A technology that can provide reliable power with low emissions in congested areas without the need for costly transmission sounds like the wave of the future, and it will be if FuelCell Energy gets its way.

For now, neither the company nor the technology are profitable or widespread enough to be a major part of the US energy mix.

But many technology challenges have been solved, costs are coming down, and the industry – which includes main rival Bloom Energy — may be poised to take a bigger share of the energy pie at a time when government and industry are looking to boost fuel-efficiency and energy independence while cutting greenhouse gas emissions.

A Banner Year

FuelCell Energy, the biggest US maker of stationary fuel cells for utilities and users such as hospitals and universities, reported its best-ever year in 2011, growing revenue by 76%, increasing its order backlog by 38%, and reporting a gross profit in both the third and fourth quarters.

The Danbury, Connecticut-based company lost a net $45.9 million on revenue of $122.5 million last year. It was the fifth year in a row that the company reported a loss but was the smallest of that period.

“The company is not profitable but we had our best financial performance” in 2011, said CEO Chip Bottone.

Now the major challenges are winning the confidence of potential customers, and driving costs lower, Bottone said in an interview with Breaking Energy. “The lower we can make the cost, the lower we produce the power.”

Since it sold its first commercial power plant in 2003, the company’s costs have declined by 60% to about $3,000 a kilowatt through improvements in design and technology.

Further cost reductions will depend on sales volume and that in turn will allow the company to make additional savings by higher-volume purchases of raw materials such nickel and stainless steel.

“We want and need to get costs down more and the way that’s going to happen now is through sales volume,” said Kurt Goddard, FuelCell’s Vice President of Investor Relations.

Cost Comparisons

The price paid by FuelCell Energy customers has dropped from 24 cents/kWh in 2003 to about 15 cents now – comparable to grid costs in expensive markets such as California and Connecticut – and the company aims to reduce it further to around 10 cents, which would make its energy competitive with much more grid power.

At current costs, a typical mid-sized fuel cell plant producing 1.4 MW would cost the customer about $5 million before federal tax credits and possibly state incentives, Goddard said.

With 2011’s additions pushing it to 56 MW of production at its plants around the world, FuelCell Energy is moving toward the 80-90 MW level that it believes will allow it to become profitable.

Bottone declined to predict when its profitability milestone would be reached, saying only it is a “fairly near-term thing.”

That may mean as soon as this year, in part because of the company’s declining cost base, said Sam Jaffe, research manager at IDC Energy Insights in Boulder, Colo.

Cleantech investors poured money into fuel cell companies in recent years despite broader sector challenges. Read more on Breaking Energy here.

The Science In Short

At the same time, it has overcome technical challenges in its molten carbonate fuel cells, giving them a durability that they lacked earlier in their development, Jaffe said.

Fuel cells produce electricity through an electrochemical reaction that emits only carbon dioxide but without the SOX, NOX or particulate emissions that come with the combustion of fossil fuels like coal or, at a lower level, natural gas.

The cells combine a fuel such as hydrogen or natural gas with oxygen or another oxidizing agent to create the chemical reaction that produces electricity.

The principle, first discovered in the 19th century, is being applied by companies like FuelCell Energy, and its main US rival Bloom Energy, using different fuels and different materials to create a continuous power source that challenges and can be used to compliment the intermittent – though emissions-free – power flow from wind and solar.

This is the first of a two-part series on the fuel cell industry, check back on Breaking Energy for Part Two.