Fuel Cells Still a Tough Sell in California

Fuel-cell makers such as United Technologies Corp.’s International Fuel Cells unit aren’t making a lot of money in power-starved California because the technology isn’t cost-effective for most consumers yet, the unit’s president said.

“If this were 10 years from now, people in California could just turn on their fuel cells,” International Fuel Cells President Bill Miller said in an interview. “But for the next several years, [buying power from] the grid will be cheaper.”

International Fuel Cells, which has been making fuel cells for NASA space shuttles since 1966, has the only commercially available fuel cell. Others such as Plug Power Inc., FuelCell Energy Inc. and Ballard Power Systems Inc. are racing to bring a product to market.

Fuel cells use hydrogen to produce power and are less polluting than other generators. The technology is drawing interest from power companies and auto makers that are facing stricter clean-air rules, and from businesses and others that are worried about power failures.

Hydrogen, though, is expensive to produce and isn’t widely available. International Fuel Cells has created a fuel cell that extracts hydrogen from gasoline or natural gas, which could hasten the technology’s acceptance.

International Fuel Cells will ship 10 to 15 fuel cells this year to California, which has had blackouts and surging energy costs amid a supply shortage. The company, though, doesn’t expect to get big profits there until it can cut costs.

It now costs International Fuel Cells about $4,500 to make a fuel cell that produces one kilowatt, enough power to light a typical U.S. home. That cost is about $500 for a coal- or natural gas-fired plant, Miller said.

International Fuel Cells is researching less-expensive materials and cheaper-production methods to make the technology more affordable for consumers. Miller said he expects to cut costs of a fuel cell for homes and businesses to about $1,500 a kilowatt by 2003. The company is also working on a vehicle-fuel cell that can be produced for $50 a kilowatt by 2010.

International Fuel Cells now markets a fuel-cell product, the PC25, that’s about the size of a commercial van and costs $900,000. It has sold 220 of these units so far. One unit supplies about 5% of the power used at the Conde Nast Publications Inc. building in New York. Five units help power a U.S. Postal Service mail-sorting center in Alaska.

The company, based in South Windsor, Conn., expects to lose $50 million to $70 million this year on about $60 million in sales, Miller said. He expects the company to break even in 2004.

Other fuel-cell makers are losing money. In 2000, Plug Power lost $86.2 million and Ballard Power lost $85.7 million. FuelCell Energy lost $4.5 million in its fiscal year ended Oct. 31.

“Most of these companies are really development-stage companies,” said Goldman Sachs analyst Mas Siddiqui. “Not to be cruel but some are no more than science experiments. They’re not even close to having anything that they can ship.”

United Technologies, based in Hartford, Conn., is also the maker of Otis elevators, Carrier air conditioners, Pratt & Whitney jet engines and Sikorsky helicopters. It had 2000 revenue of $26.6 billion.

Shares of United Technologies rose 17 cents to $78.31. They have risen 28% in the past year.