In Bloom Energy’s latest fundraising round of $130 million, it was revealed that one company alone – E.ON – invested €91.5 million ($120 million at the going exchange rate).  Setting aside the fact that this takes Bloom Energy’s private investment levels to an eye-watering $1.2 billion for a company that has yet to make a profit, the signal that E.ON is sending is staggering.

The skeptics continue to sharpen their knives on the future of the fuel cell industry, pointing out that no U.S. fuel cell company to date has made a profit, but serious players like E.ON clearly see a strategic play in the sector.  Here, the Navigant Research fuel cell analyst team of Lisa Jerram and I hypothesize what this could be.

In our white paper, “Smart Energy: Five Metatrends to Watch in 2013 and Beyond,” we pointed out that the role of the traditional utility was changing and that the energy sector had the potential to be democratized through distributed generation.  The traditional role of utilities centered on the control of two types of assets: power generation and grid control. With the development of small-scale generation, microgrids, and virtual power plants (VPPs), the control of power generation was starting to shift away from the utility to the hands of, well, anyone. Traditionally, solar and small-scale wind systems were not powerful enough to fundamentally disrupt this model – then fuel cells came along. From ClearEdge’s 5 kW residential / light commercial systems to Bloom Energy’s 100 kW system, right up to FuelCell Energy’s 400 kW system, these are all available to plug into your home/building /school/campus/swimming pool to generate power – and feed excess into the grid when you are not using it. And “you” refers to anyone with enough money or determination to control their own power generation, from homeowners to hospitals to office managers. In theory, as long as you were in the right geography, you could buy a system. That essentially had the effect of throwing the utilities into a head spin and raised the all-important question: What is the future role of the utilities in this emerging energy economy?

E.ON, which will at least have bought one seat on the board with this investment and some direct control into the direction of the company, seems to be taking a punt of carrying on along the traditional role – ownership and critical control of generation assets.  Control, or partial control, of the company is a step in the direction of controlling generation assets. Is it an out-and-out technology land grab? Not yet.  Could it be? Yes. Whoever controls the flow of technology into the marketplace will control the use of the technology. But E.ON’s war chest is actually not bottomless. A growing number of stationary fuel cell companies have low enough costs to potentially ship a serious number of systems over the next 5 years. This market will not be controlled by any one company. The game is still afoot!

In May, PJM Interconnection announced that it had attracted a record amount of new generation at its recent annual capacity auction, which ensures that electricity supply will meet demand for the period June 1, 2016 through May 31, 2017.  The auction procured 5,463 megawatts (MW) of new generation, thus breaking last year’s record amount of 5,346 MW.  In addition, the auction obtained a record amount of imported power from the Midcontinent ISO (the new name for MISO, reflecting the grid operator’s southward expansion), more than doubling last year’s total. All in all, the auction procured 169,160 MW, resulting in a reserve margin (a cushion for unforeseen events) of 21.1%, or 5.5% above the target.

PJM holds this capacity auction – also referred to as the Reliabity Pricing Model (RPM) – every May in order to obtain sufficient electricity, plus a reserve margin to meet expected demand for power 3 years in the future in PJM’s territory. PJM provides its estimate for peak power use to the bidders who then bid their existing and new power plants as well as energy efficiency and DR resources. Their bid prices are based on the costs to have those resources available for a particular delivery year. The price bid by the final resource that meets PJM’s target establishes the price paid – the clearing price – to all resources in that zone.

Most noteworthy, this time, was PJM’s announcement that the level of demand response (DR) procured in the auction had dropped by about 2,400 MW, after years of continued growth at every auction.  The auction cleared 12,408 MW of DR.  “Limited DR,” which can only be dispatched 10 times a summer for up to 6 hours each time, represented the overwhelming majority (9,800 MW) of the demand-side resource.

Shortfalls Possible

The main reason for the DR procurement decline was considerably lower capacity prices in most of PJM’s territory this year.  For example, the MAAC region, which covers 10 utilities along the Atlantic seaboard, cleared a price of $119.13 per MW-day, a drop from $167.46 per MW-day in 2012.  FirstEnergy, in northern Ohio, and western Pennsylvania’s PennPower cleared a price of just $59.37 per MW-day, compared to $136 per MW-day last year.

According to PJM’s Senior VP of Markets, Andrew Ott, prices dropped simply because supplies were up while demand was flat.  Competition from new natural gas supplies, increased imports from other regions, and less demand for electricity due to a sluggish economy have put pressure on capacity prices.  Another factor affecting the demand for DR has been the higher procurement costs for aggregators, as they look to recruit new potential and often hard-to-reach customers to participate in their capacity programs.

Although the supply of power and reserve margins are good enough to meet the demand for electricity in PJM’s territory and most other regions of the United States this summer, a few areas in the country could be facing severe shortages that will drive the need for DR.  ERCOT in Texas, for example, is dealing with tight reserves with a margin that is 0.85% below its target.  If the state experiences another extreme heat wave like the summer of 2011, ERCOT would most likely face a challenge to meet its peak demand.  Thus, the grid operator is planning to expand its DR programs to increase the current 1,700 MW of DR.  In Texas, DR is seen as the first line of defense to beat the heat.

Currently, two markets have subsidies for distributed solar photovoltaic (PV) systems plus energy storage.  Germany and Japan are both trying to encourage distributed PV users to consume the electricity generated onsite, using energy storage systems (ESS).  Announced in early May, the German government program offers both a subsidy and a low-interest loan to encourage ESS.

In addition, the feed-in tariff for distributed solar has dropped below the retail price of electricity, in order to encourage self-consumption of PV energy.  Germany will spend up to $32.17 million (€25 million) in 2013 to support distributed PV+ESS, in an effort to defer upgrades to the distribution grid, which is overtaxed thanks to the successful campaign to encourage distributed PV adoption.  The subsidy increases the existing subsidy for systems that are only solar PV from €600 ($785) per kilowatt (kW) to €660 ($863) per kW if a battery system is also installed.  The maximum payment for the entire system is €3,000 ($3,926) total.

Financing Storage

Representatives from KfW – the German development bank – have stated that a similar amount of funds (€25 million, or $32.17) will be available for 2014.  All battery systems are eligible, but must have a 7-year warranty.  KfW is administering both the subsidy and low-interest loans.

Specifically, KfW, is offering low-interest loans to finance the capital expenditures associated with adding battery energy storage systems to PV systems in Germany.  KfW will finance up to 100% of the upfront cost for battery ESS and PV systems (not including VAT).  In addition, the battery portion of the system can qualify for a repayment bonus.

These loans are being offered to a cross-section of the market similar to the one served by the subsidy for residential storage plus PV.  The loans are available to ESS retrofits for PV installations that went into operation after December 31, 2012 and are targeted at solar PV systems as large as 30 kW.

If the German program succeeds, it will mean increased flexibility and resilience for the German distribution system with less investment on the part of DSOs. Germany is also a model for the rest of Europe; other markets with high PV penetration such as Italy, Spain, and France may adopt a similar scheme once the benefits to the grid and customers is better understood.

The recent failure of Better Place has added to the cleantech industry’s bad reputation among investors.  Highly publicized failures of companies such as Solyndra, A123 Systems, Better Place, and CODA have led to headlines that suggest success may be nearly impossible.  But the negative press ignores a range of companies that are well on their way to long-term prosperity.

The most obvious example is Tesla Motors.  After reporting record sales figures and achieving profitability for the first time, Tesla’s Model S luxury sedan received top marks from Consumer Reports.  In the midst of these accomplishments, the company paid the remaining balance on a $465 million Department of Energy loan 9 years ahead of schedule.  Stock prices skyrocketed from $55 to a high of almost $115 in just 3 weeks, giving the company a market cap of more than $12 billon.  Investors who were shorting the stock could now lose big for betting against Tesla’s success.

Likewise, SolarCity’s share price has increased over 200% since the company went public last December, and Enphase Energy and SunPower shares have risen steadily in the last 6 months.  Many privately held companies have grown successfully as well, with backing from big name investors and venture capital firms.

Ample Opportunity

With many new technologies, there is often an expensive adjustment period before affordable prices are achieved and sales become widespread.  That’s not to say that electric vehicles and solar panels will be adopted as easily as DVD players, but the curve will look the same over time.  Prices of solar panels, wind turbines, and electric vehicles have already dropped and are inching closer to matching their traditional counterparts.

Clean technologies and the companies that produce them are here to stay, and the industry is growing.  For plug-in electric vehicle sales, Navigant Research forecasts a compound annual growth rate of 39% between 2012 and 2020.  There will continue to be headline-grabbing failures along the way, but the successes will start to outnumber the flops as the cleantech industry matures.