Meet the Street: Fuel Cells as an Alternative to Oil

FuelCell CEO Jerry Leitman discusses his company's technology and prospects in light of Sept. 11.
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With oil prices sitting at two-year lows and rolling blackouts in California a distant memory, calls for an alternative energy supply have been subdued this year. But recent acts of terrorism on U.S. soil and conflict in Afghanistan and the Middle East have once again thrust the spotlight onto America's dependency on foreign oil.


Jerry Leitman,
CEO,
FuelCell Energy

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The U.S. currently gets about 57% of its oil from outside the country, with Persian Gulf countries accounting for 25% of U.S. oil imports.

One company that is dedicated to reducing this dependency and improving energy efficiency in the U.S. is

FuelCell Energy

(FCEL) - Get Report

, which develops and manufactures electric power generators for use in schools, hospitals and other industries.

FuelCell President and CEO Jerry Leitman talked to TheStreet.com about the firm's technology and the impact recent terrorist attacks have had on the alternative energy business. Although off its recent highs as oil prices have begun to fall, FuelCell's stock is still up about 28% from where it stood Sept. 10.

TSC: First of all, could you please explain for our readers what exactly a "fuel cell" is?

Leitman: A fuel cell generates electricity similar to a battery, that is, it generates it through an electrochemical reaction. Rather than burning something that generates heat and in turn spins something, fuel cells generate electricity with no moving parts.

The difference between a fuel cell and battery is that the battery keeps its fuel on board, or inside the battery, and when it runs out you either throw the battery away or you recharge it by plugging it in the wall. In the case of a fuel cell, as long as you continue to feed it fuel, which typically for power plants is natural gas and air, it will continuously generate electricity. When you stop the fuel and air flow, it will stop.

TSC: So it's much more efficient?

Leitman: It has efficiency advantages over traditional generation with engines and turbines. It has virtually zero emissions because you're not burning anything. The excitement with fuel cells is that for the first time in history we're getting electricity from a fossil fuel, say natural gas, without burning it, and because you're not burning it, it's extremely clean.

In our case, we're focusing on only one market segment, which is stationary power generation -- that is the electricity that feeds our businesses and industry -- without looking at fuel cells for automobiles or for portable power or for individual homes.

TSC: Has the importance of this technology changed over recent weeks given the rise in anti-American sentiment in the Arab world?

Leitman:

There are many global events that impacted fuel cells over the last several years. First, we had blackouts in California, blackouts in New York; the latest is terrorism. In Lower Manhattan after Sept. 11, cell phones were the only means of communicating, but the whole power grid was out. It took weeks to even restore some temporary service from lines running across roads. That wouldn't happen if you had individual power plants, which sit right by the user.

TSC: Is this another benefit of fuel cells -- that they are decentralized -- so there is no central plant that could be a target of terrorism?

Leitman:

It certainly has an impact, but what's driving

the business more under the surface is the need for higher and higher reliability, which you cannot get by definition from a transmission and distribution grid. The best grids are 99.9% or maybe 99.99% reliable, but that means you lose your electricity eight hours a year. If you could schedule it, it would be fine, but it doesn't happen that way. It happens at unexpected times, and the grid, because of overhead lines, just cannot be as reliable as a product sitting right next to the user.

That was Thomas Edison's original idea, to put the power generator where the users are. Today, we can get efficiencies close to, or the same as, large central station power plants, and yet because we're clean, we can site them right where the users are.

TSC: Are fuel cells going to see mass commercialization over the next 10 years?

Leitman:

We believe they will. We have investors that have given us $300 million to take it to the commercial level. We also have the Department of Energy and Department of Defense that have been funding this technology development since the late 1980s to the tune of about another $250

million to $300 million.

TSC: Do you think the government will be more prone to funding this technology in light of recent events?

Leitman:

This is purely speculation, but I would think so. I think we need to make ourselves more energy independent, and one way you do that is to make the use of the fuel you have much more efficient. A smaller power plant with an engine or a turbine is in the 30% to 35% efficiency range; we're in the 50% range. You can see how many less barrels of oil you would have to import if you had higher efficiency numbers -- it's pretty dramatic.

In addition, if you use the waste heat from the fuel cell, we're talking about efficiencies in the 80% to 90% range. So you're talking about three times the efficiency or two-thirds less usage of fuel.

TSC: Fuel cells are obviously better for the environment, too, but people aren't necessarily going to pay more money for cleaner air, are they?

We're not looking at people who say we will pay for green electricity. We look to Los Angeles where power demand is increasing and electricity prices are high, and we look for places where you can't site any other equipment because of environmental constraints.

Chicago, Houston and Atlanta are all environmentally constrained areas. In these places, you can't put a turbine or an engine because you're not allowed to. Your only choice today is to bring in more distribution transmission wiring, which in urban areas is very expensive.

While prices are higher today than they'll be three years or five years from now, we will drive our prices down as we expand production capacity and sales. We have a one- to two-year lead time on very limited competition in our field, and our challenge is to get out and stay in front. And that's what we intend to do.