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Power Source

How a fresh crop of CFOs is propelling the alternative-fuels industry.

It remains to be seen if GreenFuel can turn algae into dough, especially since research-and-development costs eat up the company’s $2 million revenue stream. Even with the completion of an $18 million B-round of funding in April, Bullock keeps close tabs on available capital from gross margins. He also monitors expenses. “I don’t want to take my engineers’ last nickel,” he notes, “but for a company this size, cash is oxygen.”

Utility Players

It’s a refrain regularly repeated by clean-fuel CFOs. Finance chiefs at solar- and wind-power companies, for example, know they must take costs out of production, since there’s very little chance they can lower the cost of their source of power. Solargenix’s Points, for example, says a $500,000 reduction in the operation and maintenance expenses of a solar generator would significantly reduce the rates the company charges. “We’ve got to get costs down,” he concedes. “Right now, we’re a high-priced commodity.”

Reining in costs will require, among other things, financial discipline, a trait that’s often lacking in the fledgling sector. “There’s little tax and structuring skill within the renewable industry right now,” claims New Energy Capital’s Goldman. Case in point: FuelCell Energy, founded in 1969, operated without a corporate finance chief for almost 30 years. In 1998, the manufacturer of stationary, hydrogen-powered fuel cell generators hired Joseph Mahler, an Ernst & Young partner, to head up finance.

Mahler’s quest to reduce zeros has led to a new-product portfolio. Now, the Danbury, Connecticut-based FuelCell focuses on 250-watt and 1-megawatt modular generators instead of small, all-in-one units. The larger machines enable big manufacturers to reduce both reliance on the grid and carbon output. And the modular design lowers manufacturing, transportation, and maintenance costs for FuelCell. “I’m not necessarily an environmentalist,” insists Mahler. “My job is to manage this company into a position where it can reach its potential.”

Reaching that potential remains an elusive goal. In 2005, the publicly traded FuelCell recorded $30 million in sales, a 38 percent increase over the previous year, but still managed to lose $74 million. To reduce the red ink, Mahler will have to find additional savings, no easy task considering product costs were cut in half in the past two years. But the longtime accountant sees gains coming from supply-chain management and efficiencies of scale. In fact, he forecasts that FuelCell’s next product, a 2-megawatt unit, will be competitive with local utilities — even without the current government subsidies.

At the moment, no alternative source of electricity can compete on price with conventionally generated power (see “Price Parity?” at the end of this article) — at least not yet. Currently, wind power is the closest. After factoring in a 1.9 cent-per-kilowatt-hour federal production tax credit (which will likely be renewed in 2007), wind-generated electricity costs between 6 and 8 cents per kilowatt hour — compared with 3 to 6 cents for coal-fired electricity. Says Erin Kelley, a former Georgia state energy manager who now heads up sustainability efforts at carpet and commercial fabric maker Interface Corp.: “The cost of wind power has fallen drastically.”


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