TECHNOLOGY

Another U.S. clean energy generator finds a home abroad

A decade ago, Americans were fascinated with the idea of a hydrogen-powered economy. The George W. Bush administration projected images of millions of cars zipping down the highway, pumping out nothing but water for exhaust from their fuel cell engines. That future is still a long way off, but the technology for high-efficiency fuel cell power plants could be here today, if only the right policies were in place to bring it to the mainstream.

That was part of the message at a technology workshop hosted earlier this week by the U.S. Energy Association and its executive director, Barry Worthington. USEA is a collection of interested groups ranging from oil companies and power utilities to universities and federal agencies.

The other part of the message is that countries that provide the right incentives and take the necessary risks can be the first to push clean technology into commercial development. In the case of solar and wind energy -- both first developed in the United States -- it was Europe and Japan that turned them into major electricity producers.

In the case of the fuel cell power plant, it is South Korea that is now leading the way.

In principle, fuel cells are designed much like a normal battery: two electrodes on either end separated by a material that allows charge to move between them. Instead of burning the natural gas for energy, fuel cells use an electrochemical process that breaks down molecules that contain hydrogen and recombines them differently, creating an electrical current in the process.

Applause from Calif.

The challenge for researchers over the years has been to find the most efficient way to achieve the current. For decades, DOE has encouraged the commercialization of fuel cell technology for power plants. In partnership with Connecticut-based FuelCell Energy Inc., it has developed a molten carbonate fuel cell, which the company has incorporated into its so-called Direct FuelCell, or DFC.

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While fuel cells designed for vehicles use hydrogen derived from natural gas, the DFCs can use an array of different fuels, including coal gas, ethanol and waste biogas, in addition to natural gas.

FuelCell Energy said the company performs all of its manufacturing and research and development in Connecticut, but when an order comes in, a team is sent to the site to install the power plants themselves.

California's strict air emissions standards have played out favorably for FuelCell Energy, making the state the company's second-largest market. Because fuel cells do not use combustion and do not produce particulate matter or smog-contributing gases, the California Air Resources Board categorized FuelCell Energy's DFC power plants as an ultraclean technology. This exempted the power plants from air pollution control or air quality permitting requirements.

California's Self-Generation Incentive Program also provides financial incentives for certain fuel cell projects with the goal of reducing greenhouse gas emissions. Andrew Schwartz, a chief energy adviser for the California Public Utilities Commission, attended the USEA workshop to discuss his state's interest in the technology.

Orders from South Korea

But despite some interest in California and many parts of the world, FuelCell Energy's biggest orders have come pouring in from South Korea.

FuelCell Energy installed 32.8 megawatts in the fiscal year that ended Oct. 31, 2009, according to the company's filings with the Securities and Exchange Commission. "[W]e installed 23 MW of our MW-class power plants in South Korea," the filing read. "Half our current worldwide installed base."

South Korea feeds nearly 97 percent of its fuel requirements with imports, said Tae-Hyoung Kim, a strategic planning and marketing manager with South Korea's largest independent power company, POSCO Power Inc. The 14th-largest economy in the world, South Korea is also the world's ninth-largest emitter of carbon dioxide, according to statistics from the U.S. Department of Energy. And in 2007, little more than 1 percent of the country's electricity generation came from renewable sources.

Despite its great dependence on fossil fuels, South Korea was decidedly absent while other developed economies pushed for renewable energy, Kim said. Europeans have cornered the market on wind energy, while China and Japan have a significant presence in the solar industry. South Korea, he said, hopes to become a major energy innovator through fuel cell technology.

The South Korean government has also turned its attention towards renewable energy in a substantial way.

Recent national legislation aims to bring electricity generated by "new and renewable sources" to 4 percent by 2015 and 11 percent by 2030. The South Korean government has also provided clean and renewable energy subsidies and feed-in tariffs that would allow excess energy to be sold to the electricity grid.

Kim explained how fuel cells reached the top of POSCO's energy list: South Korea is too mountainous to reasonably install additional solar panels or wind turbines and the accompanying transmission lines, he said, and the coastline is too deep to set up wave energy technology. So the next best way to pivot the energy economy was to find new ways to maximize efficiency.

A strong partner focused on the Asian market

In February 2007, FuelCell Energy signed a 10-year manufacturing and distribution agreement with POSCO for DFC power plant distribution in South Korea. Then, last October, FuelCell Energy made a licensing agreement with POSCO that would allow the Korean company to "assemble and manufacture fuel cell modules using components manufactured or supplied by FuelCell Energy." The agreement basically protects the manufacturing base of FuelCell Energy, in Connecticut, while expanding and supplying its Asian market.

The two companies may be joined at the hip for quite some time. Late last year, POSCO purchased 13 percent of FuelCell Energy's common stock.

Given FuelCell Energy's small customer base, the SEC filing said, the company has made itself somewhat vulnerable. POSCO's stock ownership, FuelCell Energy said, "could make it difficult for a third party to acquire our common stock."

Sales to POSCO, DOE and other government agencies accounted for 80 percent of FuelCell Energy's total revenue in its most recent fiscal year, a figure up from 62 percent the year before.

FuelCell Energy also remarked on the combination of POSCO's purchase of company stock and its position as a license holder on the fuel cell technology as well as a major purchaser of its products, saying "it may be in their interests to possess substantial influence over matters concerning our overall strategy and technological and commercial development."

There are 55 operating FuelCell Energy power plants, according to company records. Installations include wastewater treatment plants in California, a Pepperidge Farm factory in Connecticut and a power plant that uses waste digestive gases emanating from Kirin Brewery Co. in Tokyo.

FuelCell Energy also partnered with Enbridge Inc., a major North American natural gas pipeline company based in Ontario, to develop a 2.2-megawatt fuel cell power plant, enough to power 1,700 homes in the Toronto area.

The biggest challenges facing the fuel cell industry, FuelCell Energy Vice President Frank Wolak told workshop attendees, are pushing an entrenched utility industry to do something new, and, as with any new technology, the cost.

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