Are fuel cells back?

ClearEdge Power certainly thinks so -- and investors have just provided the firm with a $73.5 million round E, one of the larger cleantech funding rounds of 2011. The funding was led by new investor Artis Capital Management, along with Austria's Güssing Renewable Energy, strategic investor Southern California Gas Company, a subsidiary of Sempra Energy (NYSE: SRE), and existing investor Kohlberg Ventures.

ClearEdge Power, with 200 employees and headquarters in Hillsboro, Oregon, is one of many aspirants looking to make technological progress and commercial inroads in the difficult fuel cell market.

The firm builds proton exchange membrane (PEM) fuel cells that produce electricity and heat from natural gas. 

The startup manufactures 5-kilowatt modules that target premium residential, small commercial and institutional stationary applications such as schools. Their PEM fuel cell incorporates a reformer and runs off of natural gas like the Bloom Energy fuel cell, although the Bloom Box is a solid oxide design, produces electricity and not heat, and comes in much larger 100-kilowatt chunks.

I spoke with Mike Upp, the VP of Marketing at ClearEdge, and he said the deals currently being closed by the firm are in the 20-kilowatt to 40-kilowatt range and involve the use of numerous 5-kilowatt boxes in a single configuration. Upp also claimed that in the "under 100-kilowatt sweet-spot" that ClearEdge services, "There is nobody else playing yet." Upp said that ClearEdge has 100 installations operating, almost all in California, about half in residential applications. But now ClearEdge is targeting light commercial by dint of its potential for more unit sales and repeat customers.

'Nobody,' of course, doesn't necessarily mean anyone else. Osaka Gas has been selling home fuels cells from Panasonic for two years. Two utilities in England are ramping up to cell fuel cells from Ceres Power. There just aren't many fuel cell providers.

I also spoke with ClearEdge Power President and CEO Russell Ford who sees the funding as "a strong validation" of the fuel cell market. Ford noted that the funding is not for production capacity. In fact, the firm already has enough production capacity to satisfy their growth needs, according to the CEO. The money will be used for working capital to expand beyond California to Korea, Austria, Germany and the rest of the European Union. The firm also looks to expand to new products and new market verticals such as telecom and data centers.

The CleanEdge fuel cell runs on natural gas, propane, and methane and can export excess heat for hot water, forced hot air, or hot-water cleaning.

Like the hypetastic Bloom fuel cell, the initial cost of the ClearEdge product is spendy. A 5-kilowatt unit has a $56,000 list price and installation can run from $10,000 to $20,000. There is a $15,000 investment tax credit and California provides a $12,500 Self Generation Incentive Program (SGIP) rebate, although the SGIP program is currently under review. New York has even more aggressive state incentive programs.

Even after incentives, the fuel cell's initial cost is expensive compared to the grid or to a diesel gen-set. Certainly, the thermal component has value for hot water production or enterprise heating. ClearEdge also remains one of the few companies to raise its prices. The same 5-kilowatt system started out as $50,000 in 2009. ClearEdge execs have also said that fuel cells make economic sense mostly where solar is less of a realistic possibility -- think dreary climates.

But ClearEdge's CEO cautions that "you can't make a decision based on a sticker price." The math, according to the CEO, in a 20-year light commercial application, factoring in the cost of the unit plus the gas, maintenance, replacement parts, taxes, and installation, ends up with power at $0.091 per kilowatt-hour, significantly cheaper than the $0.17 to $0.19 per kilowatt-hour that user is now paying.

And although fuel cells have had a reputation for reliability issues, Ford notes that improvements in materials used in fuel cells such as membranes and catalysts have progressed with the same speed as semiconductors. Membranes in the fuel cell stack are sixth-generation devices and catalysts can last for six to seven years. He also stresses that control systems, sensor arrays and better predictive monitoring contribute to improved fuel cell reliability.

Like all fuel cell firms, ClearEdge must continue to drive down costs while improving its long-term reliability.
ClearEdge recently received $2.8 million from the DOE’s Office of Energy Efficiency and Renewable Energy Fuel Cell Technologies Program to deploy fuel cells in a variety of commercial buildings. ClearEdge will install its CHP system in 10 vertical markets in California and Oregon, while Pacific Northwest National Laboratory will monitor the systems and measure the expected energy savings. Deployments are meant to be varied and will include schools, a car dealership, a large-scale commercial laundry and uniform supply company and multi-family housing units. The program is about market transformation -- the money is intended to defray the upfront cost of the units.