Fuel cells are clean energy producers. But, current prices, technology shortfalls and regulatory hurdles are impediments. To speed up commercialization, the Bush administration authorized $1.7 billion over five years to the effort.

"Threats over the security of fuel supply, coupled with increasing concern about air pollution and emission control are strengthening the case in favor of fuel cells as a preferred form of distributed generation technology," says Frost & Sullivan research analyst Hema Sarathy. In some cases, fuel cells used for on-site power are the primary generators and in other cases, they are used to back up power delivered by the utility.

The firm goes on to say that fuel cells have efficiency rates of 40-49 percent compared to other competing technologies that are 30-35 percent efficient. If co-generation is used -- the ability to recycle the steam that is produced -- then the efficiency rate jumps to 80-85 percent. Higher efficiencies and improved benefits will work to expand fuel cell markets in the early years, it says. To get past cost and technological issues, however, the fuel cell makers must achieve economies of scale.

That's why fuel cell companies are actively seeking partnerships and particularly with utilities. They are selling the technology as a way to reduce grid congestion and to increase reliability. Some power companies see the concept as a business opportunity and others see it as a threat, noting that in situations where businesses generate their own juice, the utility must still incur the cost of providing back-up power.

New rules and regulations may force adaptations, such as the one in California. The law there requires a 25 percent reduction in emissions tied to climate change. Fuel cells are potentially excellent tools in that scenario, given that the higher electrical efficiency means that less fuel is needed.

"California is one of the largest power consumers in the world so it is critical for us to design products that meet its requirements," says William Karambelas, FuelCell Energy's vice president of business development that is working with Starwood. As part of a broader clean energy program, the state is helping defray the costs of that effort.

Major Concerns

Regulatory matters can probably be addressed. High cost, however, remains a problem. The total stationary fuel cell market is small, given the price per kilowatt hour is not competitive with conventional generation. A major emphasis is also being placed on technology improvements and specifically those areas that focus on the reliability and durability of fuel cells.

Slowly, the industry will evolve and the market will mature. As production rates increase and prices fall, the technology will become more widespread. Those manufacturing realities will coincide with other dynamics and namely rising fuel costs and ever-stricter environmental laws.

"The stationary fuel cell industry is currently in a demonstration and a product validation stage, where the focus is not only on product development, but also on understanding the requirements of customers in order to enhance the product solution," says Frost & Sullivan's Sarathy.

Implementing distributed generation can be as simple as installing a small electric generator to provide backup power at an electricity consumer's site. Alternatively, it can be a more complex system, consisting of electricity generation, energy storage and demand management systems as well as rate designs to influence customer behavior -- all of which can be done outside the purview of the incumbent utility.

Fuel cells may now have a limited market. But that could change. Government researchers at the Lawrence Livermore National Laboratory are working on a fuel cell that yields an 80 percent efficiency rate -- yet no burning of carbon takes place.

Meantime, Siemens Power Generation said last year it had successfully tested a 5 kilowatt fuel cell. It's the size of a refrigerator and uses natural gas to heat water for tropical plants at Phipps Conservatory near Pittsburgh. The next steps are to implement a coal-based fuel cell system program and ultimately one that would be part of the government-led initiative, FutureGen, a zero-emissions power plant.

Commercial uses are also underway. Japanese technology company Fujitsu has selected a fuel cell power system to power one of its facilities in Silicon Valley. While the costs are high, it does expect the fuel cell to pay for itself within three years of operation as a result of the energy saved. Dow Chemical will also test fuel cells at one of its chemical plants in Texas. The technology will produce as much as one megawatt of electricity.

The goal is to get fuel cell projects out of the laboratory and firmly planted in the real world. Both public and private research dollars are going into such endeavors that will hopefully lead to superior prices and innovations. It's not guaranteed. But, it's worth the risk, given that the end result would be a much cleaner environment.