I don't say that lightly."
Rep. John Larson, D-1st District, a longtime fuel cell champion and founder of the House Hydrogen and Fuel Cell Caucus in 2004, was equally worried that despite a visit from U.S. Energy Secretary Steven Chu to UTC Power last year, inconsistent federal support for the fuel cell industry could let it slip away.
"It IS America's to lose," he said. "I am very concerned about that."
He said he had not talked with UTC about a potential sale but indicated, as did others, that while the fuel cell industry in the U.S. is growing, it may not be at quite the pace companies had hoped.
"I have always admired UTC for carrying fuel cell technology at a loss for a number of years," he said.
"(Former chairman and CEO) George David would often remind me, as would (current CEO and chairman) Louis Chenevert, 'We believe in their science and innovation,' " Larson said.
Connecticut a 'prime' state
At the moment in Connecticut, fuel cells are being eyed as centerpieces for microgrid projects and small-scale applications after getting something of a public relations boost after Tropical Storm Irene and the October snowstorm when schools powered by fuel cells were able to function as shelters. The microgrid effort has brought a flurry of interest from non-Connecticut companies looking to do business here, though not necessarily establishing a manufacturing presence.
California-based Bloom Energy, while declining an interview request, has filed with the secretary of the state in Connecticut to do business here, and other company leaders said Bloom's representatives have been visible at meetings. But Bloom's East Coast facility will be in Delaware.
ClearEdge Power, based in Oregon, began seeking business here at the beginning of the year, looking to position its 100 kilowatt and 5 kilowatt fuel cells for microgrids and as backup generation. A 5 kilowatt fuel cell, which can run a large home or small business, costs about $55,000.
"We see Connecticut as really one of the prime states favorable towards stationary fuel cell technology in our size and range," said Neal Starling, senior vice president of sales and marketing.
Starling said ClearEdge is also discussing microgrid possibilities with several communities, though he declined to name them.
In the meantime, many industry observers worry that a state vs. state fuel cell competition with the top players -- Connecticut, Ohio, New York, South Carolina and Virginia, as well as Vancouver in Canada -- vying for companies instead of working together will also hurt the industry.
"I think what's good, Connecticut typically gets the phone call because of the supply chain." said Robert Friedland, president of Proton OnSite, a Wallingford-based fuel cell-related hydrogen company he founded in 1996.
But he was also among many fuel cell company leaders who said they constantly get calls from other states asking them to move there.
"It's a waste of our time fighting between Connecticut and New Jersey or Connecticut and Massachusetts," he said. "You miss the bigger picture."