The fuel cell industry needs to move toward consolidation and profitability in the near future or risk losing the backing of investors, said Chip Bottone, president and chief executive officer of Danbury-based FuelCell Energy, Inc.
“The industry has overpromised and underdelivered for a long time,” Bottone said at the 2012 Fuel Cell Seminar & Energy Exposition in Uncasville on Nov. 6. “Now is the time to have a very candid conversation on the promises many of us would like to deliver.”
The impending sale of South Windsor fuel cell manufacturer UTC Power by parent company United Technologies Corp. of Hartford is evidence that the industry needs to find a way to match its revenues with its expenses, Bottone said.
“They need to sell it to somebody that can make it profitable,” Bottone said.
UTC CEO Louis Chenevert told investment analysts in May the company was exploring strategic options for its fuel cell subsidiary, and the parent company later wrote in a regulatory filing with the U.S. Securities & Exchange Commission that it was soliciting offers for UTC Power.
Bottone wouldn’t disclose if FuelCell was considering buying UTC Power, but he said his company had the financial means, the expertise and the infrastructure already in place for such a buyout.
“It is a natural fit for us,” Bottone said.
UTC has several parties interested in UTC Power, Bottone said. The Hartford parent company needs to move quickly to minimize disruption to the fuel cell industry, since UTC Power is one of its largest companies.
“It is not a big secret they are going to sell their business,” Bottone said.
UTC Power and FuelCell Energy are the largest fuel cell manufacturers in the world and linchpins in Connecticut’s fuel cell industry. The state has 600 supply chain companies, 2,500 employees, and generates $500 million in annual revenues.
The fuel cell industry has a potential to bring in $139 billion in revenues globally, said Joel Rinebold, director of energy initiatives at the Connecticut Center for Advanced Technology in East Hartford.
“We’ve only got a small piece of the market, and we’ve got tremendous opportunity,” Rinebold said. “The economic impact of this industry will be long-term.”
Since starting at FuelCell Energy in 2010, Bottone has made the focus of his tenure about increasing revenues and driving the company to consistent profitability. No fuel cell manufacturer in the world has ever achieved a quarter of positive earnings.
“It is very difficult to have an industry without profitability,” Bottone said.
On Nov. 5, FuelCell finalized the largest order in its history — a $181 million contract with South Korean partner Posco Energy for fuel cell parts that can produce 122 megawatts of power — a major step in the company’s efforts toward positive earnings.
In order for FuelCell to have positive earnings before interest, taxes, depreciation, and amortization, the company needs to manufacture 80-90 megawatts’ worth of fuel cells annually, Bottone said. The Posco order provides 40 megawatts per year, which should help FuelCell get to at least 70 megawatts of production annually.
Coupled with revenue from service, research and development, and royalties for its technologies, FuelCell should be EBITDA-positive by the quarter ending Dec. 31, 2013, Bottone said.
“It is a big deal for a lot of different markets,” Bottone said. “If you keep asking people for incentive money and investment money, they are going to want a return on that eventually.”
The fuel cell industry still is mired in tinkering with its technology and applying it across many platforms, from microgrids to cars, Bottone said. In reality, the industry is no longer technology-challenged in areas such as power generation and needs to start deploying commercially.
“We don’t need a bunch of science projects to get it perfect,” Bottone said. “We will never get it perfect.”
A number of firms are sitting on the outer edges of the industry, and those need to be consolidated into the existing firms so everyone can market the best technology, Bottone said. “It is time to pull together and move to commercialization.”
Increasing commercialization and production is key to lowering the cost of fuel cells and eventually getting them competitive with other technologies without incentives, Bottone said.
Incentive programs are switching to performance-based models and vary greatly from state-to-state and year-to-year. The U.S. Department of Energy has decreased its commitment to fuel cell technologies under the Obama Administration, particularly in the area of fuel cell vehicles.
The industry can’t rely on these sources of funding forever and needs to find a way to operate without government help, said Tom Sullivan, owner of Wallingford hydrogen generator company Proton Onsite.
“If it makes sense, it needs to happen,” Sullivan said. “Never give up and keep pushing whenever you can.”
If the industry is forced to operate with little or no incentives, companies will rely solely on investors to bring fuel cell technologies to positive earnings. Those investors won’t be there forever, Bottone said.
“I don’t think the investment community will take another 10 years without profitability,” Bottone said. “Now is the time for consolidation and profitability.”
