Hydrogen fuel cells represent a fantastic technology that has great promise, but so far hasn't delivered on many of the biggest dreams of its proponents. However, that may be slowly changing. Niche applications like Plug Power's (NASDAQ:PLUG) fuel-cell powered fork lifts and FuelCell Energy's (NASDAQ:FCEL) small industrial installations are still huge opportunities. But the push toward utility scale projects, which is starting to gain traction, is the key area for taking the technology mainstream.
Clean, reliable, and in the background
While some hydrogen fuel cell optimists have long looked at the consumer auto market and seen a potential goldmine, the technology still hasn't hit the mainstream. That's why Plug Power's niche approach has been such a winner, offering industrial customers a better mouse trap—or in this case fork lift.
It's a boring market, but one in which hydrogen cells offer enough advantages to make converts of major corporations around the world, like Wal-Mart (NYSE:WMT), Procter & Gamble (NYSE:PG), and BMW, among many others. Plug Power is even breaking into new industrial niches, including refrigerated trucks with Sysco (NYSE:SYY) and airport equipment with FedEx (NYSE:FDX).
These are all huge opportunities, but ones that sit in the background. They are easily overlooked by the populace that they benefit. Even FuelCell's systems have so far largely been limited to the background. For example, FuelCell installed a 600 kilowatt hydrogen system at an onion farm. It runs off of onion waste and, thus, is a great benefit to the environment and Gills Onions, but it's hardly front-page news.
The big leagues
Bringing the technology closer to the mainstream, Sprint (NYSE:S) has made an effort to use hydrogen systems as power backups for its cell towers. And, perhaps even more impressive, Verizon (NYSE:VZ) has been using Bloom Energy hydrogen power cells to provide electricity to three of its facilities in California.
Even these types of projects, however, don't have the same impact of working at the utility scale, though they show the potential. And that potential is starting to gain traction. For example, Bloom Energy has signed a deal with Exelon (NYSE:EXC) in which the utility will help finance 75 installations of Bloom's technology at industrial sites on the East and West Coasts. Clearly, utilities are starting to see some value in getting more involved in the hydrogen fuel cell market.
Bloom has also signed a deal with WGL Holdings (NYSE:WGL) to build a 2.6 megawatt project in California. The power will be sold to Santa Clara County under a 20-year power purchase agreement. Essentially, Bloom is working with WGL to build a utility scale hydrogen fuel cell power plant. Only it's still a relatively tiny project. For comparison, Duke Energy's (NYSE:DUK) Edwardsport coal plant, completed last year, has a capacity in excess of 600 megawatts.
That said, South Korean POSCO Energy has a fuel cell plant with a capacity of 59 megawatts. Still just a fraction of Duke's Edwardsport plant, but proving that the technology can be scaled up. Cost, of course, plays a big part in that. South Korea imports nearly 100% of the fuels used to power its economy. Fuel cells, which can be powered with such things as onion waste, make a lot of sense in that situation. However, with natural gas still historically cheap in the United States, they are a harder sell domestically.
Fuel cells: Big time or not?
The answer to the "big or not" question depends on your view. Plug Power and FuelCell are exploiting niche markets with great success. It's hard to call that a failure, even though most people don't realize that it's happening. That said, utility scale projects are still not ready to replace large power plants—POSCO's 59 megawatt plant, the largest in the world, is impressive, but still relatively small. But, as more and more utilities dabble with fuel cells, the more likely it will be that the technology starts to take off at the utility level. So are they ready for the big time? Not just yet, but it looks increasingly like they will be sooner rather than later.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Exelon, FedEx, Procter & Gamble, and Sysco. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.