Can Bloom Energy Transform the Data Center Industry?

By the time Peter Gross joined Bloom Energy to run its data center business, he had been designing data centers for about three decades. EYP Mission Critical Facilities, the design and engineering firm he founded in 1996, had more than 70 million square feet of client data center space under its belt when Hewlett-Packard bought it 11 years after the founding.

Yet throughout his long and prosperous career in the data center industry, he’d noticed little technological progress in the way electrical and mechanical systems for these facilities were designed. When he took a close look at San Jose, California-based Bloom, founded in 2001, he finally saw potential for a meaningful leap forward.

“I felt that this is the single most interesting, most disruptive and transformational solution for the data center – which, by the way, didn’t evolve very much from the time I started in the mid-eighties,” Gross, Bloom’s VP of mission critical systems, told us in an interview for . He found Bloom to be “the right vehicle” to “transform this business, bring it closer to the kind of reliability, sustainability, resiliency that is required in the data center today.”

Bloom Energy Servers, stainless-steel cabinets filled with fuel cells that use a chemical process to convert natural gas or biogas to electricity (and according to Gross do it more efficiently than any other method of extracting energy from a natural resource known to man), today power about 100MW of data center capacity, mostly in the US. They also power a variety of corporate buildings, from FedEx’s shipping hub in Oakland to Morgan Stanley’s global headquarters in New York City, where the 750kW array sits on a rooftop setback eight floors above Times Square.

In a radical departure from traditional data center design, an eBay server farm in Utah is using a Bloom installation as its primary energy source and the utility grid as the backup; there are no UPS cabinets and no backup diesel generators. More than a quarter of the energy used by Apple’s data center in North Carolina is generated by biogas-fueled Bloom boxes. (Apple also has a 4MW biogas fuel cell installation at its new Apple Park headquarters in Cupertino, but we haven’t been able to confirm that it’s by Bloom.) In 2017, Equinix, the world’s largest data center provider, signed a 37MW agreement to buy Bloom-generated energy for 12 US data centers.

Low cost of natural gas, combined with the ability to bypass the costs of buying and operating UPS gear and generators, plus a variety of tax incentives, often make Bloom a lower-cost alternative to utility power for data center operators. There are many more factors that ultimately decide whether the solution makes sense for a customer (as we discuss on the podcast in detail). For some of them (Apple for example), the sustainability factor plays a big role. The fuel cells emit much less CO2 per kilowatt-hour generated than does an average power plant and being able to use biogas instead of fossil fuels also makes a big difference.

A Rough Ride on the Stock Market

Bloom is an innovator. Bringing to market a solution (manufactured in the US) that requires a fundamental rethinking of a building’s energy architecture and scaling the business to reach profitability isn’t a quick process. The company’s financials, which became public only recently as it went public, illustrate it.

While reporting skyrocketing revenue growth – up nearly 100 percent in 2018 – the company has been losing money. So far, however, it’s been able to decelerate the hemorrhage: it reported net losses of $242 million last year, down from $263 million the year before.

Bloom went public last July at an IPO share price of $15. After reaching a peak of $34 in September, it’s seen a steady decline, trading between $10 and $13 so far this year.

Most Wall Street analysts watching Bloom don’t expect it to become profitable before 2021 – although Raymond James recently put out an upbeat note about the company (which it helped take public), explaining a 24-percent share price drop since mid-January by insiders selling shares as their lockup periods ended.

The Road to Profit

Bloom executives claim they have made great progress in cost reduction, saying their materials now cost 75 percent less than for the first generation of Energy Server. Gross also pointed out that much of Bloom’s revenue is recurring. Many customers (and most data center customers) sign long-term power purchase agreements for Bloom’s energy rather than buying the equipment outright. Under such arrangements, Bloom acts like a utility, selling energy to the customer and servicing the equipment throughout its lifespan.

The cost improvements, he said, are a combination of technological innovation and the ability to leverage a supply chain. “It’s a chicken and egg thing. By increasing the volume, you reduce the cost of the supply chain. The basic principle, operational structure of the system, has not changed dramatically. There are an infinite number of incremental improvements that are leading to that [cost] improvement.”

Listen to our full interview with Peter Gross, VP of mission critical systems at Bloom Energy, on the latest episode of The Data Center Podcast on iTunes, , or Soundcloud: