While fuel cells have long been touted as the ultimate solution to transforming our carbon belching cars into clean green rides, U.S. Energy Secretary Steven Chu was recently quoted as suggesting that it could still be another 10 to 20 years before production-ready fuel cell cars begin rolling off the assembly lines. Auto industry execs are a tad more optimistic and see 2015 as the date when fuel-cell powered cars achieve commercial rates of production.
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Regardless of who's right, it's obvious that we're still quite a few years away from seeing a significant play in fuel cells for cars. However, for investors keen on placing their bet on this promising technology there are a number of companies busy applying fuel cells to applications that are likely to be commercially viable before cars.
Ready for Prime Time
One application that appears to be natural for fuel cells is standalone power. Small, highly-efficient power plants with zero emission profiles are ideal for offgrid or backup power applications. The cost of producing electricity from these units has fallen drastically in recent years, reaching the 10 to 15 cent per kilowatt hour level, which is competive with grid-supplied power in most jurisdictions. Unit sales growth has been fairly steady in recent years, mostly concentrated in states like Connecticut and California where government subsidies have helped things along.
Looking ahead, the market could experience pick-up as local legislation in major cities like London and New York aimed at reducing emissions could spur on more decentralized power generation. Existing installations are concentrated in relatively self-contained establishments like hospitals, hotel complexes and military bases where there are clear benefits to generating relatively cheap off -grid power and making use of byproduct heat. (For more, see Clean Or Green Technology Investing.)
The Cusp of Profitability
While major industrial companies like Fuji Electric and Siemens (NYSE:SI) have business units to make and market fuel cell power plant applications, the standout pure play in this market is Fuel Cell Energy (Nasdaq:FCEL). While the recent quarterly results confirmed that the company has yet to turn a profit from this business, a growing partnership arrangement with South Korea's leading power producer POSCO (NYSE:PKX) could move the company into the black sooner than many analyst are expecting. News of another order from POSCO helped lift Fuel Cell shares to a one-day gain of nearly 30%.
Another play in this space is Canadian outfit Hydrogenics (Nasdaq:HYGS). Like Fuel Cell, the company is still not profitable, but narrowed its loss significantly in its recent quarter, and has a $22 million order backlog, 90% of which will be recognized as revenue in 2009.
The Bottom Line
Emerging tech investing is a high-risk game. While many ideas crash and burn due to technical failures and/or a funding squeeze, the occasional concept pays off. If the market for stationary fuel cells expands beyond the niche they currently occupy, this could be that sort of winning concept. (For more on green investing, check out Top 10 Green Industries.)