07/08/2005 12:00 am EST
Tobin Smith is the quintessential expert is uncovering emerging, long-term trends. Clean energy, he says, is one trend "whose time has come." Here, he looks at fuel cell technology, focusing on the prospects for one company that has been added to his "Legacy" portfolio.
"Fuel cell technology has the potential to significantly reduce our dependence on foreign oil. Studies reveal that if just 20% of cars used fuel cell technology, we could cut oil imports by 1.5 million barrels every day. But right now that's just a pipe dream because cars won't be the biggest immediate beneficiaries of this technology. The power generation market is where they will make their mark.
"We're recommending FuelCell Energy (FCEL NASDAQ) for our long-term 'Legacy' portfolio. Direct FuelCell power plants from FuelCell Energy generate electricity without combustion. Unlike other fuel cell technologies, Direct FuelCells can use hydrocarbon fuels without the need to first create hydrogen in an external fuel processor and are the most efficient fossil fuel generators in this size range, without combustion and the pollutants associated with burning fuel. Natural gas, waste gas, and other methane sources are turned into hydrogen without creating fossil fuel pollution. It’s a match made in heaven.
"Its highly efficient electrochemical reactions are thousands of times cleaner than plants burning fossil fuels, significantly quieter and up to twice as efficient as conventional power plants. All these characteristics make fuel cells the most appropriate electrical energy source, as electric power consumers face cost, reliability, security, or environmental issues with their existing electric power sources. Plus, FuelCell's power plant emissions are so minimal that California, which has the most stringent air pollution standards in the US, characterizes them as an 'ultra-clean' distributed generation technology, similar to wind and solar energy.
"Take a look at the deal with Starwood Hotels to really understand how well FCEL is positioned. The initial focus of the agreement will be in California, with Starwood's Sheraton San Diego Hotel & Marina being the first hotel on the West Coast to install the 250-kilowatt direct fuel cell power plant and the fourth hotel to employ this technology. Starwood wins with1) green friendly positioning, which is a big plus in many areas; 2) reliability, as it will generate power off-grid; 3) co-generation, as a bi-product of having the fuel cells is that they put off heat, which the hotel will use to heat its swimming pool; and 4) no hydrogen infrastructure, as hydrogen is generated directly within the fuel cell module from readily available fuels .
"The company is still running deficits. But with $207 million in the bank, I now believe they will be cash flow positive in 2007 or late 2008, at which point they will really start to run. Fuel cells are ready to explode in demand. The US is one market. Korea and Japan, with equally high energy prices, are even farther ahead, especially since they have adopted Kyoto energy emission protocols. And Europe is an even bigger opportunity. With $470 million of research already paid for by old stockholders and a time where the market is now finally ready to embrace the fuel cell power plant idea, FuelCell is a play whose time has come."
The key risk-on and off drivers today are the same – U.S. politics, global growth, other centr...