We at TSD are celebrating the end of 2011 with the year’s best posts. It’s been a year filled with great stories and strong opinions, always reflecting the best of the First State.
ORIGINAL PUBLISHING DATE: June 23, 2011
You may have heard that Governor Markell has attracted Bloom Energy, a Silicon Valley backed fuel cell manufacturer to build their first manufacturing plant in Newark. Bloom’s new location will be at the site of the former Chrysler facility. Bloom promises to bring over 1,500 jobs to Delaware in return for economic incentives from the taxpayers and electric ratepayers. As the details have been coming out I have been struggling to decide if this is going to make Delaware a better place to live. My conclusion is that it is a long shot, but we should support the Governor in this strategy as long as it is part of a portfolio of public private partnerships that can turn Delaware into an energy technology hotbed.
What is a fuel cell? It is an electrochemical cell that converts chemical energy from a fuel (natural gas in the case of Bloom) into electric energy. Electricity is generated from the reaction between the gas and an oxidizing agent. The reactants flow into the cell, and the reaction products flow out of it, while the electrolyte remains within it. Fuel cells can operate continuously as long as the necessary reactant and oxidant flows are maintained. If Bloom is successful, anywhere you can pipe natural gas you will be able to run a small power plant. Our central electric grid would be supplemented and be able to compete with “distributed generation.”
Here is a picture of a Bloom fuel cell.
Bloom’s vision is big and compelling. They have been extremely PR savvy and smart in forming a public private partnership with Delaware and Delmarva Power. They have also been very successful at raising $400 million from venture capital firms. A very good skill that our current administration has is the ability to form public private partnerships such as the one previously linked with Fisker and the Federal government. Booz Allen Hamilton has suggested in their position paper “Lights, Water, Motion!” that huge demands for investment to maintain and improve our infrastructure are going to be critical in the next twenty five years as the amount of capital required will exceed the current value of all of our publicly traded companies.
So is the Bloom Energy deal a good one for Delaware? Will the deal make Delaware a better place? On the whole I see it as a low cost option on a big opportunity. It seems that Governor Markell has credibility with Silicon Valley venture firms and he is successfully leveraging state and federal subsidies to create economic activity in Delaware. We may be surprised that it might not be Bloom itself that turns into the big success for Delaware. It could be the spinouts of the business, like Bill Gore leaving DuPont to found his eponymous company. I am on the Board of Voltaix, a semiconductor gas company that was spun out from Energy Conversion Devices (ENER-NASDAQ). Voltaix is worth more today than ENER. That is the kind of benefit you cannot plan.
Here are some other potential positives:
1) If the technology is proven successful, Bloom promises to ultimately employ over 1,500 people, 900 permanent workers, 600 suppliers, as well as the short-term blip of 350 people for construction.
2) The price of $16 million in direct state grants from the state of Delaware as well as $7 million in indirect grants to the University of Delaware for infrastructure to support Bloom. For a potential of 1,500 jobs is very low. With 23 million the 1,500 jobs provided by Bloom would only yield about $15,300 per employee. One of Acorn’s companies recently received a similar amount of money for a guarantee of only 100 jobs, but then our business has a technology that is economic at its current scale.
3) Making space for non-renewable fuel cells in the renewable portfolio standard may allow other technologies to create a Clean Energy Standard. Participants would be energy efficiency innovations, third and fourth generation nuclear plants, and partial credits for using cleaner burning conventional natural gas to replace older coal fired plants.
4) Delaware needs more local power generation.
Here are some of the negatives:
1) Bloom’s fuel cell technology has not been proven at a commercial scale, and it is competing with proven, scaled nuclear, coal and gas generation.
2) Nobody knows the economics, and yet Delmarva customers have been required to commit to buying renewable energy credits for the next 20 years at an estimated $67 million cost from a 30 megawatt plant that will be Bloom’s first grid scale demonstration.
3) Bloom has only a few real commercial customers like the publicity savvy Silicon Valley tech firms Google and eBay, as well as FedEx.
4) There is a history of micro-generation technology companies like Capstone Turbines (CPST-NASDAQ) and fuel cell companies like Bloom that have done nothing but consume investors’ capital. The best ever critique of Bloom is from fuel cell investor Neal Dikeman of Jane Capital.
I believe that while it is a super long shot that either Fisker or Bloom succeeds; Delaware is a state that needs more entrepreneurial activity. The Governor is doing his best to leverage off of big venture capital backed energy technology companies and create a partnership with Delmarva Power. It is also desirable that Delaware becomes a test center for new energy technologies. I think however, the Governor and his team should expand their focus to technologies that benefit from changes in the availability and low cost of natural gas. The biggest positive change to the US energy industry in the past fifty years is the discovery of huge amounts of natural gas in the Marcellus Shale of western Pennsylvania. The availability of cheap abundant and clean natural gas from shale is triggering a renaissance in the fertilizer, steel and chemical industries. What is the Governor’s plan to help Delaware benefit from this gold rush that is happening at our back door? What do you think? “Should energy be scarce and expensive or cheap and plentiful?” I hope to provide some food for thought in my next post.