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************************************************************************ A new SCIENTECH PowerHitter interview with E. Linn Draper, Chairman,=20 President, and CEO of American Electric Power, is now available. Find out more at: http://www.consultrci.com ************************************************************************ =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D SCIENTECH IssueAlert, October 18, 2000 Fuel Cells Get Financial Boost from U.S. Government By: Will McNamara, Director, Electric Industry Analysis =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D The Department of Energy will have more than $100 million for fuel cell related programs in the new fiscal year, $10 million above the president's request. The money is contained in the Interior Appropriation bill that President Clinton signed last week. The House and Senate jointly agreed upon $52.7 million for stationary fuel cells, $10 million more than request= ed, and approved the full request of $41.5 million for transportation fuel cell research and $5.5 million for buildings. ANALYSIS: This government funding, which is surprisingly higher than expect= ed, should give a much-needed boost to the slow-moving development of fuel cells. Although generally considered the favorite of low / zero emission energy solutions, fuel cells are still about two to three years away from being commercially viable in retail markets. (Phosphoric acid fuel cells, developed by ONSI, a division of United Technologies, are presently availab= le in a limited capacity). The technology has been in existence ever since batteries were discovered 160 years ago, but the high cost of producing them has precluded suppliers from making fuel cells readily available to the general public. Automotive giants like DaimlerChrysler and Ford Motor Co. have continued to explore the use of fuel cells in automobiles, and Texaco, Inc. agreed in May to invest $67.2 million in Energy Conversion Devices, a 40-year-old fuel cell and alternative energy development firm. Yet, this financial support for the DOE's exploration of fuel cells signals significant support from the federal government. In addition, warnings about the high cost of oil and natural gas, and the reports of low supplies of energy in states across the country, continue to scare energy end-users and may be spurring a renewed interest in distributed generation options. Here's how fuel cells work. They use an electrochemical reaction, as oppose= d to traditional combustion, to generate electricity. In other words, fuel cells allow hydrogen-rich fuels to react chemically with air, without burni= ng, producing as a byproduct DC electricity, water and heat. In addition, fuel cells dramatically lower the level of pollutants that are emitted into the environment. Test models of fuel cells presently convert methanol, gasoline and natural gas to produce hydrogen fuel. It's easiest to think of a fuel cell as a battery, but one that does not run down or need recharg= ing (although it will need replacing about every five years). A fuel cell will produce energy in the form of DC electricity and heat as long as fuel is supplied. As an added advantage, fuel cells can be controlled remotely by computer and run rather quietly. This is perhaps the primary incentive for end-users that would be interested in fuel cell technology. Especially for facilities like hospitals, the attributes of low noise and near-zero pollution are very appealing. Currently, fuel cells are being tested and developed by laboratories and think tanks around the world, hoping to make this low-polluting form of generation available for widespread use by 2002 or 2003. Under the DOE grant, money provided for stationary fuel cells will fund research and development to reduce costs and improve performance. It is hoped that this will lead to market-ready fuel cell power systems within three years. In addition, the funding allocates $41.5 million to transportation fuel cell research such as integrating fuel cell stacks with fuel processors and balance-of-plant technologies for testing. This program also will examine the technology barriers to fuel-flexible systems for automobile application= s. The $5.5 million reserved for buildings will go toward developing a prototy= pe fuel processor, completing the design competition for a 50kW co-generator for buildings, and other research and development. Deregulation has cast light on alternative forms of power supply. As custom= ers possibly decide to use on-site generation as opposed to power delivered across a transmission grid, this dramatically alters the traditional busine= ss of most energy companies. Large commercial and industrial customers that suddenly opt for fuel cell solutions to their energy needs would have drama= tic financial impact on their incumbent energy provider. As a result, many electric utilities and energy providers are investing in fuel cells as a hedge against a possible shrinkage within their own supply businesses. Southern Company is a good example. Just this month, Southern joined Alabam= a Municipal Electric Authority, Mercedes-Benz U.S. International, Inc., and FuelCell Energy in a partnership to "drive a growing interest in fuel cell technology." Specifically, Southern is providing funding for a fuel cell plant to be located in the service territory of Alabama Power, a Southern subsidiary. The plant will convert pipeline natural gas into electricity at a reported efficiency of about 50 percent, compared with 33 percent for conventional generation, which will feed the power distribution system of Mercedes-Benz. Another example is Enron, which just two weeks ago entered into an alliance with FuelCell Energy, Inc., to develop and market FuelCell Energy's Direct FuelCell products, focusing on state renewable and energy conservation programs. As part of the partnership, Enron is investing about $5 million in the common stock of FuelCell Energy. In its announcement of the=20 partnership, Enron stated that "the transaction enables us to reach the developing marke= ts for clean energy and renewable energy, which may be served through distribu= ted generation products, such as fuel cells." These are just two examples of many energy companies that are devoting money to fuel cells and other forms of distributed generation. Some state regulatory commissions have debated whether or not to allow utilities to own their own distributed generation equipment technologies. As a result, we are seeing a trend of utilities investing in companies that are already developing distributed generation solutions, instead of doing it themselves= . The investment appears to be a smart one. According to Stephens, Inc., an investment banking firm, common industry projections put the potential for the automotive fuel cell market at $50 billion annually by 2020 and as high as $100 billion (cumulative) for the stationary power markets withi= n 10 years. The increase is due in large part to the growth of Internet-based industry and the need for mission-critical systems at dot-com operations. Microturbines=01*small generators that can produce enough power for a small business=01*have beaten fuel cells to market and are currently manufactured by the likes of Capstone, Caterpillar and Solar Turbines. Microturbines reportedly could be potentially superior to fuel cells with regard to low emissions. Many energy companies and power marketers such as Williams, Alliant Energy and American Energy Savings have made announcements just within the last month that they will market microturbines to customers. Yet, the distributed generation market should become much tighter once fuel cells become commercially available, something that this hefty new grant from the U.S. government should push forward. =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D El Paso Global Networks plans to spend up to $2 billion in the next few years on telecom acquisitions. Find out more about SCIENTECH'S=20 Telecommunications InfoGrid at: http://www.consultrci.com =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D SCIENTECH is pleased to provide you with your free, daily IssueAlert. Let us know if we can help you with in-depth analyses or any other SCIENTECH information products. If you would like to refer a colleague to receive our free, daily IssueAlerts, please reply to this email and include their full name and email address or register directly at: http://www.consultrci.com/web/infostore.nsf/Products/IssueAlert Sincerely, Will McNamara Director, Electric Industry Analysis wmcnamara@scientech.com =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D Feedback regarding SCIENTECH's IssueAlert should be sent to=20 wmcnamara@scientech.com =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D SCIENTECH's IssueAlerts are compiled based on independent analysis by=20 SCIENTECH consultants. The opinions expressed in SCIENTECH's IssueAlerts are not intended to predict financial performance of companies discussed or to be the basis for investment decisions of any kind. SCIENTECH's sole purpos= e in publishing its IssueAlerts is to offer an independent perspective regard= ing the key events occurring in the energy industry, based on its long-standing reputation as an expert on energy and telecommunications issues. Copyright 2000. SCIENTECH, Inc. If you do not wish to receive any further IssueAlerts from SCIENTECH, pleas= e reply to this message and in the body of the email type "remove."
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