Fuelcell Energy Earnings 2020-10-31
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended
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Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of April 30, 2020, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $
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DOCUMENT INCORPORATED BY REFERENCE
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| Parts Into Which Incorporated |
| Definitive Proxy Statement for the 2021 Annual Meeting of Stockholders |
| Part III |
FUELCELL ENERGY, INC.
INDEX
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PART I
| Item 1. | BUSINESS |
| Index to Item 1. BUSINESS |
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Forward-Looking Statement Disclaimer
This Annual Report on Form 10-K contains statements that the Company believes to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). All statements other than statements of historical fact included in this Form 10-K, including statements regarding the Company’s future financial condition, results of operations, plans, objectives, expectations, future performance, business operations and business prospects, are forward-looking statements. Words such as “expects,” “anticipates,” “estimates,” “goals,” “projects,” “intends,” “plans,” “believes,” “predicts,” “should,” “seeks,” “will,” “could,” “would,” “may,” “forecast,” and similar expressions and variations of such words are intended to identify forward-looking statements and are included, along with this statement, for purposes of complying with the safe harbor provisions of the PSLRA. Forward-looking statements are neither historical facts, nor assurances of future performance. Instead, such statements are based only on our beliefs, expectations and assumptions regarding the future. As such, the realization of matters expressed in forward looking statements involves inherent risks and uncertainties. Such statements relate to, among other things, the following:
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| • | the development and commercialization by FuelCell Energy, Inc. and its subsidiaries (“FuelCell Energy,” “Company,” “we,” “us” and “our”) of fuel cell technology and products and the market for such products, |
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| • | expected operating results such as revenue growth and earnings, |
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| • | our belief that we have sufficient liquidity to fund our business operations, |
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| • | future funding under Advanced Technologies contracts, |
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| • | future financing for projects, including publicly issued bonds, equity and debt investments by investors and commercial bank financing, |
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| • | the expected cost competitiveness of our technology, and |
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| • | our ability to achieve our sales plans, market access and market expansion goals, and cost reduction targets. |
The forward-looking statements contained in this report are subject to risks and uncertainties, known and unknown, that could cause actual results and future events to differ materially from those set forth in or contemplated by the forward-looking statements, including, without limitation, the risks described under Item 1A - Risk Factors of this report and the following factors:
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| • | general risks associated with product development and manufacturing, |
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| • | general economic conditions, |
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| • | changes in the utility regulatory environment, |
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| • | changes in the utility industry and the markets for Distributed Generation, Distributed Hydrogen, and fuel cell power plants configured for Carbon Capture or Carbon Separation, |
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| • | potential volatility of energy prices, |
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| • | availability of government subsidies and economic incentives for alternative energy technologies, |
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| • | our ability to remain in compliance with U.S. federal and state and foreign government laws and regulations and the listing rules of The Nasdaq Stock Market (“Nasdaq”), |
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| • | rapid technological change, |
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| • | competition, |
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| • | the risk that our bid awards will not convert to contracts or that our contracts will not convert to revenue, |
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| • | market acceptance of our products, |
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| • | changes in accounting policies or practices adopted voluntarily or as required by accounting principles generally accepted in the United States (“GAAP”), |
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| • | factors affecting our liquidity position and financial condition, |
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| • | government appropriations, |
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| • | the ability of the government and third parties to terminate their development contracts at any time, |
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| • | the ability of the government to exercise “march-in” rights with respect to certain of our patents, |
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| • | the arbitration and other legal proceedings with POSCO Energy Co., Ltd. (“POSCO Energy”), |
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| • | our ability to implement our strategy, |
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| • | our ability to reduce our levelized cost of energy and our cost reduction strategy generally, |
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| • | our ability to protect our intellectual property, |
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| • | litigation and other proceedings, |
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| • | the risk that commercialization of our products will not occur when anticipated, |
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| • | our need for and the availability of additional financing, |
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| • | our ability to generate positive cash flow from operations, |
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| • | our ability to service our long-term debt, |
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| • | our ability to increase the output and longevity of our power plants and to meet the performance requirements of our contracts, |
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| • | our ability to expand our customer base and maintain relationships with our largest customers and strategic business allies, |
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| • | changes by the U.S. Small Business Administration (the “SBA”) or other governmental authorities to, or with respect to the implementation or interpretation of, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the Paycheck Protection Program or related administrative matters, and |
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| • | concerns with, threats of, or the consequences of, pandemics, contagious diseases or health epidemics, including the 2019 novel coronavirus (“COVID-19”), and resulting supply chain disruptions, shifts in clean energy demand, impacts to our customers’ capital budgets and investment plans, impacts to our project schedules, impacts to our ability to service existing projects, and impacts on the demand for our products. |
We cannot assure you that:
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| • | we will be able to meet any of our development or commercialization schedules, |
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| • | any of our new products or technology, once developed, will be commercially successful, |
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| • | our SureSource power plants will be commercially successful, |
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| • | the government will appropriate the funds anticipated by us under our government contracts, |
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| • | the government will not exercise its right to terminate any or all of our government contracts, or |
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| • | we will be able to achieve any other result anticipated in any other forward-looking statement contained herein. |
The forward-looking statements contained herein speak only as of the date of this report and readers are cautioned not to place undue reliance on these forward-looking statements. Except for ongoing obligations to disclose material information under the federal securities laws, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any such statement to reflect any change in our expectations or any change in events, conditions or circumstances on which any such statement is based.
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Risk Factor Summary
Our business is subject to numerous risks and uncertainties, including those described in Item 1A “Risk Factors”. These risks include, but are not limited to the following:
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| • | We have a limited number of shares of common stock available for issuance, which limits our ability to raise equity capital. |
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| • | Our business and operations may be adversely affected by the COVID-19 outbreak or other similar outbreaks. |
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| • | Our Paycheck Protection Program loan (“PPP Loan”) may not be forgiven, may subject us to challenges regarding qualification for the PPP Loan, enforcement actions, fines and penalties, and has resulted in an informal SEC inquiry into our financial disclosures. |
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| • | We have incurred losses and anticipate continued losses and negative cash flows. Our cost reduction strategy may not succeed or may be significantly delayed, which may result in our inability to deliver improved margins. |
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| • | We have debt outstanding and may incur additional debt in the future, which may adversely affect our financial condition and future financial results. |
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| • | Unanticipated increases or decreases in business growth may result in adverse financial consequences for us. |
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| • | If our goodwill and other intangible assets, long-lived assets, inventory or project assets become impaired, we may be required to record a significant charge to operations. |
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| • | Our Advanced Technologies contracts are subject to the risk of termination by the contracting party and we may not realize the full amounts allocated under some contracts due to the lack of Congressional appropriations or early termination. |
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| • | Utility companies may resist the adoption of Distributed Generation (as defined below) and could impose customer fees or interconnection requirements on our customers that could make our products less desirable. |
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| • | We depend on third party suppliers for the development and supply of key raw materials and components for our products. |
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| • | We derive significant revenue from contracts awarded through competitive bidding processes involving substantial costs and risks. Our contracted projects may not convert to revenue, and our project awards and sales pipeline may not convert to contracts, which may have a material adverse effect on our revenue and cash flows. |
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| • | We have signed product sales contracts, engineering, procurement and construction contracts (“EPCs”), power purchase agreements (“PPAs”) and long-term service agreements with customers subject to contractual, technology, operating and commodity risks as well as market conditions that may affect our operating results. |
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| • | We extend product warranties for our products, which products are complex and could contain defects and may not operate at expected performance levels, which could impact sales and market adoption of our products, affect our operating results or result in claims against us. |
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| • | We currently face and will continue to face significant competition, including from products using other energy sources that may be lower priced or have preferred environmental characteristics. Our plans are dependent on market acceptance of our products. |
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| • | Our products use inherently dangerous, flammable fuels, operate at high temperatures and use corrosive carbonate material, each of which could subject our business to product liability claims. |
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| • | We are increasingly dependent on information technology, and disruptions, failures or security breaches of our information technology infrastructure could have a material adverse effect on our operations and the operations of our power plant platforms. In addition, increased information technology security threats and more sophisticated computer crime pose a risk to our systems, networks, products and services. |
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| • | We are required to maintain effective internal control over financial reporting. Our management previously identified a material weakness in our internal control over financial reporting which was remediated in the fourth quarter of fiscal year 2020. If other control deficiencies are identified in the future, we may not be able to report our financial results accurately, prevent fraud or file our periodic reports in a timely manner, which may adversely affect investor confidence in our Company and, as a result, the value of our common stock. |
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| • | Our results of operations could vary as a result of changes to our accounting policies or the methods, estimates and judgments we use in applying our accounting policies. |
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| • | We may be affected by environmental and other governmental regulation. |
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| • | A negative government audit could result in an adverse adjustment of our revenue and costs and could result in civil and criminal penalties. |
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| • | Exports of certain of our products are subject to various export control regulations and may require a license or permission from the U.S. Department of State, the U.S. Department of Energy or other agencies. |
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| • | Provisions of Delaware and Connecticut law and of our certificate of incorporation and by-laws may make a takeover more difficult. Our by-laws provide that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a judicial forum deemed favorable by the stockholder for disputes with us or our directors, officers or employees. |
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| • | We will need to raise additional capital, and such capital may not be available on acceptable terms, if at all. If we do raise additional capital utilizing equity, existing stockholders will suffer dilution. If we do not raise additional capital, our business could fail or be materially and adversely affected. |
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| • | We depend on our intellectual property, and our failure to protect that intellectual property could adversely affect our future growth and success. The U.S. government has certain rights relating to our intellectual property, including the right to restrict or take title to certain patents. |
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| • | Our stock price has been and could remain volatile. Financial markets worldwide have experienced heightened volatility and instability which may have a material adverse impact on our Company, our customers and our suppliers. |
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| • | Future sales of substantial amounts of our common stock could affect the market price of our common stock. |
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| • | The rights of our 5% Series B Cumulative Convertible Perpetual Preferred Stock (“Series B Preferred Stock”) could negatively impact our cash flows and dilute the ownership interest of our common stockholders. The Series B Preferred Stock ranks senior to our common stock with respect to payments upon liquidation, dividends and distributions. |
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| • | Litigation could expose us to significant costs and adversely affect our business, financial condition, and results of operations. The pending legal proceedings with POSCO Energy could expose us to costs of such legal proceedings or an adverse judgment. |
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| • | Our future success will depend on our ability to attract and retain qualified management, technical and other personnel. |
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| • | We are subject to risks inherent in international operations. |
Background
Information contained in this report concerning the electric power supply industry and the Distributed Generation market, the Distributed Hydrogen market, the energy storage market and the Carbon Capture market, our general expectations concerning these industries and markets, and our position within these industries and markets are based on market research, industry publications, other publicly available information and assumptions made by us based on this information and our knowledge of these industries and markets, which we believe to be reasonable. Although we believe that the market research, industry publications and other publicly available information, including the sources that we cite in this report, are reliable, they have not been independently verified by us and,
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accordingly, we cannot assure you that such information is accurate in all material respects. Our estimates, particularly as they relate to our general expectations concerning the electric power supply industry and the Distributed Generation market, the Distributed Hydrogen market, the energy storage market and the Carbon Capture market, involve risks and uncertainties and are subject to change based on various factors, including those discussed under Item 1A - Risk Factors of this report.
As used in this report, all degrees refer to Fahrenheit (“F”); kilowatt (“kW”) and megawatt (“MW”) numbers designate nominal or rated capacity of the referenced power plant; “efficiency” or “electrical efficiency” means the ratio of the electrical energy generated in the conversion of a fuel to the total energy contained in the fuel (lower heating value, the standard for power plant generation, assumes the water in the product is in vapor form; as opposed to higher heating value, which assumes the water in the product is in liquid form, net of parasitic load); kW means 1,000 watts; MW means 1,000,000 watts; “kilowatt hour” (“kWh”) is equal to 1kW of power supplied to or taken from an electric circuit steadily for one hour; and one British Thermal Unit (“Btu”) is equal to the amount of heat necessary to raise one pound of pure water from 59oF to 60oF at a specified constant pressure.
All dollar amounts are in U.S. dollars unless otherwise noted.
Additional Technical Terms and Definitions
Advanced Technologies - Advanced Technologies projects involve the development of new products or applications based on existing carbonate or solid oxide technologies or new electrochemical technologies. Examples are Carbon Capture, Distributed Hydrogen, Solid Oxide Fuel Cells and Solid Oxide Electrolysis Cell technologies. Advanced Technologies projects are typically externally funded by government or private sources and executed by our Advanced Technologies Group.
Availability - A measure of the amount of time a system is available to operate, as a fraction of total calendar time. For power generation equipment, an industry standard (IEEE (The Institute of Electrical and Electronics Engineers) 762, “Definitions for Use in Reporting Electric Generating Unit Reliability, Availability and Productivity”) is used to compute Availability. “Availability percentage” is calculated as total period hours since Commercial Operations Date less hours not producing electricity due to planned and unplanned maintenance divided by total period hours. Grid disturbances, force majeure events and site-specific issues such as a lack of available fuel supply or customer infrastructure repair do not penalize the calculation of Availability according to this standard.
Carbonate Fuel Cell - Carbonate Fuel Cells, such as the fuel cell power plants produced and sold by FuelCell Energy, are high-temperature fuel cells that use an electrolyte composed of a carbonate salt mixture suspended in a porous, chemically inert ceramic-based matrix. Carbonate Fuel Cells operate at high temperatures, enabling the use of a nickel-based catalyst, a lower cost alternative to precious metal catalysts used in some other fuel cell technologies.
Carbon Capture – The process of extracting dilute carbon dioxide from the flue gas exhaust of fossil or Biogas fueled power plants or thermal processes and purifying the carbon dioxide to the purity required for sequestration or utilization. Carbon Capture is conventionally done using absorption systems that require energy to produce high purity carbon dioxide. Carbon Capture can also be done with Carbonate Fuel Cell systems while they produce power. To our knowledge, this ability to capture carbon dioxide from a power plant or boiler while producing additional power is unique to Carbonate Fuel Cell systems.
Carbon Separation – The process of extracting carbon dioxide from a Carbonate Fuel Cell system or Solid Oxide Fuel Cell system to reduce or eliminate carbon dioxide emissions. Carbon Separation does not involve carbon dioxide from an external source, as in Carbon Capture, but is the extraction and purification of carbon dioxide produced internally by the fuel cell from a fossil or Biogas fuel. Extracted carbon dioxide can be sequestered or used in industrial or food and beverage applications.
Combined Heat & Power - A power plant configuration or mode of operation featuring simultaneous on-site generation from the same unit of fuel of both electricity and heat with the heat used to produce steam, hot water or heated air for both heating and cooling applications.
Commercial Operations Date - The date that testing and commissioning of a fuel cell project is completed, and the fuel cell power plant is operational with power being generated and sold to the end-user.
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Distributed Generation - Electric power that is generated where it is needed (distributed throughout the power grid) rather than from a central location. Centrally generated power requires extensive transmission networks that require maintenance and experience efficiency losses during transmission while Distributed Generation does not. Distributed Generation is typically classified as small to mid-size power plants, typically generating 75 MW or less. Central generation is typically classified as large power plants generating hundreds or even thousands of MW.
Distributed Hydrogen – Hydrogen that is produced near the end user or users of the hydrogen, rather than from a central location. Large central hydrogen production plants create emissions in their operations and add cost and additional emissions by needing to deliver the gas over long distances to end users. Distributed Hydrogen can be provided by Carbonate Fuel Cell based Trigeneration systems or Solid Oxide Electrolysis Cell based systems.
Hydrogen Based Long Duration Energy Storage – Energy storage involving the production of hydrogen from power by electrolysis, where hydrogen is stored to be used later to produce power. The storage duration can be extended to long periods of time by providing sufficient hydrogen storage. High round trip storage efficiency can be achieved if the electrolysis and power generation processes are each high efficiency processes, such as Solid Oxide Electrolysis Cell based systems and Solid Oxide Fuel Cell based systems, or systems using Reversible Solid Oxide Fuel Cell stacks that alternate between fuel cell and electrolysis mode.
Microgrids - Microgrids are localized electric grids that can disconnect from the traditional electric grid to operate autonomously and strengthen grid resiliency. Microgrids can be composed only of SureSource power plants due to their continual power output or combine a variety of power generation types such as fuel cells and solar arrays.
Nitrogen Oxides (“NOx”) - Generic term for a group of highly reactive gases, all of which contain nitrogen and oxygen in varying amounts. Many of the NOx are colorless and odorless; however, they are a major precursor to smog production and acid rain. One common pollutant, Nitrogen Dioxide, along with particles in the air, can often be seen as a reddish-brown layer over an urban area. NOx form when fuel is burned at high temperatures, as in a combustion process. The primary manmade sources of NOx are motor vehicles, traditional fossil fuel fired electric utility generation, and other industrial, commercial and residential sources that burn fuels.
Particulate Matter (“PM”) - Solid or liquid particles emitted into the air that are generally caused by the combustion of materials or dust generating activities. Particulate Matter caused by combustion can be harmful to humans as the fine particles of chemicals, acids and metals may get lodged in lung tissue.
Power Purchase Agreement (“PPA”) - A Power Purchase Agreement is a contract that enables a power user to purchase energy under a long-term contract where the user agrees to pay a predetermined rate for the kilowatt-hours delivered from a power generating asset while avoiding the need to own the equipment and pay the upfront capital cost. The PPA rate is typically fixed (with an escalation clause tied to a consumer price index or similar index) or pegged to a floating index that is on par with or below the current electricity rate being charged by the local utility company. A PPA is typically for a term of 10 to 20 years.
Reformer / Electrolyzer / Purifier (“REP”) – A system which uses a Carbonate Fuel Cell stack (or stacks) in reverse mode (consuming power instead of producing power) to produce hydrogen by electrolysis simultaneous with production of hydrogen from a hydrocarbon fuel by reforming. The Carbonate Fuel Cell reactions also purify the hydrogen by transferring carbon dioxide from the hydrogen stream.
Renewable Biogas or Biogas - Renewable Biogas is fuel produced by biological breakdown of organic material. Biogas is commonly produced in biomass digesters employing bacteria in a heated and controlled oxygen environment. These digesters are typically used at wastewater treatment facilities or food processors to break down solid waste and the Biogas produced is a byproduct of the waste digestion. Biogas can be used as a renewable fuel source for SureSource fuel cell plants located on site where the Biogas is produced with gas cleanup, or it can be processed further to meet pipeline fuel standards and injected into a gas pipeline network, which is termed “Directed Biogas”. Directed Biogas requires additional processing to increase the Btu content of the gas, which increases cost and consumes power. Use of Biogas at the point of production (on-site) is more efficient and more economical.
Reversible Solid Oxide Fuel Cell (“RSOFC”) – Reversible Solid Oxide Fuel Cell systems use solid oxide cell stacks that alternate between operation in electrolysis mode (as SOEC stacks) or power generation mode (as SOFC stacks). The ability to use one stack set for both processes reduces cost in Hydrogen Based Long Duration Energy Storage systems.
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Solid Oxide Electrolysis Cell (“SOEC”) - Solid Oxide Electrolysis Cells are electrochemical cells with the same cell and stack structure as Solid Oxide Fuel Cells, but are operated in reverse – instead of producing power from fuel and oxygen, SOEC cells produce hydrogen and oxygen from steam when supplied with power.
Solid Oxide Fuel Cell (“SOFC”) - Solid Oxide Fuel Cells are electrochemical cells with a non-porous ceramic material as the electrolyte. SOFCs operate at high temperatures (slightly higher than Carbonate Fuel Cells) eliminating the need for costly precious-metal catalysts, thereby reducing cost. Like Carbonate Fuel Cells, the high operating temperature enables internal reforming of the hydrogen rich fuel source. The Solid Oxide Fuel Cell platform can be operated in fuel cell mode (producing power from fuel) or electrolysis mode (producing hydrogen from power) and can alternate between the two.
Sulfur Oxide (“SOx”) - Sulfur oxide refers to any one of the following: sulfur monoxide, sulfur dioxide (“SO2”) and sulfur trioxide. SO2 is a byproduct of various industrial processes. Coal and petroleum contain sulfur compounds and generate SO2 when burned. SOx compounds are particulate and acid rain precursors.
At a Glance
Today, FuelCell Energy is a global leader in sustainable clean energy technologies that address some of the world’s most critical challenges around energy, safety and global urbanization. In the future, FuelCell Energy plans to commercialize our hydrogen and carbon capture technologies intended to drive next generation solutions as the world strives for a smaller carbon footprint.
Overview
As a leading global manufacturer of proprietary fuel cell technology platforms, we are uniquely positioned to serve customers worldwide with sustainable products and solutions for businesses, utilities, governments, and municipalities. FuelCell Energy’s solutions are designed to enable a world empowered by clean energy, enhancing the quality of life for people around the globe. We target large-scale power users with our megawatt-class installations globally, and currently offer sub-megawatt solutions for smaller power consumers in Europe. To provide a frame of reference, one megawatt is adequate to continually power approximately 1,000 average sized U.S. homes. Our customer base includes utility companies, municipalities, universities, hospitals, government entities/military bases and a variety of industrial and commercial enterprises. Our leading geographic markets are currently the United States and South Korea, and we are pursuing opportunities in other countries around the world.
History
FuelCell Energy, based in Connecticut, was founded in 1969 as a New York corporation to provide applied research and development services on a contract basis. We completed our initial public offering in 1992 and reincorporated in Delaware in 1999. We began selling stationary fuel cell power plants commercially in 2003.
Leadership
We believe our leadership in clean energy has significant benefits for our customers and the sustainability of our planet.
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| • | Early Mover: We aim to be a leader in key areas of the clean energy value chain. We have the only fuel cell that is California Air Resource Board (“CARB”) certified utilizing Biogas. Our proprietary Carbon Capture solution is the only solution that we know of that produces power rather than consuming it and is also capable of producing hydrogen for distributed applications and electrolysis. |
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| • | Customer Enablement: Our fuel cell platforms are designed to be clean, efficient and reliable and help our customers achieve their sustainability goals while meeting their critical business needs. These efficient and environmentally friendly products support the “Triple Bottom Line” concept of sustainability, consisting of environmental, social and economic considerations. |
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| • | Intellectual Property: FuelCell Energy’s innovation is embodied in our intellectual property, including 102 U.S. patents and 186 patents in other jurisdictions covering our fuel cell technology (in certain cases covering the same technology in multiple jurisdictions). |
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| • | International Standard Pacesetter: FuelCell Energy is certified for compliance to ISO 14001:2015 which allows organizations to improve environmental performance through more efficient use of resources and reduction of waste. |
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| • | Engineered for Reuse: Our solutions are engineered for recycling and reuse, which sets us apart from other sources of clean energy technology such wind turbines, solar cells and batteries that are typically discarded in landfills. |
Our Team
Our senior leadership team is comprised of industry veterans, representing over 200 years of collective experience in the power industry, alternative energy, advanced manufacturing and disruptive technologies.
Business Model, Strategy and Competitive Advantages
Our Business Model
Our business model is based on multiple revenue streams, including power platform and component sales; recurring service revenue, mainly through long-term service agreements; recurring electricity, capacity and renewable attribute sales under PPAs and tariffs for projects we retain in our generation portfolio; and revenue from public and private industry research contracts under Advanced Technologies.
We are a complete solutions provider, controlling the design, manufacturing, sales, installation, operations and maintenance of our patented fuel cell technology under long-term power purchase and service agreements. When utilizing long-term PPAs, the end-user of the power or utility hosts the installation and only pays for power as it is delivered, avoiding up-front capital investment. We also develop projects and sell equipment directly to customers, providing a complete solution of engineering, installing and servicing the fuel cell power plant under an engineering, procurement and construction agreement (“EPC”) and a long-term maintenance and service agreement. FuelCell Energy maintains the long-term recurring service obligation and associated revenues running conterminous with the life of such projects.
Our Product Offerings and Opportunities
FuelCell Energy is focused on using our proprietary technology to pursue four significant energy opportunities, each of which we believe is important to the achievement of the global energy transition currently underway, and which promote desired sustainability and environmental stewardship outcomes.
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| 1. | Distributed Generation |
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| a. | Microgrid/Grid Resiliency |
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| b. | Combined Heat & Power (“CHP”) |
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| c. | Carbon Capture, Separation and Utilization |
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| d. | Multi-Fuel Capabilities |
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| 2. | Distributed Hydrogen |
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| a. | Hydrogen production at the point of use, removing transportation cost |
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| b. | Hydrogen co-produced with power, water, and thermal energy |
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| 3. | Hydrogen Energy Storage and Hydrogen Power Generation |
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| a. | High Efficiency Solid Oxide Electrolysis |
b. Carbonate Electrolysis with Reforming and Purification
c. Carbon free power generation
d. Unlimited storage opportunity
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| 4. | Carbon Capture |
a. Capture carbon while simultaneously producing power to offset the costs of Carbon Capture
b. Climate mitigation — reduce CO2 emissions
c. Enables the continued use of abundant fossil fuels
FuelCell Energy’s technology across these four opportunities creates significant optionality for the Company.
To date, the Company has delivered commercial Distributed Generation solutions to our customers. As further described below, we are in the process of commercializing solutions for Distributed Hydrogen, Hydrogen Energy Storage, Hydrogen Power Generation and Carbon Capture.
We market different configurations and applications of our SureSource platform to meet specific market needs, including:
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| • | On-Site Power (Behind the Meter): Customers benefit from improved power reliability and energy security from on-site power that reduces reliance on the electric grid in an environmentally responsible manner. Utilization of the high-quality thermal energy produced by the fuel cell in a CHP configuration supports economic and sustainability goals by lessening or even avoiding the need for combustion-based boilers for heat and its associated cost, pollutants and carbon emissions. Heat can be used to produce hot water or steam or to drive high efficiency absorption chillers for cooling applications for commercial and industrial customers. The SureSource platform can also deliver hydrogen and carbon dioxide for product use such as the production of dry ice. |
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| • | Utility Grid Support: Our SureSource power platforms are scalable, which enables siting multiple fuel cell power plants together in a fuel cell park. Fuel cell parks enable utilities to add clean and continuous multi-megawatt power generation on a very small footprint when and where needed and enhance the resiliency of the electric grid by reducing reliance on large central generation plants and the associated transmission system. Deploying our SureSource power platforms throughout a utility service territory can also help utilities comply with government-mandated clean energy regulations, meet air quality standards, maintain continuous power output and improve grid reliability. Our fuel cells can firm-up the total utility power generation solution when combined with intermittent power generation, such as solar or wind, or less efficient combustion-based equipment that provides peaking or load following power. |
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| • | Microgrid Applications: SureSource platforms can also be configured as a Microgrid, either independently or with other forms of power generation, with the goal of providing continuous power and a seamless transition during times of grid outages. We have multiple installations of our solutions operating within Microgrids, some individually and some with other forms of power generation. |
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| • | Distributed Hydrogen: SureSource platforms are configurable to deliver on-site hydrogen for transportation, industrial applications, natural gas blending, and repowering combustion-based equipment with zero carbon hydrogen. The SureSource Hydrogen platform utilizes proprietary fuel cells configured to simultaneously generate three value streams — power generation, hydrogen, and thermal energy. |
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| • | Carbon Utilization: SureSource platforms do not combust fuel, and because fuel and air are reacted separately before mixing, carbon dioxide from the fuel is not initially diluted by air and can be easily extracted from the system for utilization or sequestration, significantly reducing the carbon footprint of the generated power. A few attractive applications for this developing Carbon Separation technology are the on-site production of carbon dioxide for industrial use, production of dry ice/ultra-cold freezing, and use in beverage and food applications. |
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Consistent with our overall strategy, our engineers and scientists focus our innovation on developing sophisticated technical solutions that meet customer needs. Our sales and marketing teams focus on presenting solutions that we expect will lead to long term and repeatable sales opportunities. We have structured our sales efforts along our differentiated capabilities and major end-user market offerings.
Our Long-Term Strategy
In 2019, we launched our “Powerhouse” strategy to strengthen our business, maximize operational efficiencies and position us for future growth. Looking ahead, we have updated and may continue to update the pillars of our Powerhouse Strategy to reflect our future focus and to affirm our commitment to leadership in sustainability.
Transform — Build a Durable Financial Foundation and Enhance Financial Results
Continuing from the transformational groundwork originally laid out in 2019, building balance sheet strength (including enhancing liquidity) is an ongoing focus as FuelCell Energy grows:
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| • | Enhanced liquidity: In fiscal year 2020, we executed a public offering of common stock and at-the-market sales of common stock, improving the Company’s liquidity with net proceeds during fiscal year 2020 of more than $170 million at an efficient cost of capital, which has improved the Company’s financial foundation as we work to execute our strategy. |
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| • | Capital structure: In fiscal year 2020 and subsequent to the end of the fiscal year, we enhanced our liquidity and we expect to continue to do so. In addition, we continue to focus on reducing the cost of borrowing to deliver an overall lower cost of capital, with the goal of creating a capital structure that provides for efficient financing across our platforms and subsidiaries enabled by continued deployment of our projects, advancement of our technologies, and execution of our strategy. |
Strengthen — Drive Operational Excellence
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| • | Capital deployment: Making investments that further enhance performance, advance product commercialization, reduce costs and generate target returns on our investments |
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| • | Operational excellence: Executing on our project backlog; lean resource management driving rational cost management across our business |
Grow — Penetrate Significant Market Opportunities Where We Can Win
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| • | Optimization of core business: Capitalizing on our core technological strengths in key product markets, including biofuels, Microgrids, Distributed Hydrogen, and Carbon Separation and utilization |
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| • | Commercial excellence: Strengthening customer relationships and building a customer-centric reputation; building our sales pipeline by increasing focus on targeted differentiated applications, product sales and geographic market and customer segment expansion |
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| • | Innovation: Successfully delivering extended life stack modules; expanding commercialization of new technologies including proprietary gas treatment systems, advancing hydrogen and Carbon Capture, utilization, and sequestration |
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| • | Geographic and market expansion: Targeting growth opportunities in South Korea and across Asia, Europe, the United States and the Middle East |
The pillars and goals of our Powerhouse Strategy will continue to evolve over time as goals are met and the Company and market dynamics change.
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Our Durable Competitive Advantages
Given the long history of investment in and deployment of our solutions, we believe the Company has competitive advantages including:
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| • | Innovation and Sustainability: |
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| • | Intellectual property that we believe makes new entry to the market challenging |
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| • | A product portfolio that consists of several technologies that are attractive based on market economics, not government mandate |
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| • | Products characterized by sustainability over their full lifecycle versus other “clean” technologies such as wind turbines, solar panels and batteries for which recycling is neither economical nor practical, and that often rely on limited supply minerals, disruptive mining and geopolitical risk |
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| • | Technologies that fulfill society’s fundamental need for energy without requiring that users/ society change the way they live or use energy |
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| • | Excellence: |
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| • | Operational excellence programs and lean resource management aim to maximize cost- reduction opportunities while improving safety and product quality |
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| • | Lean management which drives proprietary manufacturing processes that increase speed to market and cost competitiveness |
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| • | Technical expertise through a high level of employee engagement with a tenured, highly skilled workforce, operating complex processes to deliver our platform solutions |
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| • | Engagement & Understanding: |
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| • | Strategic innovation and development relationships with the U.S. Department of Energy (“DOE”) and ExxonMobil Research and Engineering Company (“EMRE”) provide funding and encourage technology development |
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| • | Geographic Footprint in the United States, Asia and Europe provides strategic channels of distribution and allows economical product support |
Products
Our core fuel cell products offer clean, highly efficient and affordable power generation for customers. The plants are scalable for multi-megawatt utility applications, Microgrid applications, Distributed Hydrogen, or use of the ‘platforms’ thermal attributes for on-site heat and chilling applications for a broad range of applications.
Our commercial product line includes:
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| • | SureSource 1500 TM, our 1.4 MW platform; |
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| • | SureSource 3000TM, our 2.8 MW platform; |
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| • | SureSource 4000TM, our 3.7 MW high efficiency platform; |
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| • | SureSource 250 (Europe only), our 250 kW platform; |
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| • | SureSource 400 (Europe only), our 400 kW platform; and |
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| • | SureSource HydrogenTM, our 2.3 MW platform that produces 1,200 kg of hydrogen per day. |
Our proprietary, patented Carbonate Fuel Cell technology generates electricity directly from a hydrogen-rich fuel, such as natural gas or Renewable Biogas, by reforming the fuel inside the fuel cell to produce the needed hydrogen. This internal, proprietary “one-step” reforming process results in a simpler, more efficient, and cost-effective energy conversion system compared with external reforming fuel cells. Additionally, we benefit from multi-fuel capability,
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which enables the SureSource platform to leverage the established natural gas infrastructure that is readily available in our existing and target markets, compared to some types of fuel cells that can only operate on high purity hydrogen. In addition, our proprietary gas clean-up skid technology allows us to utilize on-site Biogas as production of on-site Biogas is rapidly growing around the world. Our fuel-flexible platforms mainly utilize clean natural gas and Renewable Biogas generated by the customer on-site or Directed Biogas generated at a distant location and transported via the existing common carrier gas pipeline networks.
Our global SureSource product line is uniformly based on the same Carbonate Fuel Cell technology, and offers the following advantages:
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| • | Sustainable: Our solutions produce electricity electrochemically − without combustion – which enables siting of the power plants in dense, urban areas with clean air permitting regulations and represents an important public health benefit. Fuel cells also reduce carbon emissions compared to less efficient combustion-based power generation. |
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| • | Flexible: Our solutions can operate on natural gas, on-site Renewable Biogas, Directed Biogas, flare gas and propane to offer CHP and are scalable to add power incrementally as demand grows. The unique chemistry of our Carbonate Fuel Cells allows them to directly use low Btu on-site Biogas with no reduction in output or efficiency compared to operation on natural gas. We have developed proprietary Biogas cleanup and contaminant monitoring equipment which, combined with the inherent suitability of the Carbonate Fuel Cell chemistry, gives us an advantage in on-site Biogas applications. Our SureSource 1500 and SureSource 3000 power plants are the only fuel cell systems certified to CARB emissions standards under the Distributed Generation Certification Program for operation with on-site Biogas. In addition, we have demonstrated operation of our Carbonate Fuel Cell technology with other fuel sources including coal syngas and propane. |