Cleantech Market Intelligence
Building Volume in the Fuel Cell Industry
My last two blogs argued that, instead of more R&D funding, the fuel cell sector needs to focus on building volume in the market, which would drive down costs. But how can this be done?
Recently, Bloom Energy inked a deal with Bank of America Merrill Lynch to allow potential customers to lease Bloom Boxes, eliminating the upfront cost. This CAPEX leasing option is standard in many other energy sectors kick-starting a market.
It could be argued, at least in the stationary fuel cell sector, that only a small, independent-minded, subset of customers want to own the technology. The majority are looking to systems, such as fuel cells, for dependable electrons only.
In the commercial sector, the need to mitigate risk from increased energy prices and the lack of grid reliability (perceived or otherwise) comes up against conservative approaches to changing business models or adopting new technology. This tug of war between business needs and concerns over new technology can be obviated using power purchase agreements (PPAs).
Third Parties Needed
Under a PPA model, the customer has no financial stake in the technology, or in which company provides the system. The customer is guaranteed electricity for a set period of time, and in many cases, at a set price. In some areas, where the regulations regarding who can control power-generating assets and sell electricity are already worked out, such arrangements could be a very effective tool in rolling out fuel cell systems on a MW scale. At the time of writing, the largest in the United States was a 2.8 MW facility.
This shift will require a new generation of third-party companies that buy the systems from the manufacturers and take on the risk of operation, maintenance costs, etc., giving the customer access to stable electricity, even in grid blackouts, at a predictable cost. The flip side, of course, is that this will also require a handful of fuel cell suppliers to increase volume manufacturing.
What would the impact of a PPA model be in the fuel cell sector as compared to a leasing model? The chart below shows the potential impact for large stationary fuel cell adoption in the commercial sector in North America under three scenarios, including Navigant Research’s base scenario, a leasing model, and a PPA model.
Potential Impact on Annual Fuel Cell Adoption in Commercial Buildings, North America: 2013-2018
(Source: Navigant Research)
The PPA model really starts to accelerate in 2015–2016 when volumes start to expand. The key reason for this acceleration is that PPA providers can be technology-neutral, purchasing systems from multiple vendors. Leasing arrangements, on the other hand, work on a developer-by-developer basis, with the inherent risk of being tied to that single developer.
The key in this PPA model, though, is that it enables access to fuel cell systems for the market. With the current sector relaying on less than 15 players globally, the focus needs to be on the companies waiting in the wings to build out manufacturing capacity and bring their product to market within the short term.