Is it possible to test-drive four 250-kilowatt fuel cell power units for two years while generating clean power at a cost less than what the utility company charged in the past? Too good to be true, right? Well, read on, because the deal only gets better. By using the heat to create steam, you can drive a good portion of your manufacturing process, thus pushing your costs lower. And ultimately you save more by powering the fuel cells from digester gas, a byproduct of your company's waste materials!

Not every business owner has an operation tailor-made to a fuel cell's many benefits. But if you're Ken Grossman, founder and owner of Sierra Nevada Brewing Company, you have the need for heat and steam, the waste to create digester gas, and most importantly, an irresistible incentive from the California Public Utilities Commission (CPUC)—cash. A generous $2.50 per watt, covering up to 40% of the project's cost.

The deal didn't look quite so good when Grossman started researching onsite cogeneration technologies thee years ago. He considered fuel cells but couldn't justify the price, and by mid-2003, a reciprocating unit seemed the only logical choice. "I was just about ready to sign a contract and had completed all of the air resource board regulations," Grossman recalls. Nonetheless his thoughts kept returning to the fuel cell's benefits.

"Just on the electrical efficiency side fuel cells are close to 50%, and then we have the heat recovery boosting it into the 70s," Grossman says. Additionally, low noise and almost zero emissions were a benefit that fellow residents of Chico would appreciate. So Grossman made one last call to FuelCell Energy last December, and in a matter of months found he was spearheading one of the largest and most prestigious commercial fuel cell projects in the United States.

The project came together through something of a unique partnership between FuelCell Energy and Alliance Power. Alliance functions as a turnkey provider, purchasing the molten carbonate fuel cells, overseeing the entire installation and operation of the power plant, and until Sierra actually purchases the units, Alliance functions as an onsite independent power producer.

"We're the project manager and program integrator and owner," explains James Michael, president of Alliance Power. "We take care of the incentive program, the permitting and interconnections and the fuel cell purchase." Sierra won't sever its connection with grid supplier Pacific Gas and Electric (PG&E), but instead will buy power from the newest PG&E competitor on the block, Alliance Chico Energy.

At power generation levels hovering around 1 megawatt, the situation could be viewed as David felling Goliath with a beer bottle cap, but Michael says PG&E worked enthusiastically to ensure the project's success. In California, PG&E is one of four independent utility operators (along with Southern California Edison, Southern California Gas Company, and San Diego Regional Energy Office) authorized to administer the state's Self-Generation Incentive Program. The program launched in 2001, and this year it's so popular that PG&E had to start a waiting list for Level 1 (renewable energy–based photovoltaic panels, wind turbines, and fuel cells) projects funded at $4.50 per watt up to 50% of project cost.

According to Valerie Beck, manager of distributed generation at CPUC, there haven't been many applications for Level 2 (fuel cells operating on non-renewable fuel) projects like Sierra's. So the commission wasn't surprised when PG&E exercised its option to shift $20 million in unused Level 2 and 3 funds into Level 1 to shorten the waiting list.

"The demand for Level 1 funding has skyrocketed," notes Beck. "I think the fuel cell folks are getting a little nervous that there may not be funding for them, but I don't think that's the case. Fuel cells are applying to the program and we're in a good situation."

In fact, Alliance recently applied for funding for a 500-kilowatt project in Santa Barbara, CA. In this case it's wastewater instead of beer, where two 250-kilowatt power plants will supply electricity and heat to Santa Barbara's El Estero Wastewater Treatment Plant.

The project qualifies for Level 1 funding because it uses methane gas from the plant's anaerobic digesters as the fuel source. According to FuelCell Energy, Southern California Edison has issued a reservation letter for incentive funding of $2.25 million. The City of Santa Barbara had an additional incentive—the cost of electricity purchased by the El Estero plant has more than doubled in the past four years.

With grid prices and pollution concerns rising, plus Level 1 applications swelling to waiting-list proportions, it would seem as if there's plenty of motivation to keep the Self-Generation Program well funded until it expires in December 2007. Up to and including 2004, the California Legislature allocated $100 million per year, with the largest portion, $48 million, reserved for PG&E. However, fuel cell folks may still have a reason to be nervous.

Beck warns that the commission meets in December 2004 to decide on funding allocations for 2005. Will it keep funding at $100 million? "The commission hasn't said anything about that yet," Beck says. "We look at issues and policies and make decisions based on what makes sense and what is cost-effective for ratepayers and customers."

CPUC has been evaluating distributed energy since 1999, and Beck acknowledges its impact on California's power industry. "Distributed energy could be used in lieu of utility distribution operations, so we want to develop a cost method benefit analysis."

If that analysis doesn't add up to continued funding of the Self-Generation Program, fuel cell sales would suffer, predicts Michael. "The incentive program is essential to carrying the technology through its early stages," he says. "It's letting these 1-megawatt-sized projects be the technology bridge as the economies of scale increase with product in the marketplace." Michael adds that California compares very well to other state programs Alliance has pursued in Connecticut, New Jersey, Massachusetts, and New York.

Assuming funding at current levels, Michael expects Sierra Nevada's project to persuade other companies that fuel cells are ready for commercial deployment. Target industries include hotels, metal foundries, and food production. Most will be in the 1-megawatt range, where Michael says Alliance can compete most effectively.

Meanwhile, at the Sierra Nevada site, Brian Moreau, manager of the newly christened Alliance Chico Energy, hopes the incentive program continues for another five years. "By that time the technology will be mature enough to be cost-effective," he says.

According to Steve Torres, vice president of FuelCell Energy's western region, there's a strong argument for including natural gas–powered fuel cells in the Level 1 category. "It's different in New York and Connecticut," Torres explains. "Hydrogen is certainly considered a renewable fuel so hydrogen from natural gas is really a bridge to the renewable hydrogen infrastructure that's coming in a few years. We're trying to make the case to the California Legislature to consider natural gas as renewable so we don't have to wait for the environmental benefits."

Torres believes that such legislation would help his company make progress in food service and other markets. "This is our second brewery and there are other larger food segments that have huge heat loads and constant electrical demands," Torres says. State prisons, large hotels, and university facilities top his priority list. Importantly, more sales would help accelerate cost reductions.

The 250-kilowatt units that FuelCell currently delivers are sized to accommodate 300 kilowatts of output. When the new stacks are installed they will produce more power from the same unit. "These products are quoted at a price per kilowatt," Torres says, "so a 20% upgrade can bring the cost down by 20%."

Of course, even with no upgrade, the market for wastewater treatment facilities could be enough to keep Torres and FuelCell Energy busy for many years to come. The company has five power plants at wastewater facilities in the United States and Japan, including its first 1-megawatt DFC1500 in King County, WA. Still waiting are more than 550 potential customers just in this country. There's another plus for California: wastewater plants must provide onsite backup generation to ensure critical functions.

Adapting the fuel cells at Sierra Nevada to run on his wastewater, spent grain, and yeast is the ultimate goal for Ken Grossman. Creating methane would save about $750,000 a year the company currently spends for natural gas. By modifying his existing treatment facility, he estimates the plant would produce four times the amount of energy consumed.

A future retrofit has to wait for a shakedown of the system, but Sierra Nevada will still be saving money in other ways. The new fuel cells will generate enough heat to create steam at 125 pounds per square inch. That will add almost a million British thermal units (Btus) to a system that's currently driven by two 300-horsepower boilers putting out 10 million to 12 million Btus per hour.

Grossman also finds a high degree of public relations value in generating clean electricity with fuel cells. It's not surprising for anyone who has seen the priority Sierra Nevada places on its image in the beer industry. The company does very little consumer advertising, preferring instead to rely on awards at festivals and industry events. Then there's the facility itself. Visitors can tour the factory and its newest addition, the four fuel cells, then stay for lunch or dinner in its Taproom and Restaurant, or enjoy a show at the first-class Big Room featuring top musicians.

In such a prestigious setting, it's no wonder that Alliance and FuelCell are promoting the Sierra Nevada project as a breakthrough. Even Valerie Beck of CPUC feels it's a demonstration that fuel cells are moving into mainstream power generation.

Moreover, mainstream customers can relate to the project. "By having Sierra Nevada blaze the trail, other potential customers have stepped up and accelerated their plans to install fuel cells," says Brian Moreau. "And really by leveraging the same model, Alliance is taking all the financial and technical risks."

All told, it adds up to one test drive that many businesses may find difficult to resist. However, whether CPUC will resist cutting the budget in December remains to be seen. Such a decision would create fierce competition between solar, wind, and fuel cell projects. As noted, there's still a waiting list for Level 1 funding in PG&E's northern California territory. If volume is any measure of success, CPUC certainly will have have strong motivation to maintain funding at $100 million, and that would be good news for Alliance Power and FuelCell Energy.

ED RITCHIE is a writer specializing in energy, transportation, and communication technologies.

DE - September/October 2004