Fuel cells may threaten utilities, or put an extra charge in services

Alternative power nears introduction to homes, businesses


April 23, 2000|By Shanon D. Murray | Shanon D. Murray,SUN STAFF

As the electricity industry deregulates, utility companies will have to decide whether a new technology expected to hit the energy market as early as next year is a threat or an opportunity.

Fuel cells -- which function much like a huge battery, generating power through a pollution-free chemical reaction -- are poised to present serious competition to utilities. Though fuel cells are still in the development stage, manufacturers and industry experts said they will save consumers money and help clean up the environment.

Because the on-site devices allow customers to disconnect from a utility's power grid, they could siphon off customers and revenue. But utilities could embrace fuel cells and use them to increase their customer base and develop new revenue sources, analysts and industry experts said.

"In the U.S., fuel cells will become a solid alternative and augmentation to the existing power system," said Rhett Ross, development director at Breakthrough Technologies Institute, an energy and environmental nonprofit group in Washington that studies fuel cell technologies.

The potential is substantial.

The consumer market for fuel cells has been projected to reach $1.3 billion by 2003 and grow by 30 percent thereafter, according to a recent research report by J. P. Morgan Securities Inc. By 2020, the market could reach $100 billion, the report said.

"Eventually, fuel cells may start to displace the new construction of power plants," Ross said. "But we won't see utilities shut down operational coal-plants because of fuel cells. The U.S. is growing too rapidly and is using too much energy to justify that."

Brian Fernandez, an analyst with First Albany Corp. in Albany, N.Y., agrees that the demand for energy creates a mandate for fuel cells. "We're almost at capacity now," Fernandez said. "Siting [a power plant] is getting harder, and getting a new oil-fired or coal-fired plant through the necessary processes and the time it takes make it very difficult for utilities to expand capacity. Fuel cells are a rational alternative."

Utilities and energy companies active in the Baltimore area say the development of fuel cell technology will be watched closely.

"There is no question fuel cells are going to play a major role in the energy industry worldwide," said James J. Abromitis, president of Trigen Energy Baltimore, a subsidiary of White Plains, N.Y.-based Trigen Energy Corp., an independent power producer.

"We see it as an enabling technology that we are very interested in," Abromitis said. Trigen specializes in constructing on-site power plants for large commercial and industrial customers.

Baltimore Gas and Electric officials said they are "carefully monitoring" the development of fuel cell technology, but they do not believe that it will displace utilities.

"Utilities will most likely provide part of the customer's electric requirements and maintain backup systems in the event that the customer's electric generation equipment fails," said Darcel Kimble, a BGE spokeswoman.

Fuel cell technology has been around for decades -- NASA has used fuel cells to provide electricity for space craft since the 1960s -- but the costs of materials were too high for widespread commercial use.

Kyle P. Rudden, an analyst with J. P. Morgan Securities in New York, said mass commercialization of the fuel cell is a number of years away.

"In the near term, it is no threat to utilities," Rudden said. "But as fuel cells prosper, the threat to utilities in the long-term is that they may supply the power to the next home or the next office building built as opposed to the utility."

"But it will be a long time before you see people switching off the power grid entirely."

But that hasn't stopped some utilities from jumping on the bandwagon and partnering with some of the leading fuel cell companies such as FuelCell Energy Inc. of Danbury, Conn., and Plug Power Inc. of Latham, N.Y.

Plug Power, a fast-growing public company founded in 1997, designs and manufactures fuel cells for residential use. Its investors and strategic partners include DTE Energy Co., Michigan's largest electric utility, General Electric Co. and Southern California Gas Co., the largest U.S. natural gas distribution company.

The company's dishwasher-size fuel cell system runs on natural gas or propane and provides enough electricity for an entire home. The company's goal is to offer thousands of fuel cell units commercially next year.

It already has a deal to co-brand the fuel cells with GE and use the company's distribution infrastructure to market the fuel cells, said William Acker, Plug Power's vice president of technology and product development.

Acker said Plug Power also plans to distribute its fuel cells through utilities. The company's fuel cells are expected to hit the market next year with a price tag of up to $10,000. That price is expected to drop to about $3,000 to $5,000 "a few years out," he said.

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