FuelCell Energy, Inc. (NasdaqGM:FCEL), a stationary fuel cell plant manufacturer, announced an expanded agreement with its Korean strategic distribution partner, POSCO (NYSE:PKX).
Under the agreement, POSCO’s subsidiary POSCO Power will become a provider of FuelCell Energy’s Direct FuelCell(r) (DFC(r)) power plants in Korea, and will manufacture the balance of plant equipment for the plants.
Under the 10-year license and distribution agreement, POSCO Power will create a fuel cell sales and service organization, and employ its expertise in power plant design and raw materials procurement to reduce power plant costs. Fuel cell stack modules will be manufactured by FuelCell Energy in Connecticut and shipped to Asian customers for installation with POSCO Power balance of plants. POSCO Power also will build a facility to manufacture the balance of plant (non-fuel cell stack portion of FuelCell Energy’s DFC power plants) in Korea.
As part of the alliance with FuelCell, POSCO Power will pay FuelCell Energy a 4.1 percent annual royalty on fuel cell related sales by POSCO Power over the term of the agreement subject to minimum royalties. POSCO has also agreed to invest $29 million in FuelCell Energy, Inc. through the purchase of common stock at $7.59 per share, a premium over the 20-day average FuelCell Energy stock closing price. This will result in POSCO purchasing approximately 3.8 million shares which are restricted for six months.
In addition to Korea, POSCO has the right to sell DFC power plants worldwide except in North America, Europe, the Middle East and Japan. Capitalizing on POSCO’s strong manufacturing capabilities and economies of scale, FuelCell Energy also has the option to purchase POSCO Power’s balance of plants for sale to FuelCell Energy’s customers in other parts of the world.
Last year, the Korean Ministry of Commerce, Industry and Energy (MOCIE) announced a renewable energy subsidy program, under which fuel cells powered by biogas and natural gas receive subsidies in excess of the amounts allocated to wind power, biomass, and hydro, and second only to solar power.
For fuel cells running on natural gas, the current subsidy is $0.28/kilowatt hour (kWh) and $0.023/kWh for those running on biogas, decreasing 3 percent annually for new installations up to a cap of 50 MW. A binding Renewable Portfolio Standards program is expected to be signed into law by 2009. With these policies in place, Korea is slated to become one of the world’s leading adopters of clean energy technology.
Because the MOCIE subsidy requires that power from renewable sources first be exported to the utility grid, rather than consumed on-site, the law is expected to favor the installation of multi-megawatt power stations rather than smaller, privately-owned plants.
POSCO Power, Korea’s leading independent power producer (IPP), intends to focus its core marketing efforts in this sector. FuelCell Energy anticipates sales volume in South Korea of approximately 5 to 15 MW over the next several years, while POSCO Power establishes its local manufacturing facilities and continued sales growth for DFC(r) stack modules following POSCO Power’s launch of domestically produced balance of plants.
About POSCO
POSCO (http://www.posco.co.kr), founded in 1968, is Korea’s largest integrated steelmaker. POSCO is rated A3/Moody’s and A-/S&P, the highest credit ratings assigned to the world’s integrated steelmakers.
POSCO Power (http://www.poscopower.co.kr) is a subsidiary of POSCO. Formerly, Kyung In Energy Co., Ltd., it was established in 1972 as the first Korean Independent Power Producer. It is e biggest Independent Power Producer in Korea with a generating capacity of 1,800 MW.