By Vikas Shukla
FuelCell Energy Inc. (NASDAQ:FCEL) announced Thursday that it had received equity and debt financing from NRG Energy Inc. (NYSE:NRG). The Danbury, Connecticut-based company has sold 14.6 million of its shares to NRG Energy at $2.39 per share for a total value of $35 million. NRG also has an option to buy another two million shares at $3.35 per share over the next three years.
NRG Energy now owns 6% of FuelCell
NRG Energy now owns more than 17 million shares of FuelCell and 6% stake in the company. FuelCell Energy has also received $40 million in revolving construction and term financing from NRG Energy. The fuel cell company will use the proceeds to accelerate project development. FuelCell has developed a solid pipeline of heat and power projects.
Stifel analyst Sven Eenmaa said in a research note that the financing is the next step in establishing the company’s relationship with NRG Energy. It eliminates some of the construction financing hurdles ahead of the Investment Tax Credit (ITC) deadlines. The deal also validates the bankability of FuelCell’s power plants. FuelCell builds and runs power plants used by IT and telecom companies as a source of back-up power. It also builds on-site power plants for factories.
FuelCell has reduced manufacturing costs by 70%
After several years of investment, FuelCell has succeeded in reducing the fuel cell technology and manufacturing costs. The unsubsidized cost of energy has declined to $0.13/kWh range. Meanwhile, manufacturing costs have come down more than 70% over the last decade. Including state-level incentives and benefits from ITC, the cost of energy falls to $0.09-$0.10/kWh. That’s attractive compared to several states’ baseload pricing.
What’s more, FuelCell has a clear roadmap to reach comparable cost levels on an unsubsidized basis, noted Eenmaa. In several markets, fuel cell power plant is still a relatively new technology. But Stifel expects fuel cell power plant technology penetration to increase. With increasing production levels and consistent cost improvements, Eenmaa believes FuelCell can easily become EBITDA positive by mid-2015.
Stifel has a Buy rating on the stock with $2.90 price target. FuelCell shares tumbled 5.64% to $2.34 at 1:06 PM EDT on Friday.