Enron North America will assist FuelCell Energy in development and marketing of its stacks. It also took a $5 million stake in FCE and got warrants for 1.3 million shares. Since FCE's product, which is about four years away from mass production, will be foreign to its customers, FCE needs a big name partner to help create customer acceptance. Enron fits the bill very well.
By
The companies will jointly develop and market FuelCell Energy's Direct FuelCell products, targeting public energy conservation programs. Enron has invested $5 million in FCE stock and has obtained warrants to purchase up to 1.3 million shares under undisclosed terms.
Wall Street loved the move, sending the stock up 7% yesterday on a down day for the Nasdaq. With that gain, the stock has appreciated over 3000% in the past year -- yowsa. It's hovering near a $1.5 billion market cap on trailing 12-month sales of $16.1 million. That puts FCE's 12-month return well above its peers in this white-hot sector.
The Enron deal offers FCE a big marketing partner, which is essential to the company's success, since its products are foreign to its customers. FCE makes molten carbonate fuel cell stacks in three sizes -- 300 kilowatt (enough for a small office or plant), 1.5 megawatt, and 3 megawatt (sufficient for a 300-bed hospital). These fuel cells can utilize natural gas, methanol, ethanol, bio-gas, and any other fuel that contains methane.
Through an electrochemical reaction, the fuel cell converts the fuel into energy and high-pressure steam. The cell itself produces energy with about 45% efficiency, compared to 35% for gas-fired turbines, and without the icky byproducts of combustion. FCE will soon offer a hybrid stack with a turbine attached to take advantage of the steam power it generates. That should increase efficiency to about 73%, a substantial improvement on conventional generators.
The real cost-savings to users, however, could come from decreased transmission and distribution charges, which currently run about 2.5 cents per kilowatt-hour (kWh). If a hospital, for example, produces its electricity in-house, it will pay the generation cost (which Jefferies & Co. estimates will be about 4 cents per kWh for the fuel cell / turbine hybrid, compared to 3.7 cents for a 400 megawatt power plant), but will bypass the transmission charges, saving 2.2 cents per kWh.
FCE has two stacks in use now, one at its headquarters in Danbury and another in Bielefeld, Germany. It plans to put another dozen or so beta units into operation next year and begin commercial production in the second half of fiscal year 2001, after FCE completes construction of a new manufacturing facility designed to produce 50 megawatts of fuel cells each year.
The key to making this dream become reality is getting the word out. Who better to do that than what politicians might call Big Power? That's why FCE signed a deal with PPL Corporation (NYSE: PPL) in late September. PPL will order 1.25 megawatts of field trial units in the next six months. It also made an equity investment of $10 million in FCE.
With the PPL and Enron deals, FCE isn't cash-hungry right now. It also sold 1.3 million shares in a secondary public offering on April 19 at $47 per share, raising $61.1 million. The company will have substantial cash needs down the road, though. 50 megawatt-production capability isn't enough to scale. FCE plans to expand production to 400 megawatts per year by 2004, perhaps including 10 to 40 megawatt hybrid stacks.
Perhaps the most important thing about the Enron deal is that it lends legitimacy to FCE. FCE has no commercial product and draws most of its revenue from licensing fees. To achieve the level of profitability that its market cap calls for, FCE needs marketing from powerful partners. This deal may give them just that.
Your Turn:
Do you think that fuel cells will power the future? Stop by the Fuel Cells and the 21st Century discussion board. You may also want to check out Tom Koppel's Soapbox.com article, A Fuel Cell Primer, which sells for $25.
Related Links:
Ballard Power's Revolution, Rule Breaker, 8/21/00
Fuel Cells: A Rule Breaking Industry?, Rule Breaker, 6/6/00
RSS Headlines
Fool UK
