Don’t bet on the Bloom Box

(Mar. 28, 2010) Investors could soon be scratching their heads over a rumoured $1.5-billion IPO for Bloom Energy and its fuel cell, a gizmo the size of a CD that can provide power to a home without needing to be connected to the electric utility’s power lines.

Unveiled amid much hoopla on 60 Minutes last month, the Bloom fuel cell is touted for being able to run on natural gas or biofuels, for being more efficient than a conventional natural gas power station and for reducing greenhouse gas emissions. And, the Bloom fuel cell doesn’t just help homeowners — if you stack a bunch of these CDs together, they can power businesses, too, even big businesses. As 60 Minutes showed, major players such as Google and eBay already use the Bloom technology, dubbed the Bloom Box, to power their operations.

But the Bloom Box has its critics. They say it is nothing revolutionary, merely another version of fuel cell technology, which many companies have pursued over the decades, and which many continue to pursue. While the Bloom Box may be more efficient than a conventional natural gas power plant in converting natural gas to electricity, from the little that Bloom Energy has disclosed it seems less efficient than the high efficiency natural gas plants now in use around the world. And the critics question whether the Bloom Box’s high costs of today can be reduced enough in future to make it economical.

Who’s right? The answer now is wildly unknowable, mostly because the political needs of governments, rather than the energy needs of consumers, are likely to be calling the shots.

Take one of the most important attributes of the Bloom Box — its potential to eliminate the need for a power grid. This will not sit well with governments, once it dawns on them that the Bloom Box could undermine their plans. Governments are committing hundreds of billions of dollars in massive new “smart grids” designed to (among other things) conserve energy by remotely controlling our appliances. Will governments accept a technology that negates their vision for us, or will they bend the Bloom Box’s development to somehow rely on the central grid?

The Bloom Box also runs afoul of governments that are backing uneconomical renewable energy technologies, such as remote wind turbines and solar systems, because the Bloom Box could displace many of these government-favoured investments, too. And it runs afoul of the current government bias against CO2, since the Bloom Box would mostly be fuelled by natural gas.

Apart from these specific government policies, where the Bloom Box will fit in our government monopolized power system also requires a crystal ball. Most consumers will want a backup of some kind. Advanced batteries, which governments also subsidize, could work for some, especially since the Bloom Box could recharge them overnight, when it wasn’t providing lighting. But those government battery subsidies could vanish at any time.

Or, the existing power grid could be used as the backup. This could bring governments on board, since their investments in the smart grid would now seem to be justified. Except using the smart grid as backup would negate the Bloom Box’s boast of eliminating the need for the electrical grid. Besides, if the smart grid does become a backup for the Bloom Box, governments could well decide to charge prohibitively for providing this backup service.

If governments didn’t so distort the energy marketplace, most of the variables that potential Bloom Box consumers and investors would need to consider would disappear, making the risks involved in a Bloom Energy IPO much more knowable. Without the distortions, in fact, the Bloom Box could already be economic in niche settings, such as in some remote regions, in some military applications, and as a backup to the grid in settings where space (but not money) is an issue.

As it is, Bloom Energy has no bona fide customers now — the ones it touted on 60 Minutes exist by dint of another set of government distortions, including the rich California subsidies currently available to Bloom Box customers. And if governments don’t vacate the energy business, the Bloom Box may have no customers in the future, either, because its fate will rest less on its innovative properties than on what lobbyists can deliver.

Lawrence Solomon, Financial Post, Mar. 28, 2010
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