We have been highlighting for months that, even if deploying new solar/wind capacity and building/reopening nuclear plants are key to tackling the power challenge arising from data centers in the medium and long term, these initiatives are unlikely to come online fast enough to handle short-term extra electricity demand. Accordingly, transitory solutions to fill the gap are necessary, with fuel cells standing out in the race to secure short-term power.
It looks like we are reaching an inflection point in terms of fuel cells deployment as Bloom Energy, which already had some data center contracts (notably with Intel’s Santa Clara data center for tens of MW), announced Friday a massive 1 GW supply agreement with US utility American Electric Power, including an immediate 100 MW fuel cell order followed by additional orders in 2025. American Electric indeed has a pressing need for additional power as it expects its commercial load to grow 20% annually over the next three years thanks to data center demand.
Fuel cells bring many advantages to the table. They can be deployed in just a few months, enabling customers to rapidly meet growing power needs. They represent a reliable and clean source of power as fuel cells can provide 24/7 baseload, are isolated from potential grid issues (they are installed on data center premises) and as they operate on hydrogen, natural gas or blends of these fuels. The Bloom Energy – American Electric project will rely on natural gas initially, with potential hydrogen use in the future.
Last but not least, fuel cells can offer a competitive power price – e.g. Bloom Energy’s solution is estimated around $0.10/kWh, globally in line with utilities rates in the US.
Overall, a major opportunity is opening up for fuel cell makers as an increasing number of data center operators and, now, utilities show commitment to using alternative forms of power generation to handle surging electric demand. Other than Bloom’s recent commercial successes, we note that another fuel-cell powered 750 MW data center project is reportedly on track in Virginia.
We estimate the revenue opportunity for Bloom from the American Electric deal at several hundred million dollars annually, so likely +20-30% upside on Bloom’s top line with a material earnings leverage given that manufacturing facilities can absorb this extra activity. Importantly, that deal positions Bloom as the leading vendor of data center fuel cell solutions, suggesting that the company could land many other contracts in the near future and benefit from a massive EPS boost from data centers’ electric needs.
Plug Power, which commented earlier this year that its solutions are on trial at “three major data center operators” with sales expected to pick up in 2025, could be another play on this theme but appears riskier given its absence of track record in the data center business and weak balance sheet.
