Bloom Energy Looks like a Winner in New Green Energy

Bloom Energy Looks like a Winner in New Green Energy

Price $24.31                          Recent Purchase                        May 28, 2021

  • Biden’s Infrastructure and Green Energy plans are set to ignite the green energy market.
  • Bloom expects its addressable market to explode to over $200 Billion by 2025.
  • Bloom projects 25-30% revenue growth over the next 5 years.
  • Bloom leads the stationary Solid Oxide Fuel Cell (SOFC) industry.
  • We expect Bloom Energy Stock (BE) to appreciate in line with revenue growth as more scale drives increased profitability.

Investment Thesis

Green Energy spending is expected to ignite as the world focuses its efforts on limit carbon output in order to reduce man’s contribution to global warming and climate change. Bloom is the established global leader in stationary SOFC technology and poised to capitalize on the expected explosion in green energy infrastructure projects over the coming decades.

What exactly is a SOFC?

There are numerous types of fuel-cell generators, but Bloom manufactures and installs solid oxide fuel cells (SOFC)to provide stationary energy generation on-site using their “servers”. Google installed a Bloom SOFC in 2008 as Bloom’s first customer. These cells take natural gas or biogas and turn it into hydrogen which the cells use as fuel. The advantage of SOFC is its high operating temperature – which allows it to operate on any hydrocarbon fuels, without the need for external hydrogen pumps – and its versatility, being able to be operated from a small kilowatt (kW) to megawatt (MW) scales. However, the middle step has a maximum energy conversion efficiency of 65% on the newest model of Bloom’s Energy Server. This improves upon the older versions in energy efficiency and makes Bloom a technology leader but positioned to lead technology improvements. As scale and research and development drive efficiencies, we expect Bloom’s technology to drive both lower costs and greener energy. They report a 28% learning rate and expect the market to increase significantly over the following few years.

What is Bloom Energy?

Bloom is by far the largest hydrogen-based firm in the alternative energy sector, with most of its competitors focusing heavily on the vehicles and portables market. It has already built 500MW of capacity around the globe. Bloom leads the sector with its value-based approach, consistently delivering its SOFC cells that have 500MW of capacity globally and have produced more than 16 billion kW/h of energy in the last 10 years alone.

Bloom is experimenting with maritime uses of its servers, as fuel use on maritime traffic amounts to nearly 3% of global Green House Gas emissions. Additionally, Bloom has pioneering battery electrolyzers, thanks to its partnership with Korean firm SK E&C. These electrolyzers operate similar to the SOFC, except they lay further up in the “map”.

Electrolyzers take water and excess grid generation to produce hydrogen which can be used in vehicles using technology similar to PlugPower’s mobile units, and their own SOFC units, without the emissions of current natural gas usage.

Bloom generates additional over-life-of-the-unit revenue by the usage of remote monitoring services, and maintenance. This is estimated to be approximately 35% of the future consumer revenues and ensures long-term income from existing customers, and valuable data for Bloom. The newest Bloom 5.0 units assume a 20% service gross margin, compared to the 1-20% loss incurred on the older Bloom units, with a remarkable 71% drop in the maintenance costs per kW/h. While only 33% of Bloom’s revenues come from consumers, they have achieved a 40% drop in cost per kW/h, while also expanding their power-repurchase agreement network, ever-decreasing the consumer cost of SOFC units.

The global generation from fuel cells has risen from under 100MW to over 1600MW, with significant growth over the last 5 years. The South Korean government has also expressed interest in installing 15,000 MW of hydrogen fuel cells and 1,200 filling stations for hydrogen vehicles by 2040: giving Bloom a clear path forward for both its SOFC and electrolyzer technologies around the globe.

Bloom additionally has studded management, boasting an experienced team of executives, including those previously working at NASA, Hewlett-Packard, and GE.

Is SOFC “Green Energy”?

There is no shortage of naysayers, in particular, because SOFC can operate on any hydrocarbon fuel. The new Bloom 5 system, has a much longer service life compared to the older models, with an advertised efficiency of 679-833lbs CO2/MW/h when using natural gas, and carbon neutrality when running on biogas, (midlife data is not available). This beats out FuelCell’s Suresource, which emits 725-980lbs CO2/MW/h, making Bloom smaller in physical and carbon footprint. Bloom is already using this to allow organizations to hit their energy and emissions reduction targets, including Adobe, Washington Gas, Google, Walmart, NASA, Lockheed, and numerous others.

SOFC is not – at the present moment – an entirely carbon-neutral means of generation, but rather an important step in reducing emissions before further developments in electrolyzers and carbon capture and storage technology. The microgrid layout that Bloom has pioneered, can help individuals and firms take action against climate change. As previously mentioned, there is also significant investment in electrolyzers – to completely eliminate the usage of hydrocarbon fuels to acquire hydrogen energy.

Risks

As with any pioneering technology, there is no guarantee SOFC technology – or Bloom’s version of it – will keep pace with other sources of energy in terms of price or efficiency. While Bloom certainly has impressive carbon reduction numbers, there is no telling whether or not they will remain sufficient for firms, consumers, or governments. Additionally, power purchasing agreement expansion may fail to materialize, and subsidization may not last forever. As Bloom currently makes a significant portion of its revenue from a key few large customers, losing any of those customers could put Bloom at risk.

Metrics

FuelCell directly competes with Bloom’s stationary SOFC applications. PLUG is focused on the fuel cell vehicle market and is not a direct competitor today but will likely compete with Bloom over a 10-year investment horizon. Currently, however, FuelCell is not nearly as carbon-efficient, nor as space-efficient, with its smallest model taking up approximately 55 sqft (for reference, Bloom’s largest unit takes up approximately 25 sqft). Bloom has been making steady headway and achieved fundamentally sustainable growth while also beating out its direct competitors like FuelCell. Another industrial firm such as Bosch or Toshiba will likely enter the stationary SOFC market in the near future, with Bosch estimating FY2024 entry in Europe, and Toshiba having a handful of installations in Japan.

Bloom currently offers the lowest valuation based on Market Capitalization, and a Price-to-Sales approach.

 

BLOOM ENERGY (BE)

E2021

E2022

E2023

Price-to-Sales

4.3

3.5

2.7

Price-to-Earnings

Neg

104.6

32.5

EV/EBITDA

64.2

38.1

24.6

 

Bloom has an already versatile customer base that is expanding, and it is expected to reach profitability by FY2022 based on our projections, with promising forward ratios, and current steady growth of around 23% year-over-year.

BLOOM ENERGY (BE)

E2021

E2022

E2023

Price-to-Sales

4.3

3.5

2.7

Price-to-Earnings

Neg

104.6

32.5

EV/EBITDA

64.2

38.1

24.6