http://www.consultrci.com

************************************************************************

A new SCIENTECH PowerHitter interview with E. Linn Draper, Chairman, 
President,
and CEO of American Electric Power, is now available.  Find out more at:
http://www.consultrci.com
************************************************************************

===============================================================
SCIENTECH IssueAlert, October 18, 2000
Fuel Cells Get Financial Boost from U.S. Government
By: Will McNamara, Director, Electric Industry Analysis
===============================================================

The Department of Energy will have more than $100 million for fuel cell
related programs in the new fiscal year, $10 million above the president's
request. The money is contained in the Interior Appropriation bill that
President Clinton signed last week. The House and Senate jointly agreed
upon $52.7 million for stationary fuel cells, $10 million more than requested,
and approved the full request of $41.5 million for transportation fuel
cell research and $5.5 million for buildings.

ANALYSIS: This government funding, which is surprisingly higher than expected,
should give a much-needed boost to the slow-moving development of fuel
cells. Although generally considered the favorite of low / zero emission
energy solutions, fuel cells are still about two to three years away from
being commercially viable in retail markets. (Phosphoric acid fuel cells,
developed by ONSI, a division of United Technologies, are presently available
in a limited capacity). The technology has been in existence ever since
batteries were discovered 160 years ago, but the high cost of producing
them has precluded suppliers from making fuel cells readily available to
the general public. Automotive giants like DaimlerChrysler and Ford Motor
Co. have continued to explore the use of fuel cells in automobiles, and
Texaco, Inc. agreed in May to invest $67.2 million in Energy Conversion
Devices, a 40-year-old fuel cell and alternative energy development firm.
Yet, this financial support for the DOE's exploration of fuel cells signals
significant support from the federal government. In addition, warnings
about the high cost of oil and natural gas, and the reports of low supplies
of energy in states across the country, continue to scare energy end-users
and may be spurring a renewed interest in distributed generation options.

Here's how fuel cells work. They use an electrochemical reaction, as opposed
to traditional combustion, to generate electricity. In other words, fuel
cells allow hydrogen-rich fuels to react chemically with air, without burning,
producing as a byproduct DC electricity, water and heat. In addition, fuel
cells dramatically lower the level of pollutants that are emitted into
the environment. Test models of fuel cells presently convert methanol,
gasoline and natural gas to produce hydrogen fuel. It's easiest to think
of a fuel cell as a battery, but one that does not run down or need recharging
(although it will need replacing about every five years). A fuel cell will
produce energy in the form of DC electricity and heat as long as fuel is
supplied. As an added advantage, fuel cells can be controlled remotely
by computer and run rather quietly. This is perhaps the primary incentive
for end-users that would be interested in fuel cell technology. Especially
for facilities like hospitals, the attributes of low noise and near-zero
pollution are very appealing.

Currently, fuel cells are being tested and developed by laboratories and
think tanks around the world, hoping to make this low-polluting form of
generation available for widespread use by 2002 or 2003. Under the DOE
grant, money provided for stationary fuel cells will fund research and
development to reduce costs and improve performance. It is hoped that this
will lead to market-ready fuel cell power systems within three years. In
addition, the funding allocates $41.5 million to transportation fuel cell
research such as integrating fuel cell stacks with fuel processors and
balance-of-plant technologies for testing. This program also will examine
the technology barriers to fuel-flexible systems for automobile applications.
The $5.5 million reserved for buildings will go toward developing a prototype
fuel processor, completing the design competition for a 50kW co-generator
for buildings, and other research and development.

Deregulation has cast light on alternative forms of power supply. As customers
possibly decide to use on-site generation as opposed to power delivered
across a transmission grid, this dramatically alters the traditional business
of most energy companies. Large commercial and industrial customers that
suddenly opt for fuel cell solutions to their energy needs would have dramatic
financial impact on their incumbent energy provider. As a result, many
electric utilities and energy providers are investing in fuel cells as
a hedge against a possible shrinkage within their own supply businesses.
Southern Company is a good example. Just this month, Southern joined Alabama
Municipal Electric Authority, Mercedes-Benz U.S. International, Inc., and
FuelCell Energy in a partnership to "drive a growing interest in fuel cell
technology." Specifically, Southern is providing funding for a fuel cell
plant to be located in the service territory of Alabama Power, a Southern
subsidiary. The plant will convert pipeline natural gas into electricity
at a reported efficiency of about 50 percent, compared with 33 percent
for conventional generation, which will feed the power distribution system
of Mercedes-Benz.

Another example is Enron, which just two weeks ago entered into an alliance
with FuelCell Energy, Inc., to develop and market FuelCell Energy's Direct
FuelCell products, focusing on state renewable and energy conservation
programs. As part of the partnership, Enron is investing about $5 million
in the common stock of FuelCell Energy. In its announcement of the 
partnership,
Enron stated that "the transaction enables us to reach the developing markets
for clean energy and renewable energy, which may be served through distributed
generation products, such as fuel cells."

These are just two examples of many energy companies that are devoting
money to fuel cells and other forms of distributed generation. Some state
regulatory commissions have debated whether or not to allow utilities to
own their own distributed generation equipment technologies. As a result,
we are seeing a trend of utilities investing in companies that are already
developing distributed generation solutions, instead of doing it themselves.

The investment appears to be a smart one. According to Stephens, Inc.,
an investment banking firm, common industry projections put the potential
for the automotive fuel cell market at $50 billion annually by 2020 and
as high as $100 billion (cumulative) for the stationary power markets within
10 years. The increase is due in large part to the growth of Internet-based
industry and the need for mission-critical systems at dot-com operations.
Microturbines*small generators that can produce enough power for a small
business*have beaten fuel cells to market and are currently manufactured
by the likes of Capstone, Caterpillar and Solar Turbines. Microturbines
reportedly could be potentially superior to fuel cells with regard to low
emissions. Many energy companies and power marketers such as Williams,
Alliant Energy and American Energy Savings have made announcements just
within the last month that they will market microturbines to customers.
Yet, the distributed generation market should become much tighter once
fuel cells become commercially available, something that this hefty new
grant from the U.S. government should push forward.

===============================================================
El Paso Global Networks plans to spend up to $2 billion in the next few
years on telecom acquisitions. Find out more about SCIENTECH'S 
Telecommunications
InfoGrid at:
http://www.consultrci.com
===============================================================

SCIENTECH is pleased to provide you with your free, daily IssueAlert. Let
us know if we can help you with in-depth analyses or any other SCIENTECH
information products. If you would like to refer a colleague to receive
our free, daily IssueAlerts, please reply to this email and include their
full name and email address or register directly at:

http://www.consultrci.com/web/infostore.nsf/Products/IssueAlert


Sincerely,

Will McNamara
Director, Electric Industry Analysis
wmcnamara@scientech.com
===============================================================
Feedback regarding SCIENTECH's IssueAlert should be sent to 
wmcnamara@scientech.com
===============================================================

SCIENTECH's IssueAlerts are compiled based on independent analysis by 
SCIENTECH
consultants.  The opinions expressed in SCIENTECH's IssueAlerts are not
intended to predict financial performance of companies discussed or to
be the basis for investment decisions of any kind.  SCIENTECH's sole purpose
in publishing its IssueAlerts is to offer an independent perspective regarding
the key events occurring in the energy industry, based on its long-standing
reputation as an expert on energy and telecommunications issues.

Copyright 2000.  SCIENTECH, Inc.

If you do not wish to receive any further IssueAlerts from SCIENTECH, please
reply to this message and in the body of the email type "remove."