What Bloom Energy Needs To Prove

Are we really falling for this again? Every clean tech company on the planet says it can produce clean energy cheaply, yet not a single one can. Government subsidies or mandates keep the entire worldwide industry afloat.

This time it's Bloom Energy, an extraordinarily well-funded startup that has attracted lots of big name backers, including Colin Powell, who serves as a board member. Hand it to Bloom, the company has managed to tap into the hype machine like no other clean tech company in memory.

After working for years in secrecy and raising at least $400 million, a 60 Minutes segment on the company ran over the weekend, just three days before the company's coming out party, scheduled for Wednesday morning at eBay headquarters. The company's Web site is a large countdown clock.

But can it deliver on its big promise, to replace the system of big power plants and transmission lines that power our country with small power units located at every home and business?

First it has to deliver on the smaller promise. That is, the ability to produce this small power unit cheaply enough. The unit, which the company calls a Bloom Box, is a version of a solid oxide fuel cell. It's a well-known and well-studied technology, and it certainly has promise.

Like all fuel cells, it works a bit like a battery that doesn't run out of juice because it is constantly being fed fuel. It produces electricity through a chemical reaction between that incoming fuel and an oxidant in the presence of an electrolyte.

These fuel cells are efficient, clean burning and expensive. (They are not, however, carbon free--they still emit carbon dioxide.) A back-of-the-envelope calculation using some public numbers from California subsidies Bloom received and what the company's chief, K.R. Sridhar, said on 60 Minutes, suggests the company's cell costs $9,000 to $10,000 per kilowatt of capacity. Compare that with roughly $2,000 for wind and $5,000 for solar, according to the Department of Energy's Energy Information Administration.

So while Bloom Energy may have some very promising technology to show off, we almost certainly will hear that its business hinges on a plan to lower the cost of its fuel cell by some large amount in some short period of time. It could be that Bloom Energy has the money and the brains to pull it off. Maybe it has already pulled it off. But if that business plan sounds familiar, it's because that is the same refrain heard from solar companies, biofuels companies and fuel cell makers around the world.

One advantage of a solid oxide fuel cell is that many different fuels can be used to power it. In the Bloom Box case, that will most likely be natural gas. A disadvantage is that it operates at very high temperatures, 1,200 to 1,800 degrees Fahrenheit.

That's where the cost issue comes in. It's difficult to design components that can survive for decades in those conditions, especially the ancillary components that take the electricity out of the cell--for cheap. Then there's the bugaboo of many a clean tech company: Designing a manufacturing process that can produce enough high quality devices to push costs down.

United Technologies produces a phosphoric acid fuel cell commercially and is working on a number of other fuel cell programs. Its fuel cell sells for $4,500 per kilowatt, and the company says it needs to get to $2,500 before it can be a real success.

"We've figured out the durability problems," says Mike Brown, a vice president at UTC Power, the United Technologies unit that makes fuel cells. "We haven't figured out the cost problem yet."

Of Bloom Energy Brown says: "It sounds like they have a good approach. But we don't know what exactly they've done. They will have had to somehow overcome the problems that everyone else in the world hasn't been able to."

Running natural gas through a fuel cell is cleaner and more efficient than burning it, even in a modern combined-cycle gas plant. Bloom Energy's box and a turbine achieve roughly the same efficiency (about 50%), but the Bloom box doesn't lose power on transmission. United Technologies captures the waste heat produced by its fuel cell and uses it to run heating and cooling. When it does that, its fuel cells are 92% efficient.

As a fuel cell advocate UTC's Brown hopes Bloom Energy has figured out something big. The worst possible outcome: another clean tech company promising big things to lots of people, only to run into the same old problems.

To read more of Jonathan Fahey's stories, click here. Contact the writer at jfahey@forbes.com.

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