Bloom Energy defies struggling hydrogen market by betting on gas-compatible tech

Bloom Energy Corp. is enjoying a surge in fuel cell orders as competing manufacturers report dismal sales volumes, lending credence to the company's bet on solid-oxide systems over incumbent technologies.

As of April 16, Bloom Energy's stock was up nearly 82% over the past 12 months despite taking a tariff-related hit, as the company racked up orders from datacenter developers. Meanwhile, Plug Power Inc. and Cummins Inc. have been slashing their fuel cell investments due to sluggish demand for the hydrogen-powered technology.

"There are fuel cells, and there are fuel cells — that's the simple answer," K.R. Sridhar, CEO and co-founder of Bloom Energy, said in an interview.

Specifically, there are proton-exchange membrane (PEM) fuel cells and solid-oxide fuel cells, which operate at a much higher temperature. Both technologies convert hydrogen into electricity by electrochemical reaction, emitting only oxygen and water.

But unlike PEM fuel cells, Bloom Energy's equipment can also run on natural gas, which nearly all the company's customers are still using. Furthermore, solid-oxide fuel cells have proved better at providing constant power to large loads, such as AI datacenters, according to Sridhar.

PEM manufacturers "somehow believe that they can enter the datacenter market," Sridhar said. "We don't think that technology has a shot."

Industry outlier

Bloom Energy has secured orders for more than 300 MW of fuel cells for datacenter applications, with more deployments on the horizon. In November 2024, American Electric Power Co. Inc. reserved 1 GW of Bloom Energy fuel cells for datacenter customers waiting for grid connection. The equipment would serve as a primary power source until grid electricity is available and then transition to acting as a backup.

As pure backup power, solid-oxide fuel cells are too expensive to compete with diesel-fired generators, the current industry standard, Bank of America analysts said in a March 10 research note.

But PEM fuel cells face greater deployment hurdles, and "large-scale adoption is far off," the analysts added. One limiting factor is the hydrogen distribution system.

"One of the biggest challenges is to make sure that you can support long-duration outages, and that requires a great deal of hydrogen storage on-site," Plug Power CEO Andy Marsh said earlier this year in an earnings update.

Before Plug Power can start deploying its PEM fuel cells at datacenters, the customers would likely need access to hydrogen via pipeline, Marsh said. As such, the manufacturer does not expect to benefit from the growing datacenter market for at least another two years.

Still, Bloom's choice to invest in solid oxide was never an assured success. Sridhar does not dispute that for transportation applications, a major market for fuel cells, PEM fuel cells are the preferred choice due to their fast ramp-up times.

"[If] you need to run to go get milk, you don't want to turn on your car and wait for eight hours," Sridhar said. "So you wouldn't use our technology in a car."

But hydrogen companies say the fuel cell electric vehicle market is taking longer to shape up than they expected. On the other hand, the rise of electricity-hungry generative AI has been a boon for providers of on-site power generation, including new technologies such as small modular nuclear reactors and enhanced geothermal systems.

Given the choice between grid power and behind-the-meter power, a datacenter developer is always going to choose the former, Sridhar said. The advantage of fuel cells is that they can be deployed in a matter of months, whereas utility connection can take years in some parts of the US.

Four-year lead times for natural gas turbines have also opened a window for Bloom Energy's fuel cells, the Bank of America analysts said. Other distributed power options, including advanced nuclear reactors, come with long wait times and a degree of technical risk, while solar-plus-storage systems require acres of land, Sridhar added.

Hydrogen outlook

Bloom Energy pitches its gas-powered fuel cells as a quick solution that can be decarbonized at a later date, either by substituting hydrogen or installing carbon capture equipment. Bloom also manufactures solid-oxide electrolyzers, which produce hydrogen by splitting water, though the product accounts for a sliver of the company's revenue.

While carbon capture has its own constraints, including CO₂ pipeline and storage availability, Sridhar expects the technology to be ready sooner than "green" hydrogen will be readily available.

"In the future, in a decarbonized energy system, hydrogen will play a very important role," Sridhar said. "Do I see it significantly moving the needle in the next 20 years? No, I don't. And I'm an optimist."

The reason renewable-powered hydrogen production remains a far-off opportunity, according to Sridhar, is the same reason Bloom Energy's fuel cell business is on a hot streak.

"The country and the world has a shortage of electricity right now, and green hydrogen is storing electricity for a future day," Sridhar said. "You only store things when you have enough, and more."