🔒Amid FuelCell Energy’s capital crunch, Doosan reports steady progress

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Connecticut’s homegrown fuel cell industry suffered a major blow last month when Danbury-based FuelCell Energy announced it would eliminate nearly one-third of its 431 jobs here.

That news invited fresh skepticism and concern about an industry that last year employed nearly 1,000 people in the state, according to one estimate. Fuel cells, while growing in number in the U.S. and Asia, remain a relatively niche and unprofitable technology, despite more than 20 years of commercial sales.

A Bloomberg story last month said FuelCell Energy, which has accumulated more than $1 billion in losses since the 1990s and whose stock price has plummeted, is “running out of time” and needs a major capital infusion. Bloomberg quoted one stock analyst who described “furious” investors, and said fuel cells, which produce relatively low-emissions energy virtually around the clock, have often had to compete with the falling costs of intermittent renewables like solar panels and wind turbines.

However, while fuel cell makers share some common struggles, FuelCell Energy’s plight doesn’t necessarily forecast an industry death march.

On the other side of the state in South Windsor, at Doosan Fuel Cell America — formed in 2014 when South Korea-based Doosan Corp. acquired ClearEdge, a successor of UTC Power — company officials struck an optimistic tone during a recent interview with HBJ.

Doosan is a subsidiary of a global conglomerate that owns construction-equipment maker Bobcat and reported $15.2 billion in total 2018 revenue.

That kind of corporate backing can benefit any manufacturer, particularly in fuel cells, where sales can fluctuate and it can take years for projects to generate revenue. The parent company connection can also help when pitching to potential customers, said Michael Coskun, Doosan’s general manager of sales and business development.

“You walk through the door and the first slide says ‘we’re a $16 billion conglomerate.’ That already should put a lot of people at ease,” Coskun said.

Clean-energy news website Greentech Media reported this month that no public company focused primarily on fuel cell manufacturing has ever posted an annual profit on a GAAP accounting basis.

However, Doosan Corp.’s annual audited financial reports show that its American fuel cell business was profitable in both 2015 and 2017.

Doosan’s disclosures also show its American fuel cell business has seen revenues jump from $124.8 million in 2015 (converted using recent Korean Won exchange rates) to $204.6 million in 2017.

Korean companies like Doosan, which trades on the Korean Exchange, don’t use GAAP accounting.

Robust pipeline

Coskun and his colleague David Giordano, a Doosan government relations and business development executive, say they are bullish about a series of pending Doosan projects in Connecticut, including a state-awarded 20-megawatt development that will power a proposed data center in New Britain.

The fuel cells at the data-center site are expected to be operational by 2020, according to the developer.

Doosan fuel cells will also help power water-treatment facilities in Bristol and Fairfield, adding to three fuel cells that went live last year at Waterbury’s wastewater plant.

They’re also hopeful about winning new business from UConn and the Connecticut State Colleges and Universities system, which are also seeking to install the technology.

Since acquiring ClearEdge five years ago for just over $32 million, Doosan has invested in improving the company’s South Windsor plant, and several years ago completed construction on a second fuel cell factory in South Korea, which can produce approximately 63 megawatts of fuel cell energy annually, the same amount as the South Windsor plant.

The rollout of hydrogen fuel cell cars by Toyota and Honda could also raise the technology’s profile, Giordano and Coskun hope.

While Connecticut, California and New York are relatively strong markets for fuel cells, much of the action is in South Korea, where the government there has ordered a ramp up in fuel cell installations in the coming years.

That, of course, gives Doosan a major advantage in that market.

“Most of the business is being driven by Korea sales,” Coskun said. “They have a very aggressive renewable portfolio standard, and I think we’re uniquely positioned to serve that market.”

Giordano said “a fair number” of units produced in South Windsor are shipped to Korea.

A competitor’s support

For many companies, a struggling competitor would be cause for glee, but that’s apparently not the case in Connecticut’s fuel cell industry.

Coskun and Giordano say they’re pulling for their competitor, FuelCell Energy.

“I will say that we don’t want to see them fail,” Giordano said.

Coskun quickly nodded in agreement.

“We’re a very small industry so we all need to survive together,” he said. “We don’t need bad press on fuel cells. The product is great. The technology is great.”

Whether investors’ declining confidence in FuelCell Energy is a blip on the radar or something larger remains to be seen. FuelCell did not respond to a request for an interview for this story.

Joel Rinebold, chairman of the Connecticut Hydrogen-Fuel Cell Coalition and energy director at the Connecticut Center for Advanced Technology in East Hartford, said he’s concerned about FuelCell Energy’s plight, but also is aware the company has a major project backlog — worth $1.27 billion, according to its most recent quarterly earnings report — that could help ease its struggles.

”My hope is that this is a short-term event and their success in some of these [state-run] RFPs will get them a revenue stream that will move the company forward,” he said. “FuelCell has been around a long time, and they’ve got a great product.”

Count Bert Hunter among those who have confidence in FuelCell’s products.

He’s the chief investment officer at the Connecticut Green Bank who just helped coordinate a $35.4 million financing package that allowed FuelCell to purchase a 14.9-megawatt fuel cell park in Bridgeport.

FuelCell, which has operated and maintained the Bridgeport park on behalf of owner Dominion Generation since it was completed in 2014, is buying the park to generate more revenue for itself (an estimated $15 million a year). That requires more capital up front, which can be a challenge, but it’s part of a strategic shift for FuelCell, which has mostly built and then quickly sold off fuel cell facilities.

Senior lenders in that deal, which closed this month, included Middletown-based Liberty Bank and Fifth Third Bank, but the Green Bank kicked in $7.8 million in financing. The Green Bank said its loan would be protected in the event of a FuelCell bankruptcy, as it is secured by project revenues. However, the Green Bank's piece of the loan is also "subordinated," meaning senior lenders would be repaid first should the fuel cell park's cash flows be deficient.

However, Hunter said he isn’t worried. FuelCell’s backlog is promising, its technology has proven reliable, and the loan is secured by revenue that comes from selling the energy produced by the Bridgeport park to Eversource under a long-term contract.

“We’re focused keenly on cash flows associated with these projects,” said Hunter, who also recently underwrote a $5 million loan to FuelCell Energy for an installation at the Groton subbase. “In that respect, we’re quite comfortable both with the technology as well as the contract and revenue structure.”

Correction: An earlier version of this story incorrectly characterized the Green Bank's loan to FuelCell as unprotected in the event of a bankruptcy. The Green Bank says its loan is protected because it is secured by revenue generated by the Bridgeport fuel cell park. However, the Green Bank would be behind Liberty and Fifth Third in line for repayment in the event that the revenue that project generates is deficient.