🔒‘Serial Capital Raisers’: CT fuel cell companies need cash to keep pace with fast-growing technology

Connecticut’s two largest fuel cell companies are raising capital, or anticipating the need to do so, as the United States lurches into an emerging global clean-hydrogen market.

East Hartford-based hydrogen fuel cell manufacturer HyAxiom, a subsidiary of South Korea-based Doosan Corp., recently announced that it raised about $150 million from private investors to help accelerate growth.

Danbury-based FuelCell Energy Inc., which is publicly traded, in May said it secured $87 million in financing to diversify its capital base, repay existing debt and accelerate commercialization of its hydrogen fuel cell technologies.

More recently, in July, FuelCell announced that it plans to hold a special stockholders’ meeting on Oct. 10, to consider increasing its number of authorized common stock shares from 500 million to 1 billion.

The additional shares would afford FuelCell the flexibility to raise capital, as the company continues to embrace new technology, said Tom Gelston, FuelCell’s senior vice president of investor relations.

“Effectively, it’s creating a bit of a checkbook,” he said.

FuelCell Energy is transitioning from producing molten carbonate fuel cells, which use natural gas, to lower-cost and more efficient solid oxide fuel cells, which use hydrogen.

Gelston said the company is in an “extreme period of growth and investment.”

FuelCell more than doubled revenues during its fiscal second quarter, which ended April 30, to $38.3 million, but reported an operating loss of $35.9 million.

Much of the loss reflects the company’s increased investment in research and development, Gelston said. FuelCell had about $353 million in unrestricted cash at the end of its fiscal second quarter.

Hydrogen pivot

The energy industry is pivoting away from fossil fuels to a hydrogen-based energy economy, with efforts underway in the U.S. and across the world to decarbonize the industrial sector.

The Inflation Reduction Act of 2022 is helping to accelerate decarbonization, offering the largest hydrogen subsidies in the world and exceptionally high credits for hydrogen production, according to the National Resources Defense Council.

The Department of Energy has allocated $8 billion for regional clean hydrogen hubs that will create jobs to expand the use of clean hydrogen in the industrial sector and beyond, according to energy.gov.

Gelston said global policy support for hydrogen has been increasing “at a pretty rapid, almost never-seen-before pace.”

“The landscape is rapidly changing, and I think all of us are following investment strategies that make sure we’re going to participate in that,” he said.

FuelCell has made strides with its carbon-capture technology and has developed a product that can actually produce hydrogen from a combination of electricity and water. The company is also working to develop a way to store hydrogen.

“Making hydrogen from an external power source, like wind, solar, nuclear, and then being able to use that in industrial applications or transportation applications, is critical to the long-term success of a lot of these government policies,” Gelston said.

FuelCell has embarked on numerous projects in the U.S. and abroad, including partnerships in North Africa to make hydrogen for southern Europe, and with a company in Malaysia to make hydrogen and ammonia to export to markets like Korea.

In the U.S., FuelCell developed the Trigeneration Direct Fuel Cell Power Plant at Toyota’s port facility in Long Beach, California, which processes about 200,000 vehicles a year and is the only point of import for Toyota’s hydrogen fuel cell vehicle, the Mirai.

The facility contains a 2.3-MW power plant that produces electricity to power on-site operations, with surplus energy going into the grid that feeds the local community. It’s expected to produce 1.2 tons of renewable hydrogen daily, to power five heavy-duty fueling stations.

That has enabled Toyota to replace diesel trucks with hydrogen-fueled trucks.

Also, Trigen will generate water for an on-site car wash, in a locale that has a strained water supply.

Closer to home, FuelCell is building a 14 MW fuel cell facility in Derby, which should be completed by the end of the year.

Jeffrey Osborne, managing director and senior research analyst at investment bank Cowen Inc., who follows FuelCell, said it’s not surprising that the company needs to raise money by increasing its share counts, given the rate of industry growth.

“I would chalk this up to hydrogen-related companies having proven to be serial capital raisers,” Osborne said. “... The hydrogen economy has taken a while to get going, but the (Inflation Reduction Act) is accelerating everything in the sector.”

Also, he said FuelCell needs to raise capital to expand its solid oxide technology in the U.S., to benefit from energy credits provided by the Inflation Reduction Act, given that its current capacity is mostly in Canada.

FuelCell has been closely watched in Connecticut, especially after the state Department of Economic and Community Development (DECD) in 2014 announced a major incentive package for the company, making it eligible for up to $20 million in low-interest (2%), partially forgivable loans, and $10 million in Urban and Industrial Sites Reinvestment Tax Credits.

The funding was to support a 90,000-square-foot expansion of FuelCell’s Torrington facility, which broke ground in late 2015, and the hiring of hundreds of workers.

But the company has struggled to reach hiring benchmarks required under the incentives agreement, and faced several headwinds in recent years that led to multiple rounds of layoffs.

Since FuelCell’s deal with the state was originally hatched, it’s been amended several times.

From East Hartford to China

FuelCell, which has operations in Danbury and Torrington, competes with HyAxiom, which traces its history to the former Farmington-based United Technologies Corp.

HyAxiom said it plans to use its recently raised $150 million from three Korean investment firms for capital investments and research and development, among other purposes.

Jeff Hyungrak Chung, president and CEO of HyAxiom, said the recent capital raise is affirmation from investors that the company’s “strategic path is promising, given the favorable market conditions for hydrogen business in the U.S. and throughout the world.”

“These funds will help HyAxiom boost its growth and enable the company to develop and commercialize competitive technologies and products including electrolyzers and fuel cells for stationary power and mobility applications,” he said.

The company’s investment follows a reduction in staff in February, when HyAxiom laid off 19% of its 300 employees in Connecticut.

As of July 31, HyAxiom had 256 employees.

“The layoffs earlier this year were to improve supply chain management and to focus on our core competency, which is systems development,” Chung said. “We look forward to moving into a strong third quarter.”

HyAxiom has been working to advance its hydrogen fuel cell technology, and announced in November 2022 that it was entering the power generation market in China.

Another competitor, San Jose, California-based Bloom Energy Corp., in May raised $550 million in a private offering.

Osborne, the analyst, said Bloom Energy may have an advantage over FuelCell because it has more experience producing solid oxide fuel cells.

FuelCell entered the solid oxide space in 2003, with its $80 million acquisition of Global Thermoelectric, but has spent the last 20 years focusing on Department of Energy programs rather than commercialization, Osborne said.