IKEA’s plans to generate on-site power hit a snag

Just a few weeks after breaking ground on a new store in Burbank, IKEA officials were in City Council chambers Tuesday to protest a policy that would keep them from generating their own power at the site using fuel-cell technology.

At the urging of Burbank Water and Power General Manager Ron Davis, the City Council agreed to defer consideration of allowing the city’s utility customers to generate their own electricity with fuel cells, at least until there are signs of sustained growth in demand for electricity in Burbank.

The utility forecasts demand will be “at best, flat” for the foreseeable future.

The plan would “undermine IKEA’s sustainability efforts,” said Bob Grimsley, real estate manager with IKEA, adding that the city utility had been negotiating “in bad faith” on an interconnection agreement related to on-site energy production using fuel cells and solar panels.

Only after IKEA had broken ground did it learn the utility would seek City Council direction not to allow fuel-cell generation.

Walt Disney Co. had also been discussing an agreement with the city to begin generating electricity on its site using fuel cells.

Davis said he had sought City Council guidance on the issue because if he allowed customers to install fuel cells, it would result in rate increases to all Burbank customers on the order of 30% to 40%.

“I like fuel cells — I want to say ‘yes,’” Davis said, adding, “These are good customers... Disney’s a great customer,” but that increase was “too material” for him not to seek City Council direction.

Through a chemical reaction, fuel cells use air and fuel to create electricity with similar efficiency as large-scale power-generation facilities, but are smaller and can be located on a site like that of the future IKEA store, according to a city staff report.

Incentives at the state and federal levels, along with favorable natural gas prices, make the technology attractive to large energy customers, the report states.

Davis said it had been “made clear” to him that Disney and IKEA would not be interested in the fuel-cell technology without the economic benefits. However, he said, allowing the fuel cells would have an economic disadvantage for the city’s utility.

Under an interconnection agreement, the utility would pay IKEA or Disney for energy their fuel cells generate, but with low energy demand, the utility would lose money buying that energy for a price three times higher than the utility could sell it — if it could sell it at all, Davis said.

Davis said fuel cells are better than building new power facilities or buying from electricity marketers, but the city is already “ramping down” its own generation capabilities.

Additionally, while the utility does favor customer-generated energy through renewable sources such as solar power, Davis argued that because fuel cells typically use natural gas — a nonrenewable fossil fuel — allowing them would be inconsistent with long-standing city energy policy.

Council members sided with Davis on waiting until energy demand increases before allowing such fuel cells, but they directed him to sit down again to discuss the issue with Walt Disney and IKEA officials.

Davis said continued discussions wouldn’t change the economics. There may be a silver lining for IKEA, however.

Fuel cells using exclusively a renewable fuel source would be allowed to proceed, Davis said, because of the city’s policy of supporting renewable energy production. But, he said, any agreement would have to meet certain requirements so there could be no “bait and switch” back to fossil fuels.

Grimsley said IKEA is committed to using only biogas to supply its fuel cells, similar to those it uses at a store in Emeryville.

IKEA spokesman Joseph Roth said Wednesday that the Swedish retailer plans to continue discussions with Burbank’s utility while “resolving confusion” about the company’s plans.

“Not all companies take the approach of being renewable and carbon neutral,” Roth said. “I think that was part of the confusion.”