FuelCell Energy has carved out a foothold in the alternative energy space as a fuel cell power plant provider.
The company’s ability to provide distributed baseload power differentiates it from a large portion of the energy industry.
The rise of solar-plus-storage represents a real threat to FuelCell Energy’s long-term vision.
Alternative energy has gained a significant amount of traction in recent years. The global concerted effort to transition away from fossil fuels has allowed relatively new energy technologies to emerge to the forefront. FuelCell Energy (FCEL) is helping lead the charge for promising fuel cell technologies. Fuel cells are becoming an increasingly important part of the alternative energy mix.
FuelCell Energy reported Q2 revenue of $18.9 million, which represents 105.4% Y/Y growth. The company also reported a net loss of $14.8 million, which is an improvement from its net loss of $19.5 million a year earlier. What’s more, it has been able to operate relatively unimpeded despite the spread of COVID-19.
FuelCell Energy has carved out a promising space in the fuel cell industry by focusing on stationary fuel cell power plants. The company’s interest in larger-scale distributed energy generation distinguishes it from fuel cell competitors like Plug Power (PLUG) and Ballard Power Systems (BLDP). FuelCell Energy’s focus on emerging energy technologies allows it to fit in well with the rapidly changing energy landscape. However, the company also faces a great deal of competition from other emerging technologies.
FuelCell Energy’s recent stock recovery has been aided by a solid Q2.
Baseload Distributed Generation
The energy industry is rapidly embracing clean energy technologies and distributed generation. FuelCell Energy’s expertise in both these areas could help push it past other fuel cell companies over the long term. The versatility of clean distributed fuel cell power plants means that there is a large addressable market for the company.
FuelCell Energy’s stationary power plants, which run on available natural gas and renewable biogas, can service a wide variety of sites. The distributed nature of these fuel cell power plants allows for a greater degree of flexibility in which applications it can service. The company’s power plants can service everything from hospitals to utilities.
FuelCell Energy has delivered more than 10 Mwh of energy from its SureSource fuel cell power plants so far. This figure will likely only accelerate as fuel cell technology matures and environmental regulations become more stringent. The rise of cost-effective storage technologies could make distributed energy generation even more appealing moving forward.
FuelCell Energy’s SureSource power plants come in a variety of sizes. This allows FuelCell Energy to service a wide variety of sites/facilities.
Source: FuelCell Energy
Despite FuelCell Energy’s recent success, there is still a great deal of uncertainty that surrounds the long-term prospects of the company. One major advantage that FuelCell Energy has over other alternative and renewable energies is its ability to provide baseload power. Historically, renewable energy technologies like solar and wind have had trouble providing baseload power given the lack of cost-effective energy storage technologies.
The rise of increasingly cheap lithium battery technology is rapidly changing this dynamic. This means that the baseload problem facing renewables like solar and wind will be less and less of an issue for these technologies. Moreover, the consistent price declines of solar is making the technology an increasingly viable means of distributed energy generation.
Solar-plus-storage essentially competes directly with FuelCell Energy as a distributed energy generation technology. With companies like Tesla (TSLA) investing billions of dollars into solar and storage technologies, solar-plus-storage could easily come to dominate the distributed energy generation space. This would be terrible news for FuelCell Energy given its focus on stationary fuel cell power plants.
FuelCell Energy has the advantage of being one of the first movers in its industry. However, if fuel cell technology is not able to compete with solar technology in the long term, the company has a very bleak future. Though, this does not mean that fuel cell power plants will be completely obsolete moving forward. There will always be niche circumstances where fuel cell power plants are highly cost-effective.
Solar-plus-storage represents a huge threat to FuelCell Energy. Large technology companies like Tesla are investing billions of dollars into solar and storage.
FuelCell Energy’s power plants have the advantage of being more versatile and clean than traditional power plants. The growing global focus on environmentalism and increasingly strict emission standards further puts FuelCell Energy at an advantage compared to traditional energy companies. Unfortunately for FuelCell Energy, solar-plus-storage could very likely have even more potential than fuel cells.
Given how rapidly solar PV and lithium battery technology is advancing, solar-plus-storage appears to be the most promising form of distributed energy technology. As such, it would be a good idea to avoid FuelCell Energy at its current market capitalization of $536 million. Considering the fact that FuelCell Energy continues to operate at a loss, much of the company’s value is based on its long-term potential. Given the real threat that solar-plus-storage poses to FuelCell Energy, the company’s long-term vision may never come to fruition.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Originally published on Seeking Alpha