FuelCell Energy, Inc. - Company Profile, Information, Business Description, History, Background Information on FuelCell Energy, Inc.

3 Great Pasture Road
Danbury, Connecticut 06813

Company Perspectives:

FuelCell Energy, Inc. based in Danbury Connecticut, is a world leader in the development and manufacture of high temperature hydrogen fuel cells for clean electric power generation.

History of FuelCell Energy, Inc.

FuelCell Energy, Inc. develops and manufactures high-temperature hydr ogen fuel cells for electric power generation. In essence, fuel cells are like a continuous fuel battery, converting the chemical energy o f a fuel directly into electricity without the need for generators, t urbines, or any other mechanical equipment. As long as they are suppl ied with fuel and air they generate a steady stream of electricity. A lso like batteries, the cells can be combined, "stacked," to create m ore powerful units. These fuel cells should not, however, be confused with automobile fuel cells, which start and stop generating power in stantaneously without throwing off excess heat. The company's fuel ce lls take much longer to get up to speed but are designed to run for a s long as five years. Its Direct FuelCell product line features three primary units: a 300 kilowatt plant designed for small building and light industrial customers and 1.5 megawatt and 3 megawatt versions s uitable for larger buildings, such as hospitals, schools, and factori es. The fuel cells do not require an external hydrogen supply or reac tor. Rather, they can use a variety of ready fuels, including coal ga s, coal-mine methane, methanol, natural gas, biogas, propane, and die sel. Moreover, the products are environmentally friendly, producing f ew emissions. They are also simple to maintain and inexpensive to ope rate. FuelCell is a public company listed on the NASDAQ and based in Danbury, Connecticut.

Origins of Fuel Cell Technology: 1800s

Regarded as cutting edge, fuel cell technology is in fact about as ol d as steam power. Although Sir Humphrey Davy discovered the principle s of fuel cells as early as 1802, they were not properly applied unti l the work of British scientist William Grove, who was better known a s the inventor of the "Grove Battery," a voltaic battery that was wid ely used by the telegraph industry. Less celebrated at the time, howe ver, was his 1839 discovery that water decomposed through electrolysi s could be reunited with hydrogen and oxygen atoms to produce electri city and water. This research led to Grove developing a "gas voltaic battery," the predecessor of contemporary fuel cells. It was actually a later scientist, William White Jaques, who coined the term "fuel c ell." It was difficult technology to harness and it was not until the 1950s that fuel cells began to become a viable power alternative. In the 1960s they came of age when NASA chose fuel cells over nuclear p ower to provide electricity and water for the Gemini and Apollo space crafts.

FuelCell's founder, Dr. Bernard S. Baker, became exposed to fuel cell s in the late 1950s. The son of a chemicals salesman, Baker was born in Philadelphia, Pennsylvania, in 1936. He received both bachelor's a nd master's degrees in chemical engineering from the University of Pe nnsylvania. He then became a Fulbright Fellow and went to work for Du tch scientist G.H.J. Broers at the Laboratory for Electrochemistry at the University of Amsterdam. Broers was a pioneer in the advancement of fuel cell technology. While typical fuel cells of the period reli ed on a "reformer," an external device to extract hydrogen from a hyd rocarbon fuel such as natural gas, Broers eliminated the reformer ent irely. He developed a high-temperature fuel cell that relied on molte n salts to extract the hydrogen from the fuel inside the cell itself. When Baker returned to the United States he devoted his career to ma king fuel cells a practical and commercial technology. He went to wor k on fuel cells for Lockheed Aircraft Corporation as a senior scienti st in the missile and space divisions, then moved to Chicago, where h e became director of basic sciences at the Institute of Gas Technolog y while also completing his doctorate at the Illinois Institute of Te chnology in 1969.

Baker moved his family to Bethel, Connecticut, in 1969 and with partn er and fellow chemical engineer Martin Klein founded a company to con duct research on electrochemical technologies for both fuel cells and rechargeable batteries. Klein's field of expertise was in advanced b attery technology. Prior to joining forces with Baker, he had worked on batteries for the U.S. Army Signal Corps, Yardney Electric Corp., Electrochimica Corp., and Electro Optical Systems. The start-up compa ny was incorporated as Energy Research Corporation (ERC) in 1969, and a year later the four-person operation set up shop in rented lab spa ce in Danbury, Connecticut.

ERC's financial backing in the 1970s came from the U.S. military and utility companies. In the fuel cell area the company focused initiall y on low temperature systems (less than 400 degrees Fahrenheit). Foll owing the oil embargo in 1973 that drove up fuel prices, fuel cells a nd other forms of alternative energy sources received a great deal of attention. "In those early days of the fuel cell," Baker wrote to sh areholders in the company's annual report in 1997, "a euphoria existe d based on the belief that low temperature fuel cells would become a universal panacea for power generation. It soon became apparent to us , however, that low temperature systems were highly unlikely to becom e commercially viable." Such systems were complex, requiring a great deal of extra, and expensive, equipment.

ERC enjoyed better success with battery development in the 1970s. Wit h funding from the U.S. Navy, the company developed a new type of bat tery. Instead of lead acid and nickel cadmium, ERC batteries used sil ver and zinc. The silver-zinc batteries were used by the Navy in a va riety of ships, including the Trieste, a bathyscaph that held the rec ord for the world's deepest ocean dive. But as was the case with ERC' s fuel cells, the silver-zinc battery offered limited commercial appe al.

Change of Focus in 1980s

ERC changed its focus in both fuel cells and batteries in the early 1 980s. The company now pursued high temperature carbonate fuel cell te chnology, which would lead to the development of the flagship product , the Direct Fuel Cell. It offered greater commercial possibilities b ecause it was able to use such readily available fuels as natural gas . It was also more efficient at producing electricity than low temper ature systems and did not require the costly support equipment of the earlier system. In batteries, ERC built on its experience with silve r and zinc to develop a battery that relied on nickel oxide and zinc. This new system offered a high energy density, allowing for a much l ighter battery, making it easier to transport and ideal for marine ap plications. In addition, the materials had less of an impact on the e nvironment, important for a battery used on the water. As Baker wrote to shareholders in 1997, "By the early 1980s, ERC had developed full size electric vehicle batteries and tested them in various types of electric vehicles. While vehicle performance was good, cycle life was limited to about 150 cycles or about 20,000 miles of normal driving. "

After 20 years in operation, ERC in the 1990s continued to build on i ts research and neared the goal of developing commercially viable pro ducts that could complement one another. In a nutshell, the fuel cell generated electricity and rechargeable batteries became the electric al energy storage component of an integrated power system. Fortunatel y, the company did not lack for funding. In 1990, for example, ERC wo n a $32 million Department of Energy contract to design, build, a nd test fuel cells in the 100-kilowatt range that could operate on na tural gas or coal-derived gas. It also appeared in the early 1990s th at fuel cells were on the verge of coming into their own. As the W all Street Journal noted in a 1992 article, "Tighter environmenta l regulations are forcing power producers to install expensive anti-p ollution equipment. That had shrunk fuel cells' capital-cost differen ce to 25% more than a coal-fired plant, for example. With high-vo lume production, fuel-cell makers say, the technology will become com petitive with conventional energy sources." A pioneer in the field, E RC now faced competition from Westinghouse Electric Corporation and J apanese giants Mitsubishi Heavy Industries Ltd. and Toshiba Corporati on, as well as a dozen other companies interested in fuel cells.

Taken Public in 1992

ERC took advantage of the growing interest in fuel cell technology to go public in 1992, making an initial offering of stock that raised & #36;6.5 million. While forecasts about the imminent arrival of fuel c ells proved wrong, ERC continued to plug away, refining its Direct Fu elCell unit, targeting the 2 megawatt range, which the company felt w as a practical size to fit into a grid-connected utility environment. ERC reached a significant milestone in 1992 when it successfully tes ted a 120 kilowatt Direct FuelCell unit. A year later an improved ver sion was tested in Denmark by the Elkraft Power Company. Then, in 199 6, a 2 megawatt Direct FuelCell power plant went online in Santa Clar a, California, connected to the grid of the Santa Clara municipal ele ctric system. Partners in the effort included the City of Santa Clara , the Electric Power Research Institute, the Los Angeles Department o f Water and Power, the Sacramento Municipal Utility District, Souther n California Edison Company, and the U.S. Department of Energy's Morg antown Energy Technology Center.

In batteries during the early 1990s, ERC worked on extending cycle li fe. In 1990 Martin Klein resigned as executive vice-president, and re mained as director for two more years before selling his stake in the company. During his 20 years at ERC, Klein headed all research conce rning silver-zinc, nickel-zinc, nickel-cadmium, nickel-hydrogen, silv er-hydrogen, zinc-oxygen, and zinc-bromine rechargeable batteries. In 1992 Klein founded another company, Electro Energy Inc., to develop batteries for the military.

By 1997 ERC, in the opinion of Baker, was in need of a more commercia lly oriented executive to take the company to the next level. He was also thinking of the day he would have to retire and wanted to make s ure a succession plan was in place. "My first love was research and d evelopment," he told the Wall Street Journal in a 2001 article. "I wasn't a business man and I knew I wasn't a business man. " In the fall of 1997 he hired Jerry D. Leitman to become ERC's chief executive officer. Leitman's previous experience included a stint wi th Swedish multinational FLAKT AV and serving as president of Asea Br own Boveri's global air pollution control business. Leitman told the Wall Street Journal that he was wary about taking the job beca use he was worried about Baker looking over his shoulder. The transit ion proved to be a smooth one, however. Reported the Wall Street J ournal, "According to Messrs. Baker and Leitman, the two have bee n successful because they recognize their unique skill sets and try t o use them to their advantage. For example, Mr. Baker will talk to th e public whenever technology is the focus, but Mr. Leitman handles pr esentations to investors who are more concerned about how the company is operated on a day-to-day basis."

Under Leitman's leadership ERC began a concerted effort to commercial ize its fuel cell and battery technologies. In 1998 the company succe ssfully demonstrated its nickel-zinc batteries for use in electric ca rs, bicycles and scooters, wheelchairs, trolling motors, and lawn mot ors. The batteries offered 2.5 times the range of a lead acid battery . Although batteries and fuel cells shared much of the same technolog y, they were generally marketed to different customers. As a result, the company found its focus increasingly divided, leading to the batt ery business being spun off as a separate company, Evercel, Inc. in 1 999. As the Fairfield County Business Journal explained in an article at the time, "selling an expensive, tennis court-sized, megaw att power plant with four fuel cell stacks is a vastly different matt er than selling a rechargeable battery designed to power an electric scooter."

Because fuel cells were now ERC's sole focus, the company changed its name to FuelCell Energy, Inc. in 1999. In that same year, the compan y's first 250 kilowatt power plant began operations. Again, there was no shortage of willing partners. In Germany DaimlerChrysler's MTU di vision fired up a cogeneration power plant using a FuelCell unit. The n, in 2000, Mercedes-Benz U.S. International Inc., Southern Company, and Alabama Municipal Electric Authority agreed to team up with FuelC ell to install a 250-kilowatt fuel cell power plant at the Mercedes-B enz plant in Tuscaloosa, Alabama, in a pilot demonstration project. A lso in 2000 FuelCell was awarded a Department of Energy contract for product design and improvement, as well as commercial contracts to in stall power plants in Washington state, Los Angeles, Asia, and elsewh ere.

There was a great deal of enthusiasm for fuel cell technology in gene ral, due almost entirely to the energy crisis in California, which br ought the idea of alternative sources of power generation to the fore front. As a result, FuelCell's stock surged as it became the darling of Wall Street within the large fuel cell category. But once energy s upplies rebounded, enthusiasm waned and the price of the company's st ock plummeted. FuelCell had been in the business for a long time, how ever, was well stocked with cash, and continued to follow its own gam e plan. Yet it would have to do so without Baker. He retired in June 2002, handing over the chairmanship to Leitman. Two years later he di ed just short of his 68th birthday from a series of strokes related t o cancer.

By now FuelCell had a commercially viable product in hand but had to wait for market acceptance. Because of an energy glut the fuel cell i ndustry was in disarray in 2003, and FuelCell was forced to cut costs by reducing payroll. Nevertheless, the company was healthy enough to acquire a Canadian company, Calgary-based Global Thermoelectric Inc. , in a stock deal valued at $80 million. At the same time, FuelCe ll also paid $2 million for a 16 percent stake in an Illinois fue l cell company, Versa Power Systems. Global's focus was on thermoelec tric generators intended to supply electricity to rural and other rem ote locations. Several months later, FuelCell sold off the Global gen erator product line that did not fit with its focus, pocketing $1 7 million.

FuelCell was hardly in need of extra money. In the fall of 2004 it wa s reported to have $170 million in cash and a few weeks later ann ounced that it planned to make a private placement of $75 million in stock, the money earmarked for further development and commercial ization of its fuel cell products. In 2005 the company branched into a different area of fuel cell technology, teaming up with Pennsylvani a-based Air Products and Chemicals as part of a Department of Energy project to develop a new type of pumping station for hydrogen-powered cars. Fuel was to be fed through a fuel cell to produce hydrogen tha t could be purified for use in hydrogen-powered cars.

As oil prices soared in 2005, fuel cells and other forms of alternati ve power generation, received a boost, just as they had every time en ergy costs soared. Whether fuel cells would finally find their place in the power field remained to be seen, however. What was not questio ned, after 35 years of commitment, was that FuelCell was in for the l ong haul.

Principal Subsidiaries: Xiamen-ERC High Technology Joint Ventu re, Inc. (24.5%)

Principal Competitors: Ballard Power Systems Inc.; Energy Conv ersion Devices; Honeywell International Inc.


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