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In Connecticut, another boost for fuel cell industry reignites subsidy debate


Connecticut’s fuel cell industry scored a win last week when Gov. Ned Lamont signed into law a bill requiring the state’s electric distribution companies to solicit up to 30 megawatts in new fuel cell generation projects by Jan. 1. 

The legislation is the latest example of the state’s long efforts to bolster an industry that has made Connecticut a leader in fuel cell development, but the debate over the bill also underscored tensions between economic development interests and the urgency of eliminating carbon emissions.

Connecticut is a national leader in fuel cell technology; the state is home to two major manufacturers and second only to California in the number of generators deployed. The units generate electricity through a chemical reaction fueled primarily by hydrogen. They are more than twice as efficient as typical combustion technologies, according to the U.S. Department of Energy, and do not emit the poisonous nitrogen oxides that are so harmful to humans and the climate.

Supporters see fuel cells playing a pivotal role as backup power sources for microgrids and other scenarios where resilience demands rule intermittent renewables like wind and solar. But because most fuel cells currently derive their hydrogen from natural gas, they emit carbon. And some environmentalists argue that incentivizing their use is working against climate interests. 

“We should not be subsidizing dirty energy,” said Samantha Dynowski, state director of Sierra Club Connecticut. “There are methane leaks everywhere in the extraction and transport of natural gas. It’s really alarming to hear legislators, some of whom are good on climate, repeating this messaging that fuel cells are cleaner and will help us reach our goals.”

Chris Phelps, state director of Environment Connecticut, echoed Dynowski’s concerns, calling on lawmakers to “reject proposals to subsidize deployment of new fossil fuel energy sources.” 

The industry has long enjoyed considerable support in the state, which is home to manufacturers FuelCell Energy and Doosan Fuel Cell America, as well as some 600 supply chain companies. Connecticut is the only state to classify natural gas-powered fuel cells as a Class I renewable, according to the state Department of Energy and Environmental Protection. Other states only classify fuel cells powered by renewable energy sources as Class I.  

State programs and incentives have so far supported 108 MW of fuel cell generation in Connecticut, which translates into $1.077 billion in over-market incentives from state ratepayers over the life of the projects, according to Vicki Hackett, the agency’s deputy commissioner of energy. 

Dynowski and Phelps called for the latest procurement measure to be amended to only apply to fuel cells powered by renewable sources, or “green” hydrogen. Currently, such hydrogen is very expensive, but that could change as renewables continue to ramp up. The Biden administration is trying to speed progress with a recently announced “Hydrogen Shot,” an initiative aimed at lowering the cost of clean hydrogen and increasing its production from renewables, nuclear and thermal conversion. 

State Rep. David Arconti, the bill’s primary sponsor, said the legislation was first proposed last year and amends an existing law. That law said the electric distribution companies “may” acquire new fuel cell generation; the new language says they “shall.”

“A lot of energy committee members wanted to see some movement here,” said Arconti, who represents the city of Danbury, where FuelCell Energy is headquartered. 

In selecting projects, the distribution companies are to give priority to those using equipment manufactured in Connecticut, or sited on brownfields or landfills. The projects must supply commercial/industrial customers with onsite generation, provide emergency facilities with backup power, or enhance distribution system reliability.

Asked whether promoting natural gas-powered technology works against state climate goals, Arconti said he feels that “you can’t let perfection get in the way of the good. I don’t want to shutter an industry because it uses a little bit of natural gas. And the industry is working toward getting away from that in its entirety.” 

Thomas Gelston, FuelCell’s senior vice president for finance and investor relations, said the technology “works in harmony with wind and solar. They make power intermittently. We make 24/7 baseload power. We fill a void that they don’t currently answer.” 

Struggling to compete

The fuel cell industry has struggled to compete with renewable technologies over the years. Doosan Fuel Cell America formed in 2014 after South Korea-based Doosan Corp. acquired ClearEdge Power, a fuel cell maker in South Windsor that went bankrupt. The corporate backing and connection to South Korea, which has a robust fuel cell market, have since helped strengthen the company, which currently employs about 290 people in Connecticut. 

Doosan has 25 MW installed in Connecticut, and another 30 MW in process, said company spokesperson David Giordano. The new 30 MW mandate “is an opportunity for us to compete for multi-megawatt projects right here in Connecticut, which allows us to continue to employ people in good-paying manufacturing jobs,” he said.

FuelCell Energy, one of the country’s original pioneers of fuel cell technology, took a dive in 2019, when it laid off a third of its state workforce and named a new chief executive officer to help turn the company around. The company has since rehired some of those workers, and employs roughly 300 people in Connecticut, Gelston said.

According to its most recent quarterly report to the Securities and Exchange Commission, FuelCell has yet to achieve profitable operations or sustain positive cash flow from operations. It continues to pay off a $10 million loan obtained from the state in 2015 to expand its Torrington manufacturing facility. According to the filing, that loan was structured such that a portion could be forgiven if FuelCell met a minimum hiring target of 538 full-time positions for two years. The filing says the company will not meet that target by the Oct. 31, 2022, deadline.  

FuelCell currently has 43.5 MW installed in Connecticut, with projects totaling 32.4 MW pending, including a 7.4 MW fuel cell microgrid project nearing completion at the naval submarine base in Groton, Connecticut. 

The Connecticut Green Bank helped FuelCell arrange for construction financing for the project through Fifth Third Bank. The rest of the project is being financed through long-term loans to be provided Liberty Bank, Amalgamated Bank, and the Green Bank, said Green Bank chief investment officer Bert Hunter.

“We’ve been successful at getting banks to recognize this as an asset class they can finance,” Hunter said. “The benefit of that is that fuel cell energy is now able to access lower-cost capital.”

The Green Bank has raised a total of $82 million to help finance fuel cell projects in Connecticut, including about $16 million of its own funds. 

Appealing for state support

Still, fuel cell industry leaders have periodically complained that the state isn’t providing enough support, and suggested that the state Department of Energy and Environmental Protection is getting in the way. The most recent example was in 2020, after both companies submitted bids for contract awards through the state’s new Shared Clean Energy Facility program, which seeks to make clean energy available to underserved communities. 

In July 2020, FuelCell Energy was preliminarily notified by Eversource and United Illuminating that it had won four projects. Doosan also received initial notification of a winning bid.

But in November, before the awards were final, the Public Utilities Regulatory Authority ordered Eversource to reevaluate some solar project bids that had previously been disqualified, citing concerns that the program’s first year had exposed a “programmatic deficiency” that needed to be clarified and re-implemented. The bid awards were subsequently given to solar projects, with FuelCell Energy retaining one award.

Both companies immediately spoke out in protest. In a regulatory filing, Doosan accused the regulatory authority and the state energy department of making a decision “without consideration of the state’s current economic climate.” 

FuelCell’s chief executive officer, Jason Few, also took aim at the department, which had a limited oversight role in the selection process. In a public statement, Few said the agency had “taken actions detrimental to the state’s home-grown fuel cell industry.” 

FuelCell subsequently appealed the regulatory authority’s order to the Superior Court. Last month, a judge dismissed the appeal.

Hackett, the deputy energy commissioner, said the state is facing a number of challenges related to the climate crisis, including the need to decarbonize, make the grid more resilient, improve air quality, reduce energy costs, and build a clean energy economy.

When it comes to fuel cells, the best deployments are for resilience benefits and to supply backup power when wired as a microgrid, she said. 

“We have to be targeted and really strategic,” she said. “Every resource should be used at its highest and best use.”

And while the department supports the goal of economic development, that “means more than supporting any one particular resource,” she said. “It means we don’t unnecessarily increase the cost of energy. When we’re looking at the green economy, how do we support in-state manufacturing, and do it in a way that doesn’t unnecessarily increase costs, and ensure that we’re making the grid more resilient?” 

The agency has questioned the benefits of a 9.66-megawatt fuel cell power plant proposed in Bridgeport, saying it is too costly for ratepayers and provides limited benefits to the transmission system.

Bryan Garcia, president and chief executive officer of the Green Bank, said it would be “great to see a fuel cell in every city and town at a critical facility where, in the event of a disaster or a grid outage, the community could go and access highly reliable power. Especially as climate change is here.”

In Woodbridge, for example, a 2.8 MW fuel cell that exports power to the grid switches over to power the police station, fire station and other critical facilities in the event of a power outage.

Another benefit of fuel cells, said Giordano, of Doosan, is “utilities can invest in the distributed generation at the points of critical need rather than investing in transmission lines to move power from large and oftentimes dirtier central generating plants.”

But Julie McNamara, a senior energy analyst with the Union of Concerned Scientists, said continuing to classify gas-powered fuel cells as renewable makes no sense in the midst of a climate crisis.

While it’s true that fuel cells do not emit nitrogen oxides, “we will not get to where we need to on carbon emissions if we continue to rely on natural gas,” McNamara said. “The science is clear, we need to be doing everything we can to commit to a clean energy future. Incentivizing gas is not that.”

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