Bloom Energy - Do you want to play?

RE: Reject the Fuel Cell Tariff
DATE : 9/30/11
The Markell Administration would like you to become a high risk venture capitalist to support an expensive “green” jobs agenda. You get to bet about $1250. Tariff documents, using dubious assumptions, claim avoided Renewable Energy Credit purchases and Bloom’s sale of electricity will offset this by $1000. Economic development benefits from the Bloom Energy factory will have to offset the rest of your “investment”. Your odds are one in twenty of winning that bet. Large manufacturing and commercial customers will “invest” $2.5 million. Do you want to play? If not tell the Public Service Commission to reject Delmarva Powers’ request for an electricity rate increase to pay for power from Bloom’s fuel cell servers.
Those 900 jobs Bloom is promising may or may not happen as only between one and five percent of business startups succeed, think dot.com bubble and Solyndra. We will pay $16 million towards the $50 million manufacturing plant construction cost and another $7.5 million for roads, water, and sewers. Bloom has said that is not enough.
Bloom wants a guaranteed market for 300 to 500 servers. Keep in mind they have only sold about 100 so far with very large California and federal subsidies. Furthermore, they want the approvals in a hurry so their investors can receive a 30% federal cash grant, or about $90 million, that expires at the end of this year. They have said the manufacturing plant will not be built if these conditions are not met.
Legislation was passed in a hurry in June to define natural gas fired fuel cells as renewable energy. We will guarantee Bloom $800 million in tariff payments and guarantee Delmarva Power $300 million for the natural gas to fuel it (Delmarva does not profit from this). Bloom gets a guarantee, you get shaky assumptions in return. The “Expected Case” used to justify the tariff assumes inflated estimates of future conventional power prices and both regular and solar Renewable Energy Credit prices to calculate your offsets to this $1.1 billion price tag.
How inflated? The future electricity price is double estimates from the U.S Energy Information Agency. Standard Renewable Energy Credits from power sources like wind sell for $1.50 each now. The “Expected Case” assumes a price seventeen times higher at $25.57. Solar Renewable Energy Credits sell for $100 each but the tariff case used $205.
Now the last I checked when demand drops prices drop. Think about the current value of your home. Delmarva will have to buy one third fewer solar credits and won’t have to buy any more regular credits until about 2022 because of the tariff. But the price of these credits will increase? The law that requires power companies to buy these credits and to pass the cost onto you expires in 2025. The tariff case also assumes they continue to 2035 with no legislation to back it up. The potential impact to you is $3 to $4 a month instead of $1. This may not seem like a lot but put $3.75 a month in an IRA at 7% interest and you would have over $2,500 by the end of the contract.
It is a common tactic of proponents of this type of program to try and minimize the apparent cost impact. They break it down to a single month instead of the total cost, use only the residential impact and ignore the $25,000 to $100,000 a year cost to manufacturers, use inflated cost comparisons for conventional power, and spread the cost over as many customers as possible. This time the cost will even be spread to customers who don’t buy the generation portion of their power from Delmarva.
The Bluewater Wind offshore wind cost was originally estimated at $6.56 a month. Following the above steps, along with a price concession, proponents reduced the apparent effect to $.70 a month. No offshore wind power has been produced yet but the latest estimate is $1.70 a month because conventional power prices didn’t go up as fast as the exaggerated estimate said it would. Future electric rates are still being exaggerated so the actual cost of wind will be even higher.
Venture capitalist and business founders cash out when a startup company sells stock to the public. The Delaware project will probably be the trigger for this step for Bloom. Ratepayers have no such exit plan. Once approved the tariff cannot be revoked without paying the entire remaining cost in a lump sum. The best case for ratepayers is they recover 80% of the Tariff cost and gain some economic benefit from Bloom’s manufacturing plant. The worst case is ratepayers only recover 20% of the Tariff and Bloom stays in business just long enough to build the 30 MW fuel cell project and enough replacement cells to keep it running until the Tariff runs out and the jobs disappear.
Don’t be fooled fuel cells offer environmental benefits. If we really want to emit less carbon dioxide and fewer air pollutants we should build an advanced conventional natural gas fired generator. These plants are 20% more efficient than fuel cells, produce less carbon dioxide and emit about the same amount of other pollutants. For the same investment as the proposed fuel cell plant we could build a conventional plant with ten times the power production and reduce air pollution proportionately.
Legislators who voted for the Fuel Cell Act, some at my suggestion, need to take another look now that the illusion of low cost premiums has been exposed. Let the Public Service Commission know your objections.
David T. Stevenson
Director, Center for Energy Competitiveness