There are much better, less risky ways to invest in the clean energy and electrification revolutions than FuelCell Energy (NASDAQ: FCEL). With the company facing steep competition and apparently failing to save its customers money, FCEL stock isn’t worth buying at this point.
Unlike, for example, solar energy and Plug Power’s (NASDAQ:PLUG) material-handling products, there are no indications that FuelCell’s products can save its customers money. Moreover, FuelCell hasn’t sold huge amounts of its products the way solar energy companies and Plug Power have. Finally, the combination of solar and conventional batteries seem to provide the same advantages offered by FuelCell’s products. And at this point, businesses seem much more interested in solar and storage than FCEL’s offerings.
No Savings Seen
One of the reasons that solar energy is spreading all over the place is that it’s actually saving consumers and businesses a great deal of money. In many places in the world, building a solar energy plant is now cheaper than launching a new coal plant or a new natural gas plant. Given low interest rates, government tax breaks, and payments by utilities for electricity generated by solar panels, the panels have become cash-flow positive for millions of homeowners and businesses. And it doesn’t hurt that many governments around the world have implemented clean energy mandates that have benefited solar.
Plug Power uses similar expensive fuel cell technology to that of FuelCell. But as I detailed in a previous column, Plug Power’s batteries for material-handling vehicles save companies money, and those savings are set to jump tremendously as e-commerce continues to proliferate.
By contrast, I found no indication in my research that FCEL’s technology saves money. In fact, the main Products page on the company’s website doesn’t contend that its products reduce its customers’ overall costs. Given that FCEL’s products do not appear to save money, it will probably have trouble selling massive amounts of its offerings. As a result, FCEL stock is unlikely to rise much in the longer term.
No Huge Demand
Solar energy has spread all over the world, with China, the U.S., Europe and Japan, among others, all rapidly adopting the technology. In America, the country’s largest utility, NextEra (NYSE:NEE), is utilizing millions of solar panels and in the process of adding millions more. Another utility, Warren Buffett’s NV Energy, is looking to building a $1 billion solar and battery plant. Many other U.S utilities are also increasingly turning to solar energy.
Meanwhile, Plug Power has signed sizable deals with Amazon (NASDAQ:AMZN) and Walmart (NYSE:WMT), worth up to $70 million and about $80 million, respectively. Additionally, WMT bought 55 million shares of PLUG stock, while Amazon has warrants to buy 55 million shares in 2017. The warrants will vest if AMZN buys a total of $600 million of PLUG’s products. And PLUG recently announced a $172 million, two-year deal with an unnamed Fortune 100 company.
By contrast, FuelCell’s biggest deals in recent years appear to be a contract to supply 2.8 megawatts of power to a wastewater treatment plant in California, a deal to build a 14.8 MW power plant in Connecticut, and a deal with Exxon Mobil (NYSE:XOM) worth up to $60 million to develop carbon capturing technology.
FCEL didn’t disclose the exact value of the California deal, but it says it will get paid for supplying the 2.8 MW for 20 years. However, 2.8 MW is a relatively small amount of power, enough to supply about 1,100 to 2,250 homes for a year. So the agreement will probably be worth $3 million or $4 million per year at most. The larger 14.8 MW project will probably bring in $15 million to $20 million per year.
And I wouldn’t get too excited about the Exxon agreement. For many years, XOM has invested in a variety of biofuels, and little or nothing seems to come from its efforts in that area. Meanwhile, the idea of developing carbon capturing technology has been around for at least a decade, and little or nothing has come of those efforts.
Not surprisingly, FCEL generated only $11 million of revenue in the fourth quarter. PLUG’s Q3 revenue of $56 million was well over double FCEL’s Q4 top line. PLUG lost only 9 cents per share in Q3, while FuelCell reported a 23 cents per share Q4 loss.
Solar and Storage Offer Better Alternatives
The main rationale for FuelCell’s products seems to be their ability to provide clean energy that doesn’t depend on the electric grid to function.
But the increasingly popular combination of solar panels and conventional batteries provides the same benefits. Many businesses are already adopting that technology, since conventional batteries have become much cheaper in recent years. I think it’s safe to assume that FCEL’s offerings — which rely on much more expensive fuel cell technology and require around the same space as a tennis court — are much more expensive. (The batteries used for solar and storage solutions appear to be much smaller than a tennis court.)
It’s likely that almost all businesses will choose solar and storage over FuelCell’s offerings, a situation will probably hurt FCEL stock over the longer term.
Bottom Line on FCEL Stock
FuelCell’s products do not appear to save businesses money, and solar and storage solutions likely offer the same benefits at a cheaper price as FCEL’s offerings. Solar panel makers and PLUG have much bigger customer bases than FCEL. Moreover, their products are much more widely accepted and appear to be more beneficial than those of FuelCell.
Recently, FCEL stock has surged tremendously, jumping more than six-folded in the last three months. Nonetheless, I think that the shares will come back down to Earth when investors realize that the stock is quite risky. That process may have already started this week, after the company’s Q4 results came in below expectations, triggering huge declines in FuelCell’s shares.
FCEL, in partnership with another company or on its own, could unveil new, transformative technologies that would propel FCEL much higher. Additionally, the company indicated in a Q4 earnings press release that it would look to enter new sectors, including transportation. Still, given the company’s current weaknesses, I’d stay away from the shares for now. Instead, I think that investors interested in capitalizing on the renewable energy and electrification revolutions should buy PLUG stock and/or leading solar energy names.
As of this writing, the author owned PLUG stock and solar energy stocks JinkoSolar (NASDAQ:JKS), Daqo New Energy (NYSE:DQ), and SunPower (NASDAQ:SPWR).