The market has been under pressure over the last few days and the stocks have lost value - growth and momentum stocks have again been hit hard as these stocks usually take a magnified impact. Fuel cell sector has some momentum stocks too and the nascent nature of the sector has caused considerable volatility among the stocks in the sector. FuelCell Energy (NASDAQ:FCEL) is one of the less volatile stocks in the sector and the recent fall has also had a lesser impact on FCEL than its peers, Plug Power (NASDAQ:PLUG) and Ballard Power Systems (NASDAQ:BLDP) - However, Hydrogenics Corporation (NASDAQ:HYGS) has shown the strongest price trend over the period of comparison here. Over the last five days, FCEL is down about 2.7% while PLUG and BLDP are down 6.58% and 5.77%, respectively. On the other hand, Hydrogenics is the only stock here which has shown a gain of about 3% when its peers have shown a decline.
Due to an increased focus on clean energy, the company has been able to register a substantial order backlog, which will ensure a healthy trend in revenues over the next few quarters (You can read about the revenue backlog here).
NRG Energy (NYSE:NRG), an integrated wholesale power generation and retail electricity company, recently bought $35 million worth of shares and increased its stake to 6% in the company and extended a $40 million loan to aid FuelCell in completing several projects. This move by the U.S. Energy giant further signifies confidence in the fuel-cell energy sector, especially FuelCell Energy, which holds strong long-term growth prospects.
Increased Stake by NRG Energy
The shares of FuelCell got a boost after diversified energy giant NRG Energy bought another $35 million worth of shares and offered a $40 million loan to aid the power plant developer in the completion of several ongoing and upcoming projects. NRG Energy is a retail energy company engaged in the supply of energy, services, and sustainable products to retail customers in competitive markets through multiple channels and brands such as Reliant Energy and Green Mountain Energy. Further, FuelCell sold 14.6 million shares of common stock to NRG at $2.39 per share for proceeds of $35 million. Both companies have been working together and developed a strong pipeline of combined heat and power projects. Moreover, the continued support from the energy company like NRG is further validation of FuelCell's power generation solutions and its business model. Such agreements will strengthen FuelCell's liquidity position and are expected to speed up the deployment processes of multi-megawatt fuel cell projects in the U.S.
Further, the new credit facility will enable the company to undertake new project developments. This will also enhance the services revenue stream of the company as the new fully operational power plants will be leased on long-term power purchase agreements by the company. FuelCell managed to increase its services revenues by more than 75% during the second quarter, which will further increase the pace at which the margins are growing.
Future Growth Prospects
FuelCell Energy primarily serves two markets: ultra-clean stationary base load distributed generation power plants and on-site combined heat and power, or CHP generation. The company received a strong order backlog in the aforementioned markets and anticipates robust future growth in both segments. The 5.6 Megawatt project from United Illuminating, Connecticut and 1.4 Megawatt project from Irvine Medical Centre, University of California are the most recent awards for the company. Moreover, the company anticipates strong growth outside U.S. such as Asia and Europe, where the governments are seriously taking measures to switch towards clean energy.
Recently, the German Federal Ministry for Economic Affairs and Energy has announced the allocation of €4.9 million ($6.58 million) for the research and development of highly efficient fuel cell technology project between FuelCell's subsidiary, FuelCell Energy Solutions GmbH (FCES) and its joint venture partner Fraunhofer IKTS. Fraunhofer is Europe's largest application oriented research organization with an annual research budget of around $2.3 billion. This project mainly targets improvements and enhancements to the Direct FuelCell (DFC®) technology of the company. These improvements will increase the power density and operating life of the fuel cells, thus reducing the costs of the DFC unit. The company has been planning to install two 2.8 Megawatt DFC 3,000 power plants at its United Illuminating project, which will be further enhanced by using the latest developed technology and increase the company profitability by reducing its costs.
One of the major hurdles in fuel cells becoming a mainstream energy source is its efficiency in power generation and replacement costs of fuel cells, as compared to other clean energy sources such as, solar and wind energy. The new research programs by FuelCell and Fraunhofer are aimed to enhance the performance of DFC fuel cell by increasing its power output and making the fuel cell power plant technology more affordable and efficient, which will substantially increase its adoption rates in the clean energy market. Further, the company identified New Haven as the second installation site for its previously announced 5.6 Megawatt project for United Illuminating Company (UI). The new location will help meet the State's renewable energy goals and demonstrates the importance of fuel cell technology by supporting the utility market energy solutions. However, the continuous research in the DFC technology and increased order backlog for the fuel cell alternative power generation methods will prove to be very prosperous for the company in the long-run.
FuelCell Energy remains one of the best picks in the sector as the future growth in both the operating segments of the company is looking strong. The recent financing agreements will allow the company to manage its liquidity better and meet its short-term obligations. Due to the strong market for its products and strong financial condition of the company; FuelCell energy is a solid long-term pick, in our opinion.
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