Fuel cell makers eye data centers

Updated: Fuel cell maker ClearEdge Power plans to launch a fuel cell line targeted at data-center operators later this year, ClearEdge VP of Marketing Mike Upp told me in an interview. The move is part of a larger trend of fuel cell makers eying data-center operators as a new market for distributed cleaner power.

Last week the U.S. division of Japanese telecom giant NTT, NTT America, said that it plans to install five fuel cells from Bloom Energy at one of its data-center facilities in San Jose, Calif. And last month AT&T (s t) said it plans to install 75 Bloom fuel cells at 11 of its offices in California. AT&T said it will use the fuel cell power for data centers as well as administration offices and facilities that house network equipment.

Fuel cells look like industrial refrigerators, and they use a chemical reaction to produce electricity and heat. They are filled with large stacks that are lined with catalysts (a metal, sometimes platinum), and a fuel (commonly natural gas) is inserted in one side and runs over the stack. Electricity and heat flow out the other side.

Because the power generation is done on-site, fuel cells can be more efficient than when electricity flows over power lines, and they can be a cleaner power source, depending on how clean the grid is in your area. Bloom Energy’s fuel cell can also run on biogas, as well as natural gas, making it produce few carbon emissions.

ClearEdge’s Upp told me that the company plans to sell the fuel cells as primary power to data-center operators, and the grid would be the backup power to their fuel cells. That’s a contrast to some other cases I’ve seen, where data-center operators are using fuel cells for backup and auxiliary power.

Data centers need so-called “five nines” (99.999 percent) of reliability, and essentially the power supply can almost never shut down. Google (s GOOG) has said the Bloom Box that it has been using on its campus had an availability rating of 98 percent, which translates into around seven days of downtime a year. That is not so good for a stand-alone power source. But with the grid as a backup to a fuel cell, it can create a pretty reliable two-part combo.

Data-center operators are interested in adding in fuel cells as a way to control energy costs and also benefit from green marketing. A company like Bloom Energy has an option to sell its Bloom boxes on a service contract, offering low-cost (or no-cost) installation fees and then selling the customer power at a fixed rate over a 20-year or so contract. Buying low-cost energy over two decades is hedging against the bet that energy prices will rise over time, and it can lead to savings on a long-term energy bill.

However, making and buying fuel cells right now is still relatively expensive. Bloom’s fuel cell costs $700,000 to $800,000 for a 100 kW system. ClearEdge Power sells smaller systems in the 5 kW to 15 kW range, and for a much lower price: Its 5 kW unit costs $56,000 $12,500.

Fuel cell companies are looking for new customers in the commercial and small- to medium-business sector. A lot of these companies have struggled for years to get costs down and make a profit. Fuel cells are still largely uneconomical for the residential market, but businesses that understand the energy savings over a long period of time could be good customers. Some states like California also offer significant subsidies for installing fuel cells.