Verizon is also buying a bunch of fuel cells from ClearEdge Power for operations in other states, but is specifically installing Bloom Energy’s fuel cells within California. While Verizon wouldn’t comment on why it chose Bloom Energy as its supplier for California and ClearEdge as the supplier of fuel cells in other states, I speculate that the choice to go with Bloom in California was because Bloom works with California incentives to reduce the cost.

Verizon is one of a variety of telecom and Internet companies that have been increasingly turning to clean power to help provide electricity for infrastructure and buildings. Google has invested over a billion dollars into clean power projects. Apple (a AAPL), eBay, and Microsoft are deploying substantial clean power at data centers. AT&T has also purchased Bloom Energy fuel cells for its operations in California.

Internet companies are embracing clean power both to help add off-grid resiliency, as well as lower carbon emissions. Verizon’s Chief Sustainability Officer James Gowen told me back in April that the company’s clean power initiative is being driven both by the desire to add energy resiliency to Verizon’s facilities as well as the company’s sustainability goals.

During superstorm Sandy, a Verizon fuel cell installation in Long Island that powered a switching station (using fuel cells from UTC Power, which was acquired by ClearEdge Power) never went down. Verizon is also looking to cut its carbon emissions footprint substantially by 2020.

Verizon’s Bloom Energy fuel cells will be installed at two call-switching centers in Los Angeles and San Francisco, and a data center in San Jose. In total, Verizon’s clean power technology, including solar and fuel cells, will provide 70 million kilowatt hours of electricity for its operations, which is the equivalent of enough power for 6,000 homes per year.

Fuel cells look like industrial refrigerators, and they use a chemical reaction to produce electricity and heat. They are filled with large stacks that are lined with a metal catalyst, and a fuel (natural gas or biogas) runs over the stack, creating a chemical reaction that produces electricity and heat. The benefits of fuel cells are that the electricity can be created on site where it is used (so it’s more efficient), and if biogas is the fuel, then the electricity is also free of carbon emissions.

Bloom Energy has raised over $1.1 billion, including a recent $130 million, to grow its business. We’ll be interviewing Bloom Energy’s VP of Mission Critical Systems, Peter Gross, and eBay’s VP, Global Foundation Services, Dean Nelson at GigaOM’s Structure conference on June 20 in San Francisco.

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There’s a few things you need to remember about Bloom Energy. First, manufacturing fuel cells is a very difficult business, and one that is capital intensive with low margins. Fuel cells take fuel (natural gas or biogas) and combine it with oxygen and other chemicals to create an electrochemical reaction that produces electricity.

Customers can buy several Bloom Energy servers to deliver distributed power on site at a building, and that can have a lower carbon footprint than grid power. Competitors include ClearEdge Power, which recently scored a deal with Verizon, and the publicly-traded FuelCell Energy.

But Bloom Energy has actually gotten some breakthrough traction in the market over the past couple of years, particularly with data center operators. Apple, eBay, AT&T, Adobe, Google and others have bought Bloom fuel cells (or the power from the fuel cells) for both their data centers and building operations.

Primack reports that Bloom Energy’s latest funding was an extension of a round raised in 2011, at a pre-money valuation of $2.7 billion. The lead investor that put in $100 million wasn’t named, but Primack says that Credit Suisse put in $30 million of the round.

Because the fuel cell business is so difficult (read my The pain point for Bloom Energy and other fuel cell makers), Bloom Energy is most likely not profitable even after 11 years. Bloom Energy CFO Bill Kurtz told me that the company was “half way to break even” in the Summer of 2012. Primack previously reported that Bloom’s retained earnings through Q3 2012 stood at negative $873 million, with $113 million left in the bank, and with positive gross margins on a pro forma basis. Bloom has a goal to be profitable in 2013.

Existing investors did not participate in the round, according to the report. Previous investors included Kleiner Perkins, NEA, DAG Ventures and GSV Capital. Bloom Energy was previously working with broker Advanced Equities (like on this round in the Summer of 2012) to raise funds, but Advanced Equities has since shut down. The broker was charged for misleading investors back in 2009 for fund raising for Bloom Energy, was fined and shut its offices.

We’ll be interviewing Bloom Energy’s VP Mission Critical Systems, Peter Gross, and eBay’s VP, Global Foundation Services, Dean Nelson, at Structure in San Francisco next month.

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Verizon plans to buy fuel cells from ClearEdge Power and solar panels from SunPower. The amount of power from the solar panels and fuel cells, which will be installed across seven states, will be 70 million kilowatt hours of electricity. That’s enough to power 6,000 homes per year.

Fuel cells look like industrial refrigerators, and they use a chemical reaction to produce electricity and heat. They are filled with large stacks that are lined with catalysts (a metal, sometimes platinum), and a fuel (commonly natural gas) is inserted in one side and runs over the stack. Electricity and heat flow out the other side. The benefits of fuel cells are that the electricity can be created on site where it is used, and if the fuel used is biogas, then the electricity is also free of carbon emissions.

Verizon has been using a small amount of solar and fuel cell technology for awhile, but this move represents the company’s largest commitment to clean power projects to date. Verizon is looking to cut its carbon emissions footprint substantially by 2020.

Gowen told me in an interview that this initiative is being driven both by the desire to add energy resiliency to Verizon’s facilities as well as the company’s sustainability goals. During superstorm Sandy, a fuel cell installation that Verizon had in Long Island that powered a switching station (using fuel cells from UTC Power, which was acquired by ClearEdge Power) never went down. Gowen said he wanted that type of off-grid resiliency through out Verizon’s facilities.

All of the solar panel installations in 2013 will be pretty large ones. For example, Verizon is putting solar panels on the roof of a data center in New Jersey, as well as on the ground next to the data center. The return on investment for the combined clean power projects is supposed to be around ten years, said Gowen.

Deploying clean power technologies — both solar panels and fuel cells — at data centers is a growing trend for internet and telecom companies in the U.S. Apple (a AAPL), Google, eBay, and Microsoft are all deploying clean power at data centers to help add off grid resiliency, as well as lower carbon emissions.

Apple is building its own solar panel farms and fuel cell farms at its data center in Maiden, North Carolina. Google has spent over a $1 billion investing in clean power projects and recently started working with Duke Energy on a clean power initiative in North Carolina. AT&T has large fuel cell farms powering its operations in California and Connecticut, using technology from Bloom Energy.

In a call last week, ClearEdge Power’s CEO David Wright called Verizon’s commitment to clean power technology “a stake in the ground for other technology companies.”

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Fuel cells are essentially a box that creates a chemical reaction to produce electricity and heat. Fuel cells are filled with large filter-like stacks that are lined with catalysts (a metal, sometimes platinum), and a fuel (commonly natural gas) is pumped over the stack, creating a reaction and producing electricity and heat. Fuel cells produce fewer carbon emissions compared to coal powered grid energy. Bloom Energy is a venture capital-backed Silicon Valley company that has developed a more efficient fuel cell, which it is looking to sell to utilities, data center operators and companies for corporate campuses.

A couple of years ago the idea of combining fuel cells and data centers seemed like a long shot. For decades, fuel cells have been a more expensive way of generating power, and the technology hadn’t been reliable enough to act as a “mission critical” system with a high degree of reliability. Backup power systems — data center operators commonly use generators and batteries as backup power for when the grid goes down — can’t afford to go down in an emergency.

But Gross tells me that Bloom has been working on making the fuel cell and the fuel cell power system itself highly reliable — reliable enough to act as both mission critical backup power and to contribute to primary grid power. In combination with the grid, fuel cell power could create one of the most robust systems available, says Gross.

Bloom Energy's launch event

Gross says that it’s the combination of reliability, sustainability and cost (in certain areas with high energy costs) that could lead to fuel cells being readily adopted by data center operators. “It could be a radical change for how data centers use electricity,” replacing other backup systems and also replacing a portion of dirtier grid power, said Gross.

Bloom has already sold fuel cells to telcos NTT America and AT&T, partly for their data centers, and I reported recently that it looks like Apple will be buying fuel cells from Bloom for its large fuel cell farm at its massive data center in North Carolina. Other fuel cell makers like ClearEdge Power are also targeting data center operators.

To be sure, Bloom Energy is just launching this data center-targeted focus, so it remains to be seen how popular it will be with data center operators. But, at least for Bloom, it could be a smart move. Slow moving, highly regulated utilities seem to be harder customers to sell to in contrast with forward-thinking Internet companies.

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Recently, I reported that it looks like Bloom Energy is the fuel cell provider behind Apple’s planned 5-MW fuel-cell farm at its billion-dollar data center in Maiden, N.C. However, neither Bloom Energy nor Apple will confirm or deny that they are working together.

Fuel cells look like industrial refrigerators, and they use a chemical reaction to produce electricity and heat. They are filled with large stacks that are lined with catalysts (a metal, sometimes platinum), and a fuel (commonly natural gas) is inserted in one side and runs over the stack. Electricity and heat flow out the other side.

Fuel cells are attractive to facility owners because they offer a cleaner source of onsite power. But fuel cells are still pretty expensive to install and maintain, so are still a small market.

Still, data center builders and operators are an increasingly hot market for fuel cell companies to target. Last summer, fuel cell maker ClearEdge Power told me it planned to launch a fuel cell line targeted at data center operators. Bloom has already sold fuel cells to power data centers for NTT America, the U.S. division of Japanese telecom giant NTT, as well as AT&T.

For data centers, the fuel cells can either offer primary power (with the grid as the backup) or as backup power (in case the grid goes down). Given that data centers need a whole lot of power — and the power needs to be ultra-reliable – most fuel cells will only make up a small portion of a data center’s power footprint. Apple’s data center in Maiden is reportedly going to consume 100 MW, and the fuel cell farm is just 5 MW.

Bloom is calling its data center power division its “Mission Critical Systems” practice (and it will operate on facilities beyond data centers). Gross said in a release that: “Bloom Energy will now fill a critical need in the data center industry. By providing a reliable, clean and stable energy source that is immune to disruptions to the grid, Bloom will help its customers reduce their security risks considerably, while at the same time improving efficiency and cutting greenhouse gas emissions.”

Data centers need so-called “five nines” (99.999 percent) of reliability; essentially, the power supply can never shut down. Google has said the Bloom Box it has been using on its campus had an availability rating of 98 percent, which translates into around seven days of downtime a year.

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To put this in perspective, utilities don’t commonly contract for massive amounts of distributed fuel cells. Some of the other sizable ones I’ve heard of are those Bloom Energy is working with Delaware utility Delmarva Power & Light on for a 30 MW system, and FuelCell Energy has what it says is the largest constructed fuel cell park in the world with a 11.2 MW project with Korean power producer Korean Electric Power Corporation (KEPCO).

While these types of deals are rare today, these fuel cell farms are getting built in areas where grid power is expensive and where there are incentives in places for fuel cells and low-carbon power. Upp tells me the cost of power in Southern Austria, Güssing’s footprint, is close to 1 Euro per kilowatt hour. ClearEdge Power’s fuel cells, on the other hand, can produce power for 9 cents per kilowatt hour for the levelized cost of energy. Güssing also has a goal to have the towns in its footprint use entirely clean power.

ClearEdge Power will provide fuel cells for both residential and commercial Güssing customers, and Upp says one reason the company won the deal is because it can provide fuel cells of a small enough size for residential customers. “They were looking for a distributed solution that is at a smaller and scalable size. A building block approach,” said Upp.

ClearEdge Power will deliver the first 8.5 MW over the next 36 months. Güssing, along with California utility Sempra Energy, are investors in ClearEdge Power.

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Investors in ClearEdge’s latest round include Artis Capital Management, Güssing Renewable Energy, Sempra Energy’s Southern California Gas Company and Kohlberg Ventures. Producing fuel cells is notoriously capital intensive and difficult to make profitable — Bloom Energy has raised at least $500 million over the years.

Fuel cells look a little bit like industrial refrigerators, and they use a chemical reaction to produce electricity and heat. They are filled with stacks that are lined with catalysts (a metal, sometimes platinum), and a fuel (commonly natural gas) is inserted in one side and runs over the stack. Electricity and heat flow out the other side.

As I pointed out in this article there’s a lot of fuel cell companies that have tried to make manufacturing fuel cells profitable for decades. One of the Achilles heels of fuel cell production is making a stack that lasts and can meet a warranty as high as 10 years.

ClearEdge Power says in its release that it has had year-over-year revenue growth of over 480 percent in the second quarter of 2011 and says it has grown the amount of jobs by 300 percent over a three-year period.

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Of course, there are different types of fuel cells, but in general, the stacks that make up a fuel cell, and create the reaction that produces electricity, often last only about two to five years. This is common for different types of fuel cells like solid oxide fuel cells (Bloom Energy makes this type) or proton exchange membrane (PEM) fuel cells, like what ClearEdge Power builds.

A fuel cell’s stacks fill a chamber called the hot box, and it’s this chamber that gets swapped out of these fuel cells every few years.  The stack contains a catalyst, often platinum, which, when combined with the fuel source (natural gas or hydrogen) and oxygen create electricity.

Break down

Over time, as the fuel and oxygen are constantly being pumped in and run over the catalyst in the stacks, the chemicals start to degrade and the system starts to wear down.

Fuel cells are similar to a battery in their degrading process (see Why lithium-ion batteries die so young), and fuel cell stacks, like a battery, have an anode and cathode portions. Fuel cells also run at high temperatures, which is another reason these systems degrade quickly.

The short life span of the hot box is a key problem for the capital costs of fuel cell makers. The hot box can make up a significant portion of the fuel cell, and I’ve heard as high as 50 to 75 percent of the cost of the system. That cost can be lower, however, and for example, ClearEdge Power’s VP of Marketing Mike Upp told me the stacks in a ClearEdge fuel cell can make up 25 to 30 percent of the cost of the system.

Costs climb

Fuel cell makers are toiling away at trying to extend the life time of the hot box, as well as reduce overall manufacturing costs. Upp said that while the stacks in ClearEdge’s first iteration of its fuel cell last three to five years, the company’s engineers are working on doubling and tripling that lifetime every few years. Stacks can also be recycled, which can reduce the overall capital costs.

Fuel cell makers are spending a lot on R&D trying to find these stack lifetime breakthroughs, but are also looking to reduce costs via reaching economies of scale of manufacturing. The idea is even if the stacks don’t last longer in the future, they can ultimately be cheaper to produce. Bloom Energy has been scaling up manufacturing of its solid oxide fuel cells, and NEA Partner Scott Sandell told me back when Bloom launched that it would be the economies of scale that would push down costs dramatically over the years.

I heard a rumor recently that Bloom Energy had closed yet another round of $150 million in funding, which would bring its funding raised to over $550 million. Earlier this year, VentureWire reported that Bloom had quietly raised about $100 million more in equity, above its confirmed $400 million. No doubt part of these funds are going to both R&D to extend the life of the hot box, as well as the capital costs to actually replace the hot boxes for its first customers.

We’ll see if any of the leading fuel cell makers can effectively reduce their costs enough, and lengthen the lifetime of the hot box. If they are successful with that, then more of these companies could be profitable one day.

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Last week the U.S. division of Japanese telecom giant NTT, NTT America, said that it plans to install five fuel cells from Bloom Energy at one of its data-center facilities in San Jose, Calif. And last month AT&T said it plans to install 75 Bloom fuel cells at 11 of its offices in California. AT&T said it will use the fuel cell power for data centers as well as administration offices and facilities that house network equipment.

Fuel cells look like industrial refrigerators, and they use a chemical reaction to produce electricity and heat. They are filled with large stacks that are lined with catalysts (a metal, sometimes platinum), and a fuel (commonly natural gas) is inserted in one side and runs over the stack. Electricity and heat flow out the other side.

Because the power generation is done on-site, fuel cells can be more efficient than when electricity flows over power lines, and they can be a cleaner power source, depending on how clean the grid is in your area. Bloom Energy’s fuel cell can also run on biogas, as well as natural gas, making it produce few carbon emissions.

ClearEdge’s Upp told me that the company plans to sell the fuel cells as primary power to data-center operators, and the grid would be the backup power to their fuel cells. That’s a contrast to some other cases I’ve seen, where data-center operators are using fuel cells for backup and auxiliary power.

Data centers need so-called “five nines” (99.999 percent) of reliability, and essentially the power supply can almost never shut down. Google has said the Bloom Box that it has been using on its campus had an availability rating of 98 percent, which translates into around seven days of downtime a year. That is not so good for a stand-alone power source. But with the grid as a backup to a fuel cell, it can create a pretty reliable two-part combo.

Data-center operators are interested in adding in fuel cells as a way to control energy costs and also benefit from green marketing. A company like Bloom Energy has an option to sell its Bloom boxes on a service contract, offering low-cost (or no-cost) installation fees and then selling the customer power at a fixed rate over a 20-year or so contract. Buying low-cost energy over two decades is hedging against the bet that energy prices will rise over time, and it can lead to savings on a long-term energy bill.

However, making and buying fuel cells right now is still relatively expensive. Bloom’s fuel cell costs $700,000 to $800,000 for a 100 kW system. ClearEdge Power sells smaller systems in the 5 kW to 15 kW range, and for a much lower price: Its 5 kW unit costs $56,000 $12,500.

Fuel cell companies are looking for new customers in the commercial and small- to medium-business sector. A lot of these companies have struggled for years to get costs down and make a profit. Fuel cells are still largely uneconomical for the residential market, but businesses that understand the energy savings over a long period of time could be good customers. Some states like California also offer significant subsidies for installing fuel cells.

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The device can run on natural gas or “directed biogas” (biogas pumped into pipelines), ultimately producing electricity and heat for a large home (more than 4,000 square feet) or small business — at only half the cost of typical utility rates, says ClearEdge. Smaller than a refrigerator, the 5-kilowatt system is designed to connect with existing gas lines.

Rather than burning gas, the ClearEdge5 chemically converts it into hydrogen, which then goes through a fuel cell stack to create direct current power and heat. That electricity goes through another component to produce alternating current for the building. Heat resulting from the chemical conversion can be used for water or space heating.

ClearEdge has been focusing mainly on the California market, where customers can qualify for a rebate of $2.50 per watt on fuel cell equipment — or $12,500 for a ClearEdge5 unit. According to Jong-Woong Choe, Senior Executive Vice President for the LSIS Electric Power Group, the device is “well-sized” for the Korean market and will be able to take advantage of recent legislation encouraging low-carbon power sources for new buildings in the country.

As South Korea’s JongAng Daily newspaper explains (h/t Cleantech Group), the government laid out plans last year to subsidize up to 80 percent of the cost for purchasing and installing hydrogen fuel cells for heating and powering homes between 2010 and 2012, gradually decreasing the subsidy to 30 percent for the years 2017-2020.

Creating both useful heat and electricity from a single source (combined heat and power, or CHP, generation), is also the goal of Bloom Energy, as well as many other fuel cell makers. In particular, companies that use solid oxide fuel cell technology (like Bloom), are looking at CHP because that technology runs hotter than the polymer electrolyte membrane (PEM) fuel cells, which are more typically aimed at automotive or portable applications.

ClearEdge has been showing signs of a serious ramp-up over the last year, more than tripling in size to 150 employees at the end of 2009, from just 40 in May 2009. By the end of this year, CEO Russell Ford (brought on last spring) said in December 2009 that he aims to double the staff again by the end of 2010. The company sold its first six devices during the second half of 2009, now has 25 fuel cell systems installed and is aiming for a total of 350-500 installations by year’s end, reports the Portland Business Journal.

As of late last year, ClearEdge had raised $55 million in venture capital, and in January 2010 the company added on another $11 million in equity financing. Investors include Kohlberg Ventures, Applied Ventures and Big Basin Partners.

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