Editor’s Note: EarthTechling is proud to repost this article courtesy of AOL Energy. Author credit goes to Jon Hurdle.

Fuel cells’ prospects of becoming a significant energy source are growing as costs decline and technology advances, helping the two leading players in the US industry, FuelCell Energy, and Bloom Energy.

In a signal of growing confidence in the full cell business, Bloom Energy is the subject of speculation that it will go public this year, said Sam Jaffe, research manager at IDC Energy Insights.

image via Bloom Energy

With both major players in the stationary fuel cell market having achieved durable fuel cells while cutting their costs, the industry is poised to gain greater acceptance as a significant energy source, Jaffe said.

Rather than becoming an alternative to power from the grid, fuel cells are likely to become a more widely accepted ancillary source of power, used by institutions like hospitals and universities as backup facilities.

Those users, together with utilities, government, and oil and gas refining, are identified by FuelCell Energy as prime markets for expansion in natural gas fuel cells. The power plant market is estimated to be worth $4 billion with potential for another $4 billion in the services industry, the company believes.

Together with another $4 billion in revenue from industries such as wastewater and agriculture that utilize renewable biogas in fuel cells, the market totals $12 billion, according to a FuelCell Energy estimate.

Current clients range from a Pepperidge Farm bakery in Connecticut to a jail in Santa Rita, Calif. Two California utilities, PG&E and Southern California Edison, have purchased the company’s fuel cell plants to use at universities.

The Holy Grail: Grid Parity

Meanwhile, economies flowing from increased output will allow the company to move toward grid parity, although costs will need to come down another 40% for that to happen, said FuelCell Energy CEO Chip Bottone.

In California and New York City, fuel cell power can already match grid prices, although it will probably never compete with overall grid rates, Jaffe argued

At present, the company depends in part on policymakers’ help, including access to renewable portfolio standards, but that’s not the long-term plan, said Bottone.

Among factors turning in FuelCell Energy’s favor are its increased access to private capital. More than half of its projects are now funded through debt or equity, contrasting with three years ago, when few attracted private money, Bottone said.

And the company is being helped by the decade-low US natural gas prices that have cut input costs for its fuel cells.

But the low gas prices are a double-edged sword because they also reduce the incentive for generators to switch to other sources, including fuel cells, argued Michael Lynch, president of Strategic Energy and Economic Research.

“If natural gas was still $8, fuel cells would be a lot likelier to be viable,” he said.

For now, cheap gas will prove more attractive as a power generation fuel, but it may lose its luster in eight to 10 years if gas reserves dwindle and the cost of fuel cells drops further.

“In the near term, gas wins out,” said Lynch. “But by 2020 there will be a much bigger market for fuel cells.”

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