By Doug Rainey
Thursday marked the second time I had the chance to tour the Bloom Energy site on the University of Delaware STAR Campus. It’s an impressive place.
Looking down from the second floor of the site, one sees an immaculate shop floor that the company sees as “21stCentury Manufacturing.”
A flexible system that combines precision welding with hand assembly work keeps things moving at a less than a breakneck pace. Fixed equipment, such as overhead cranes and overhead utilities, are non-existent. Robots are nowhere to be seen. (So far, tests have not worked out, officials say).
Click here for past stories on Bloom
The influence of Toyota’s lean manufacturing that consistently produces high-quality vehicles is much in evidence. The manager of the plant is a veteran of the Japanese automaker, with another automotive specialist on the executive team.
Photos are forbidden, but it can be reported the California-made “stacks” that are key to the process that converts natural gas into electric power are assembled into a unit that bears a passing resemblance to R2D2 of Star Wars fame.
Technology theft a concern
A long-running penchant for secrecy was evident when an arriving Bloom worker questioned a photographer who was snapping shots outside as part of the press contingent. I got the same treatment near the door before being welcomed inside.
It was quickly noted that intellectual property theft remains a concern. Bloom servers are not exported to its biggest potential market and a hotbed for reverse engineering – China.
As the fuel cell array moves through the assembly process, the custom-made unit takes on a sleeker appearance befitting a price that was estimated at $700,000 to $800,000 a few years back.
Bloom held this rare media tour before a hearing on the company’s application to redo its fuel cells at two New Castle County sites that feed energy into Delaware’s grid.
The replacement project, which by some estimates runs $100 million to $150 million, raised eyebrows and led to a scathing post regarding shareholder disclosure by the well-read Axios site.
Bloom claims the replacement process has been baked into its business strategy. Since the plant made its debut in 2013, its fuel cells have become far more efficient, officials said.
Critics here and elsewhere question all aspects of the project including waste taken out of the natural gas used in the fuel cells.
Some argue that the mere use of natural gas, a fossil fuel, disqualifies the fuel cells as alternative energy.
Of late, elements of that group have formed an unlikely alliance with longtime free-market critics of the company who have filed lawsuits over the years, often with the support of the Delaware-based Caesar Rodney Institute public policy group.
The latest focus seems to be on the waste. Bloom says it is properly handling any residue.
Recycling fuel cells
Meanwhile, Bloom touts its green credentials. Another portion of the Newark site we did not see recycles the old fuel cells and adds the newest stacks.
Once we get past the heated rhetoric, the question is whether Bloom can produce the cells and make a profit. Net earnings are not expected anytime soon.
Bloom has remained under the microscope in Delaware after employment estimates fell short of the 900 that had been projected. The total number of jobs is believed to be in the 330 range with only a couple of recent openings. The company has paid back some state money.
Bloom officials are quick to note that wages are 50 percent higher than anticipated. That could add up to an economic impact equivalent to about 500 jobs. Local suppliers could further boost the impact.
The major irritant is the deal with the state that feeds Bloom’s fuel cell power into the grid at a fixed price. The charge was based on the assumption that the cost of electricity would go up. The opposite occurred as conservation efforts took hold, high-electricity using manufacturing plants closed, and the price of wind and solar dropped.
The squeeze claimed a number of victims. A Texas utility spent a lot of time and bolstered the incomes of many out of town lawyers in U.S. Bankruptcy Court in Delaware. A leveraged buyout piled up debt as its bet on coal-fired plants fall victim to competition from natural gas and the vast amount of wind power in the Lone Star State.
Closer to home, is the impact of the $4 to $5 a month that Delmarva Power customers pay when compared to buying alternative energy on the open market.
Ironclad agreement
To date, efforts to end the Bloom agreement have failed thanks to provisions with no escape hatches. The more vocal Bloom critics claim fraud and say the state should walk away and drop the goal of getting 25 percent of its electricity from alternative sources by 2025.
Under the current agreement, ratepayers would pay a hefty penalty for early exit.
For its part, Bloom officials cite the geographical limitations of Delaware in generating alternative energy, unless a massive offshore wind project became a reality.
The mega solar farms we see out west are out of the question. The same is true for the wind farms of Texas and the Midwest. Instead, Delaware would have to import solar and wind. That is already the case with utilities buying alternative power from Pennsylvania.
We have learned more about Bloom since it became a public company last year. The fuel cell maker has been able to whittle away at its break-even point, thanks In part to improved efficiencies at the Newark plant and growing sales.
However, the debt burden remains hefty and the effort to build a global business is in its early stages.
Bloom sees opportunities in two areas – developing countries without reliable electric grids and in patching problem areas of the grid in the U.S., Korea, and other first world nations without massive reconstruction projects.
The billion-dollar question
A couple of other factors in the mix involve the reliance on electricity in our networked world and the increasing severity of storms. One potential market comes from hospitals, which maintain expensive and pollution producing back-up systems but are still prone to power failures in an increasingly networked environment.
Other wins for Bloom include supplying a tech company in India, a developing nation with an unreliable grid, along with helping Con Ed in New York City deal with a growing demand for electricity and saving the utility money and outfitting a Boston hospital system.
It has also been noted that a couple of hundred Home Depot stores now have Bloom systems. The systems are in states that offer incentives. Interestingly enough, Bloom systems have not made major inroads in Delaware, despite hospitals and other facilities that might benefit from the always-on power as a supplement or replacement for back-up sources.
Can Bloom break through on the cost and sales side, even without state and federal incentives?
Investors were at first bullish on the Bloom IPO, with the stock price rising above $30 a share. Then came the plunge as news of the Delaware project and other developments that included a choppy stock market sent shares down to their current figure of $12.50.
Sales are steadily increasing, but not at breakneck rates. Additional productivity gains and sales wins could further brighten the outlook.
It adds up to a lot of questions that might be answered if Bloom can ship many more fuel cell arrays out of Newark.
