The US ITC Was Reinstated for Fuel Cells: Is It Enough to Recharge the Industry?

In an 11 hour move, the US federal Investment Tax Credit (ITC) was reinstated for certain orphaned generating technologies in February’s congressional tax bill. Among the technologies extended, fuel cells have the highest incentive: as much as 30% of the system cost can be taken as a tax credit. For stationary systems made by the likes of Bloom Energy, Fuel Cell Energy, and Doosan, the credit can be worth around $0.02/kWh on a levelized cost basis—a significant amount that can decide whether a project gets built.

Will it be enough to reignite an industry that largely treaded water in the US in 2017? That depends on whether industry players can address certain key issues.

Capital Costs Must Be Lowered

The high capital costs of fuel cells remain the biggest hurdle to mass adoption. Installed capital costs vary widely but typically range from about $4,000/kW to $8,000/kW. By contrast, turbines, microturbines, and reciprocating gensets are significantly cheaper per kilowatt—as low as $1,000 or less for certain gensets and turbines. Fuel cells make up for this with high efficiency, but that advantage is hobbled in a world of low natural gas prices. Cost declines in recent years have been promising, but more must be done. Incentive certainty should help drive investment, volume, and thus economies of scale, but more must be done with manufacturing process improvement and the use of lower cost assemblies and materials.

Flexibility and Load Following Must Be Improved

The US electrical grid is experiencing increasing volatility thanks in part to fast growth among intermittent renewables. This has led to demand for flexible, dispatchable technologies like battery storage. The higher temperature fuel cells popular in the +500 kW range tend not to follow load well. This is a disadvantage, especially for applications like microgrids that value islanding from the grid. Pairing the fuel cell with battery storage (a la Bloom Energy) can help overcome this lack of flexibility

Carbon Emissions Still Represent a Liability

Despite super-low levels of criteria pollutant emissions, fuel cells using natural gas still emit carbon dioxide. This can be a significant liability when compared with, for example, the emissions-free PV-plus-storage systems that continue to fall in price. Though fuel cell emissions per megawatt-hour tend to be lower than most electrical grids right now, those grids are focused on decarbonizing. This is of special interest among corporate buyers thinking increasingly about sustainability. Low carbon fuels like biogas are a key decarbonizing pathway. Some programs, like California’s SGIP, encourage biogas market transformation by requiring increasing amounts of biogas in covered systems. Using biogas as a fuel is a strategy for fuel cells to compete better on system carbon emissions.

Fuel Cell Technology Needs More than Just the ITC

The reinstatement of the ITC gives a welcome boost to the stationary fuel cell industry in the US. It lowers both uncertainty and costs to the end user, and enhances economies of scale. But more yet is needed to truly scale the industry. Cost cuts have been aggressive in recent years but must continue. The ITC is scheduled to phase out over 5 years, dropping to 22% before ending in 2022, giving fuel cell companies a clear timeline for hitting lower cost targets. Pairing up with other dispatchable technologies like batteries may help fill the gaps in load following capability. And to limit carbon emissions, alternative fuels like biogas and green hydrogen will become increasingly important fuels. Fuel cell technology still shows great promise, but there is much yet to be done.