FuelCell Energy Incorporated to Supply Cell Modules and Components to POSCO Power

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Researched by Industrial Info Resources (Sugar Land, Texas)--FuelCell Energy Incorporated (NASDAQ:FCEL) (Danbury, Connecticut), a developer of fuel cell power plants, has secured an order worth $58 million from POSCO Power (Seoul, South Korea), a subsidiary of steelmaker POSCO (NYSE:PKX) (Pohang, South Korea), for the supply of molten carbonate Direct FuelCell modules and components capable of generating 30.8 megawatts (MW) of power. The order is scheduled for delivery in 2010 and early 2011. POSCO Power has been a marketing and distribution partner of FuelCell Energy in South Korea since 2007.

The two firms also entered into a memorandum of agreement that would pave the way for a licensing agreement in which POSCO Power would be permitted to acquire cell and module components from FuelCell Energy for subsequent assembly into stack modules for sale in South Korea. Once the licensing agreement is finalized, POSCO Power will purchase FuelCell Energy common stock worth $25 million at the rate of $3.59 per share.

A fuel cell is an electrochemical device that synthesizes hydrogen and oxygen from the atmosphere to produce electric power, heat and water. Hydrogen for the fuel cell can be procured from several sources such as anaerobic digester gas, coal gas, natural gas and propane, which are internally reformed to produce hydrogen that is required to power the fuel cells. Fuel cells are clean and green sources of energy since they do not employ the conventional combustion process to produce power.

FuelCell Energy's products range in size from 300 kilowatts (kW) to 2.8 MW and can be scaled up to produce up to 50 MW of direct current (DC) electric power. The products find application in a variety of industries including manufacturing, hospitality, food and beverage processing, and wastewater treatment. Power plants based on Direct FuelCell have an operating efficiency of 47%, while combined heat and power plants based on these modules have an operating efficiency of up to 80%. This compares favorably with traditional, older generation fossil-fuel-based power plants that typically have an average operating efficiency of approximately 35%.

POSCO Power conducted test trials to assess the business value of fuel cells over a period of one year starting April 2005. The firm installed and operated fuel cells for power generation on an experimental basis at the Joseon University Hospital and the Tancheon sewage treatment plant.

In February 2007, POSCO Power acquired a 2.4-MW fuel cell power plant from FuelCell Energy. The two firms also entered into a 10-year manufacturing and distribution agreement in which POSCO Power would distribute FuelCell Energy's molten carbonate Direct FuelCell power plants in Korea and also manufacture balance-of-plant equipment.

In August 2007, POSCO entered into a partnership with Korea Electric Power Corporation (NYSE:KEP) (KEPCO) (Seoul, South Korea) to jointly develop hydrogen fuel cell generators. Under the collaboration, POSCO Power was required to supply 2.4 MW of fuel cells to Korea South-East Power Company Limited (KOSEP), a subsidiary of KEPCO. KOSEP operates Korea's first fuel cell power plant, which has a generation capacity of 250 kW.

In October 2007, POSCO commenced construction of a $131 million fuel cell power plant in the Pohang and Yongilman harbor industrial complex. With a capacity of 100 MW per year, the facility is expected to be the largest fuel cell power plant in the world and is scheduled to commence operations in 2010.

In September 2008, POSCO completed the construction and commenced operations of a fuel cell manufacturing plant with an annual capacity of 50 MW at the Yeongil Port Industrial Complex. Fuel cells produced in the plant are capable of catering to the power requirements of 17,000 households. The firm also announced plans to set up another manufacturing facility with a capacity of 50 MW per year by 2011. POSCO has also commenced a five-year project to develop 180-kW solid oxide fuel cell systems by 2012.

In May this year, POSCO announced the completion of a 2.4-MW hydrogen fuel cell power station in Seoul. The plant can provide electricity to 3,200 households and address the heating requirements of 1,000 households. POSCO Power will operate the fuel cell plant for a period of 15 years. POSCO also entered into a memorandum of understanding with the city government of Seoul to promote and expand the use of fuel cells in the city. The mayor of Seoul, Oh Se-hoon, indicated that hydrogen fuel cells could account for 30% of the alternative sources of energy used in Seoul by the year 2020.

In October last year, Samsung Everland Incorporated (Yongin, South Korea) placed an order for 12 fuel cell systems from UTC Power Corporation (South Windsor, Connecticut), a subsidiary of United Technologies Corporation (NYSE:UTX) (Hartford, Connecticut). With an individual capacity of 400 kilowatts (kW), the 12 systems would be used to power a 4.8-MW fuel cell plant owned by GS Power in Anyang near Seoul. GS Power is a subsidiary of GS Holdings Corporation (SEO:078930) (Seoul), which was spun off from LG Corporation (SEO:003550) (Seoul) in July 2004. Scheduled to come into operation in September this year, the fuel cell plant would have an output of 40,000 megawatt-hours per year and cater to the power requirements of 5% of the population in Anyang. Samsung Everland also entered into an exclusive deal with UTC Power to promote and distribute the latter's PureCell Model 400 systems in South Korea, with additional plans to set up a local manufacturing unit and a service center in the future.

The global commercial market for fuel cells is expected to reach $1.9 billion by 2013 and further increase to $5.1 billion by 2018. Commercial demand for fuel cell systems was estimated to be 17,800 units in 2008. This is expected to increase to 1.3 million units by 2013, and further to 9.95 million units by 2018.

As of December 2008, POSCO had invested approximately $120 million in the fuel cell business. The company expects its fuel cell business to bring in annual revenues of about $437 million by 2012.

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