A fuel cell developer aiming to build North America’s first “green” hydrogen supply network is running into financial troubles and facing skepticism from Wall Street analysts, dealing a setback to a technology at the center of the Biden administration’s efforts to decarbonize the economy.
Plug Power has invested hundreds of millions in its production capabilities, striving to open multiple green hydrogen plants so it can make 500 tons of liquid fuel a day by the end of 2025. A front-runner in the emerging industry, Plug Power is a corporate sponsor of five of seven hydrogen hubs selected by the Department of Energy for funding last month with $7 billion from the 2021 bipartisan infrastructure law.
But the company alarmed investors earlier this month by suggesting it could run out of cash over the next year after “unprecedented supply challenges” that have caused deployment delays.
“There is no assurance that our hydrogen production will scale at the rate we anticipate or that we will complete hydrogen production plants on schedule,” Plug Power said in a Nov. 9 regulatory filing. “There is a substantial doubt that we will have sufficient capital to fund our operations through the next twelve months.”
Known as a “going concern” disclosure, such warnings don’t always spell the end for a company, but they can hint at an impending bankruptcy of default. After the filing, the company’s share value tanked more than 40 percent, and several Wall Street banks have since downgraded its stock.
Yet Plug Power CEO Andy Marsh brushed off the Wall Street reaction as “overstated” and called the challenges part of the learning curve built into all pioneering endeavors. The language in its warning was based on “a very technical accounting rule,” he said in an interview this month after the filing.
“I have zero debt, and I could go out today and raise capital, which would resolve any of those issues,” Marsh told E&E News. “Two months from now — when you got the first [plant] of its kind running at this size; it’s producing hydrogen — everybody is going to sit back and forget the challenges along the way.”
Frank Wolak, CEO of the Fuel Cell and Hydrogen Energy Association, echoed that view, saying “at some point, everybody’s got to be a first mover.”
“Because Plug is at the forefront of this, it’s much more visible that they’re trying to move quickly, and they’re seeing the first situation of supply and other constraints,” he said.
Plug’s production push
Green hydrogen is not yet widely available in the U.S. or profitable, although the Biden administration is looking to the fuel to help the U.S. economy reach net-zero emissions by 2050. Marsh has projected that his firm is on the verge of breaking even after years of heavy losses.
The company is expanding into different parts of the hydrogen supply chain. That involves selling fuel cells for various applications, supplying hydrogen to customers and manufacturing equipment like electrolyzers, which are used to make hydrogen from renewable electricity.
Currently, Plug Power sources hydrogen from industrial gas companies but sells it at a loss to honor fixed-price contracts with customers, according to analysts. In 2021, the company moved to boost its financials by announcing its own network of production plants to make green hydrogen at one-third the cost of its purchases.
If it reaches 500 tons of green hydrogen daily by 2025, the company claims it will save 4.3 million metric tons of carbon emissions. But scaling up swiftly has proven difficult.
“They were committing to supply hydrogen to their customers,” said Citi analyst Vikram Bagri, who was once bullish on Plug Power but downgraded its outlook Thursday. “They grew that side of the business pretty rapidly without growing the in-house production of hydrogen in lockstep.”
During its third-quarter earnings call, Marsh said the company is fighting severe shortages for the fuel, as some suppliers’ plants — including Plug Power’s own in Tennessee — closed for repairs. At times, prices for hydrogen at California fueling stations have surged to over $30 per kilogram, about twice the normal rate.
“I can’t argue with the fact that demand is outstripping supply,” Marsh said in the interview. “There’s only about eight or nine really large-scale liquid hydrogen plants in the U.S., and to predict that a third of them would be down just isn’t really a realistic model.”
Plug Power has also hit delays in building its hydrogen plants, a development that Bagri called a “double whammy.” The furthest along is in Georgia and will make 15 tons of fuel a day, before upgrading to 30 tons a day. Marsh said that facility will start operating this December — though analysts point out it had been scheduled for last year and the timeline was pushed back repeatedly.
“If Georgia would have been open three months earlier, I wouldn’t have had the problems, even with all the problems that were going on with my suppliers’ plants,” Marsh said.
The delays have been costly. The budget for constructing the Georgia plant has nearly doubled since initially announced, noted Morgan Stanley analysts in a research note this month. The cost spikes are on top of cash Plug Power is burning as it struggles to generate its own green hydrogen and continues buying from third-party suppliers to meet customer contracts.
The company had set a highly ambitious timeline for the plant, aiming to complete it in under a year — about half the time as typical construction of a production facility.
Bagri said the credibility of the company is “now somewhat in question” after the missed timelines.
Marsh attributed the delays to extreme heat during the summer, a shortage of available labor and technical issues.
“What’s a shame is the success in getting it done in 18 months will get lost because people wonder why it didn’t get done in nine,” the CEO said. “The first-of-its-kind of any product always takes longer.”
The path forward
The next couple of months are crucial for Plug Power to chart a path forward and overcome its liquidity challenges, analysts say.
“If they deliver on Georgia, they have a shot at reaching breakeven gross margins by the middle of next year or late next year, and that establishes the company as a real contender and a real player in the hydrogen industry,” said Bagri. “Georgia remains the key for everything.”
But other analysts warn that even if the Georgia facility starts up next month, Plug Power still needs an extra 50 tons per day from independent gas companies to meet the needs of its fuel cell customers.
The company’s Tennessee plant — which produces green hydrogen and shut down this summer to clean up contamination — is expected to come back into service this December and will help in reaching the 50 tons. Similar plants are under construction in Louisiana, Texas and New York and slated to make a combined 134 tons of hydrogen daily.
“To fully shift to its own green hydrogen supply, [Plug Power] needs to complete the construction of its Texas and New York facilities,” Morgan Stanley analysts wrote in the research note, suggesting the two plants will require $500 million and will “likely not be fully operational before 2025.”
Plug Power is in the running to receive a $1.5 billion loan from the Department of Energy, according to the company. The loan will be “important” to support the New York build-out, according to Marsh, who said the plant there could experience “months delays, not long-term delays.” Without the DOE loan, he said, he “won’t spend more money in New York” at this time.
Before the end of the year, the Treasury Department plans to release guidance for companies wishing to claim a tax credit outlined in the Inflation Reduction Act. The credit is for up to $3 per kilogram for low-carbon hydrogen production, and upcoming rules around how projects can qualify have been the subject of a heated debate.
Once the guidance drops, Marsh said, “you’re going to see an acceleration of plants being built.” His company has been an advocate in lobbying the Biden administration to consider a wider definition of “clean” hydrogen — a view that is not shared by many environmentalists who are concerned that the fuel may not be low-carbon without stringent standards, such as those requiring that hydrogen producers source clean electricity within the same region they operate.
As for DOE’s hydrogen hubs, Marsh said its projects for them have “not seen a pushback yet” from the recent financial challenges, but he argued that if the Treasury implements strict regional requirements, “you’ll never get the hubs off the ground.”
Reporter Corbin Hiar contributed.