Plug Power (NasdaqNM:PLUG - news), Mechanical Technology (NasdaqNM:MKTY - news)
and SatCon Technology (NasdaqNM:SATC - news) -- surged on heavy trading this week
as investors discovered a new form of technology -- energy technology.
I like that...energy technology. We all know that today's investors only buy "technology companies."
After a good night's rest, I am feeling reinvigorated about Catalytica's potential to run, albeit all by hype for now, with these other "energy technology" companies.
With the recent interest in "energy technology" it is worth revisiting the potential
value of Xonon. Even if the equity markets are currently focused on fuel cells, after
just some basic digging, I think Catalytica's Xonon technology may be
particularly poised for explosive interest.
In the fight for profits in the deregulated utility industry and the new distributed power
industry, who will win, Xonon equiped gas turbines or fuel cells?
First, let's look at how big is the market potential?
(From the web page of Fuel Cell Energy)
Extremely large. The presently installed capacity of electric power generation
in the U.S. is 750 million kilowatts. The U.S. Department of Energy?s ?Energy
Information Administration Energy Outlook 1999? report projects a need for
363 million kilowatts of new capacity generation needed between now and
the year 2020 to meet both the growing demand and to offset the retirement
of aging coal and nuclear plants. Approximately 81% of this new capacity is
projected to be fueled by natural gas. From the standpoint of fuel cells
this equates to a market value of $363 billion or $17 billion per year over the
next 21 years assuming a fuel cell price of $1,000 per kilowatt.
Now, how does a Xonon equiped turbine compare with fuel cells for clean air electricity
generation?
(From the web page of Fuel Cell Energy)
A fuel cell converts energy directly, without combustion, by combining hydrogen and
oxygen electrochemically to produce water, electricity, and heat. Fuelled with pure
hydrogen, they produce no pollutant emissions. Even if fuelled with natural gas as
a source of hydrogen, emissions are negligible: 0.45 ppm NOx, 2 ppm CO, 4 ppm
HC , which are orders of magnitude below those for conventional combustion
generating equipment.
Xonon allows a gas turbine to generate electricity without combustion. Passing the
natural gas through a proprietary catalyst allows expansion of the gas without
combustion or formation of pollutants that are formed in the high temp of a flame.
Emissions, as with fuel cells, are also negligible: < 1.5 ppm NOx, < 2 ppm CO, < 1 ppm
unburned hydrocarbons. In some respects this is better than fuel cells can offer.
( catalytica-inc.com )
What about price?
(Again from the web page of Fuel Cell Energy)
Our goal for our initial commercial design is an installed cost of under
$1,200 per kilowatt, based on a production volume of 400,000 kilowatts per
year. From the first paragraph, it seems they think they can get the price
down to about $1,000 per kilowatt.
(I forgot to document the source of the below info)
The Economics of Gas-Turbine Generation
Innovations in combined-cycle gas-turbine (CCGT) technology have made gas
turbines by far the cheapest available source of new
generating capacity. At gas prices of $3/1000 cubic feet, higher than recent
levels, gas turbines can make a profit at an electricity price of about
3.5 cents/kWh. They also are able to utilize waste heat as a
source of heating for buildings, reducing their effective cost further, to the range
of two to three cents/kWh. Their small size and environmental
attributes (the standard NOx emissions for a CCTG plant are 25 parts per
million, with some plants producing only 10 parts per million) Of course we
all know that Xonon equiped turbines can produce below 1.5 ppm NOx with no
decrement in turbine efficiency, make construction of gas turbines possible
even in populated areas.
The generation business traditionally has been highly capital-intensive. For example,
capital accounts for 52 percent of the costs of a new pulverized coal plant, with
fuel and operation and maintenance accounting for 29 and 19 percent, respectively.
In contrast, the capital costs for gas-fired turbines are low. Only 22 percent of the
cost of a gas-fired plant is for capital, with fuel accounting for 63 percent and
operation and maintenance accounting for 16 percent.
Gas-fired plants can be built economically on a much smaller scale and at much lower
cost than other technologies. The cost of constructing a new gas plant is now $400/kW.
in comparison, the cheapest coal plant can't be built for less than $1200/kW (including
the cost of scrubbers). Sounds similar to cost of fuel cells The optimal size of
conventional plants has been growing and is now in the range of 600-800 MW for
coal plants and over 1000MW for nuclear plants. The optimal size of CCGTs, on the
other hand, is in the range of 40-150MW, and units as small as three to ten MW
appear to be economically viable. Their lead time is less than a year, making entry easy.
Interestingly, I came across a technical scientific paper by GE Enter Software. It suggests
a role for side-by-side use of fuel cells and gas turbines for maximizing efficiency and costs.
From GE Enter Software (1999)
Title: HIGH EFFICIENCY FUEL CELL/GAS TURBINE COMBINATION CYCLE
Author: Arthur Cohn (EPRI) , Richard Goldstein (EPRI) , Marco Dieleman (GE Enter
Software) and Peter Pechtl (GE Enter Software)
Abstract: Combination cycles integrating solid-oxide fuel cells and combustion
turbines have the potential to achieve extremely high efficiencies due to the synergy
between the cycle components. The challenge is cost-effective realization of that
potential; and the latest research results are encouraging. EPRI, with the University
of Utah, has developed a solid-oxide fuel cell with power densities at least as high
as 1.8W/cm 2? six times previous levels. Working with the University of Utah data
for voltage and current as a function of cell temperature, we used computer modeling
to vary a wide range of cycle parameters and make a preliminary analysis of cost and
efficiency tradeoffs for a combination cycle. Results indicate that such a system
could be competitive in many electric power generation markets. At low current
densities efficiencies are over 70%, but capital costs are extremely high, while high
current densities lead to both lower efficiencies and higher costs. However, for
moderate current densities of 2-3 A/cm 2 and fuel cell operating temperatures of
900§C-1000§C (1650§F-1830§F), capital costs should minimize while efficiencies
remain in the 55-65% range. Capital costs for equipment (excluding installation costs)
are estimated to be about $400/kW, with an uncertainty range from 300$/kW to 600$/kW.
This is significantly below the cost for a fuel cell plant.
Let's revisit the issue of market potential. A paragraph above discussed the market for
new electricity generation in the US market. There is a large installed base of gas
turbines. Only one turbine operating on the electric grid is able to produce these low
levels of emissions capable by fuel cells or Xonon equiped turbines. It is, of course, the
only Xonon commercial turbine out there. An enormous number of older turbines are out
there still polluting. The owners of these turbines have already made the capital
commitment and can achieve markedly lower emissions simply by retrofitting them
with a Xonon combustor. The Genxon partnership between Catalytica and Woodward
Governor signed a memorandum of understanding with GE (which has an installed base of
over 6,000 turbines) in which they would work to commercialize Xonon in GE's installed
base of heavy duty gas turbines. The market potential for Xonon may in fact be bigger
than that stated above for fuel cells.
What about from an investment standpoint?
In the last couple weeks, and the last couple trading days in particular, money has flowed
aggressively into some fuel cell companies under the name "energy technology" companies.
Ballard Power and Plug Power are two companies well-known to the lay investing public.
But who else makes fuel cells? A quick search last night revealed many, many fuel cell
makers. Some of which are well-capitalized major corporations. Here's a short list
(there really are many more):
Avista Labs
Fuel cell energy(formerly energy research corp)
Ballard Power Systems
DCH Technology
Epyx
NiSource
Westinghouse
Plug Power
Allied signal/Honeywell
Analytic Power
DAIS corp
Degassa Huls
Electro-Chem
Energy Partners
H Power corp
ONSI corp
Siemens
United Technologies
SatCon
Mechanical Technology
In the gas turbine market, only Catalytica has a Xonon-type product. ONLY CATALYTICA!!!
Other companies offer Dry Low NOx, but it is not as effective.
Others offer Selective Catalytic Reduction and SCONOX is in development. These two
solutions are expensive and require ongoing efforts to maintain the clean-up of pollution.
Catalytica already has strong relationships and/or agreements with GE Power Systems for both
new and retrofit markets, Pratt & Whitney Canada, Allison Engine Co. (Rolls Royce) and
Solar Turbines (a Caterpillar co.)
If the money starts flowing into this side of the energy technology sector, there is really
only one place for it to go: into CTAL.
Good luck to all those who have remained long this stock. Our time is at hand. The one major
impediment to a sharp rise in this market is that CTAL is already quite profitable. Investors
just don't seem to like that anymore.
Erik (IMO) |
