Fuel cell maker Bloom Energy (BE 5.47%) is entering the hydrogen market through two new offerings. Its stock was up 67% in October. Let's take a closer look at what is fueling enthusiasm in this clean energy company.
A massive opportunity
Bloom Energy is in the right market at the right time. The clean energy company offers a range of products across markets. Its energy servers provide utility grid alternatives to commercial and industrial customers. These are primarily used as back-up equipment and to supplement power from the grid.
Fuel cells in Bloom Energy's servers use solid-oxide fuel cell technology. A key benefit of this technology is its lower costs, compared to other technologies, such as the proton-exchange membrane (PEM) fuel cells. On the flip side, solid-oxide fuel cells aren't as quick to start or stop and are therefore not ideal for transport applications. But they make more economic sense than PEM cells for stationary base load generation.
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Bloom Energy's fuel cells are fuel-flexible and can take natural gas, biogas, or hydrogen as an input fuel. As electricity is generated using an electrochemical reaction, emissions are lower compared to the traditional method which burns fuel. However, the process still produces emissions. To eliminate those, Bloom Energy is increasingly focused on hydrogen fuel cells.
In July, Bloom Energy unveiled its electrolyzer to produce green hydrogen. As the electrolyzer also uses the solid-oxide fuel cell technology, Bloom Energy believes that it will be the lowest-cost alternative in the market. The company expects to start commercial deliveries of its electrolyzers next year. It also expects to start commercial shipments of its hydrogen-powered fuel cells next year. The company believes its solid-oxide fuel cells can produce more electricity using less hydrogen, compared to alternative fuel cells in the market.
Higher costs compared to traditional energy sources and storage options have been a key factor limiting the use of hydrogen, especially in stationary generation. That is also an important reason why fuel cell companies have largely been unprofitable for several years. If Bloom Energy can deliver cost-effective hydrogen solutions, it could pave the way for its strong growth in the coming years.
Bloom Energy is also working on advancing enabling technologies, such as carbon capture, utilization, and storage and the deployment of biogas units. It is also exploring the use of solid-oxide fuel cells in the marine industry.
A key partnership
Bloom Energy recently expanded its partnership with South Korea's SK ecoplant, an affiliate of SK Group. Under the new partnership, SK ecoplant will buy a minimum of 500 megawatts (MW) of power from Bloom Energy through 2024. That would amount to around $4.5 billion in equipment and service revenue for Bloom Energy.
The two companies also aim to advance commercialization of green hydrogen. SK ecoplant aims to invest $500 million in Bloom Energy for an equity stake not exceeding 15%.
Bright long-term prospects
There is a lot to like about Bloom Energy. First, the company is just entering the hydrogen market, which has massive potential. Bloom Energy believes that its fuel cells and electrolyzers are the most cost-effective among the hydrogen solutions available in the market right now.
Apart from hydrogen, Bloom Energy is doing well in its natural and biogas-powered fuel cell segment. Its expanded partnership with SK ecoplant may pave the way for its profitability. Bloom Energy expects its cash flow from operations to approach positive in this year.
However, it is important to note that in the long term, it is Bloom Energy's success in hydrogen operations that will set it apart from other clean energy companies and offer it an avenue for exponential growth. It could be many years before these operations reach scale and contribute significantly to the company's earnings. So, Bloom Energy stock is suitable only for investors with a very long-term time horizon and a high level of risk tolerance.
