Plugging Along

by Richard T. Stuebi

It has long been axiomatic that fuel cells are years away from being commercially available: a technology that is not yet a product. For a brief shining moment in 2000, fuel cells were almost as hot as dot-coms, and several fuel cell companies went public and soared to extraordinary heights, before the market came to the realization that revenues — much less profitability — were many years away. The crash was not pretty, as it never is.

Perhaps no company experienced this boom/bust roller-coaster as vividly as Plug Power (NASDAQ: PLUG). PLUG was touting a vision of a fuel cell system in every basement of every building, generating emission-free power on-site for sale back into the grid. Not long after its IPO in late 1999, PLUG stock rose from about $20 to the $150 range, with a market cap of untold billions.

Then, someone came to realize that mass-distribution of hydrogen to fuel PLUG’s PEM fuel cells would be an issue. And, the required price point for PLUG’s system to be economic relative to grid power was very challenging. As with the dot-coms, retail investors discovered that a business model that would generate prompt/growing profitability — always the basis for stock valuations — was not going to be easy for PLUG, and began unloading the stock.

Since the peak, PLUG promptly fell below its IPO price by late 2001 (helped, no doubt, by the combination of 9/11, Enron, etc.), and has trickled down into the low single digits — currently roughly $3. Those who shorted the stock must have done well.

It’s easy to think that PLUG has been circling the drain. The Motley Fool continues to highlight PLUG (and other fuel cell companies) as bad investments. However, I was present last month at the Ohio Fuel Cell Coalition‘s annual symposium in Columbus, and was intrigued to learn that PLUG appears to be on the move.

In the past two months, PLUG has acquired not one but two companies, General Hydrogen and Cellex, both of whom are located in Vancouver BC, and both of whom were developing competing fuel cell applications to serve the industrial handling (read: fork-lift) markets.

True, fork-lifts may not be as big a deal as the potential offered by home power systems. But, no-one can deny it’s a real market with customers needing better solutions than can be offered by rechargeable batteries (propane in indoor environments is being phased out, due to indoor air quality and safety concerns). As is well-known, batteries are not an ideal solution for fork-lifts: the fork-lift loses performance as the battery discharges, battery recharge takes hours, and battery change-out is bulky and time-consuming. In contrast, the fuel cell pack can be quickly refilled with hydrogen in a few minutes, and the fork-lift is able to maintain its full performance until the fuel cell needs to be refilled. Hydrogen storage and refilling infrastructure on a site with many fork-lifts is relatively simple and cost-effective to implement.

With the new acquisitions, PLUG now is in a dominant position to serve a near-term market in which fuel cells can create demonstrable value for customers.

According to the presentation I heard at the symposium, initial trial runs of the Cellex technology at a Wal-Mart distribution center have been very promising, and could lead to an expansion of the testing program in short order. If a high-profile and enormous client like Wal-Mart were to want to roll-out fuel cell technology at all of its locations, it would be an affirming accomplishment for the fuel cell industry, and could perhaps begin to repair the sector’s battered reputation.

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc.

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