Bloom Energy Corporation (BE) Earnings Call Transcript & Summary

All right. Good afternoon, everybody. Stephen Byrd, covering utilities and clean energy. I'm joined by Dave Arcaro, Executive Director on the team. And our next discussion here is on carbon capture and storage as well as we're going to touch on biofuels and some new technology developments at Bloom Energy. We're thrilled to have Greg Cameron, CFO, Bloom Energy with us. Greg, thanks so much.

Stephen, thank you for having me. It's been a great day so far.

Excellent. Well, let me just do some housekeeping items, and then we'll get right into the content. So if any of our investors do have questions, feel free to e-mail me or Dave with any questions you have or submit your questions via our online portal. I'll be checking that portal, regularly, in case, you all submitted any questions. Let me read a disclaimer, and then we'll move forward here. Please note that this webcast is for Morgan Stanley's clients and appropriate Morgan Stanley employees only. This webcast is not for members of the press. If you are a member of the press, please disconnect and reach out, separately. For important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/research disclosures. If you have any questions, please reach out to your Morgan Stanley's sales representative.

So with that, why don't we just go right in first to carbon capture. For those investors here with us, we are fairly excited about the potential of Bloom for carbon capture. This is an asset class that's been -- that struggled in the past, I guess, I'd say, in terms of coming up with solutions that are both physically and operationally achievable and also economically viable. But for a number of reasons we think Bloom Energy's product may be well suited for this. And I want to just see if, Greg, you kind of set the stage just historically with some of the challenges around carbon captures, sequestration and storage, historically and then maybe let's talk about sort of the advantages that your fuel cell design can offer in terms of of carbon capture storage?

Yes. So listen, traditionally, I don't think this has been one of those problems that's needed a technology solution that doesn't exist. I think that the technology solution that would be applied to our existing fuel cell is readily available, and there is a lot of different partners we can choose and a lot of different applications we can choose. So I don't think it's an issue where we just haven't been able to solve it from a technology standpoint. There's a couple of things, though, that have made the situation not commercially viable as of yet. One is, listen, the cost of our fuel cell traditionally has been quite high. And I think as we continue to drive down that cost curve, it's opened up a lot of different markets to us that traditionally we haven't been able to play at in scale. So I think now that we continue over the last 2 years, taking another nearly 30% of the cost out of our product and now approaching to say, on a like -- on a common basis within the U.S. a $0.09 LCOE, what we're selling at today. It then begins to open up a bunch of applications that haven't been there before and create some opportunities for us. I think that the carbon capture technology is going to work best for us is in places in which we have large industrial or even utility-scale applications. I don't foresee given the costs associated with a machine that you're going to see it at some 750-kilowatt application out behind your local big box store. It's just not going to economically make sense. But as you begin thinking about maybe something similar what we've built in Korea with Power Tower, right. And you start getting to 10 or 20 megawatts of an install, and especially where you've stack that, that becomes an area in which you can really act, take that option of putting carbon capture on top of it, in using, in and okay for itself. I think as we talk to customer as of late, I would say, I put them in that camp, which has been focused at large industrial utility-scale, where that makes sense. The other place that's becoming really interesting as of late is being around customers that use CO2 in some form of the process. And there's a pretty exciting example that we had at our Monday meeting, not that long ago, with the customer that had created some type of biomass byproduct as part of their manufacturing capacity and they use CO2 as an input into their processes. And you could actually look at this pretty clean example in which you could use the biomass as fuel into the fuel cell, and then use the carbon capture technology to capture the CO2 and brought that back into their industrial processes. And it was absolutely just a very virtuous cycle. So I don't think the technology is hard as people we could partner with. I think it's really around the size of the application and the economics of the application versus more of a technical aspect that's been for. You mentioned around just the fuel cell. There's one chart I love to use when we go see customers and investors. On one side, we put a Cogen smokestack on one side. And we just label out the amount of particulates, how much they weigh SOx, the NOx, all of the emissions coming up through that. And then we compare that to our Bloom fuel cell, which at the end of the day, produces a fairly pure CO2 stream that when pressurized rather than simply through a membrane, we can capture that CO2. And it's far easier to do than pick out where the CO2 is in the exhaust.

For investors, I think what you just said Mark, I think is incredibly important. Traditionally, often, we're trying to capture carbon at the end of combustion process that creates all kind of gases and other things that are not pure CO2, as you mentioned, particulate matters, SOx, NOx, a whole bunch of stuff. So isolating CO2 can be quite challenging process. With Bloom, it's a very pure process in which you're breaking a part of methane in the first place, so you're creating a pretty pure CO2 stream. To me, that strikes as an incredibly important in terms of the difference here.

Yes. It's interesting. When I first got the job, I get an inbound call probably, once a month from some banker or some private equity wanting to buy my carbon capture business. And it would -- it got to be where it would be pretty quick. I just call them back and say, listen, this is a -- think of this as an option on my existing product. This is not something I can sell to you that would go on smokestack in your power plant. Yes.

Yes. You can certainly see why folks who'd want to own that piece of technology, just given the breadth of the application and the...

Yes.

Market potential. So...

Yes.

I admire that approach, but I admire your response as well. That's a right response. Just when you think about Greg, kind of the time frame needed to scale up, you talked about kind of -- I totally get the idea of larger scale rather than little tiny carbon capture projects all over the place. But just as you think about what's needed, both, I guess, to first roll out the first round of this and then move from kind of initial deployment to larger scale. What kind of broad time frame are we talking about?

You know It seems like we've got a number of technologies that are in space that we've talked about before. And they are all going through a process. Listen, I'd love to be in a demonstration of size with this. It would probably be too much to hope for this year. But I think there's clearly an opportunity especially in some of the locations where we exist already. The discussion we're having is, hey, can we go to a site where we have a large installation today and retrofit that equipment. It's relatively inexpensive, and in the grand scheme of things in order to go do that demonstration. But I wouldn't expect to see that until probably more early on into next year. I think truly, right, the true commercialization of this product is going to be aligned with our growth goals around doing larger, more industrial scale installations. But having, as you know, in this market, regardless of the technology, our ability to demonstrate that, that technology works at scale at a customer site, and they were willing to pay for it, is a great way in which to encourage other people that it's for real when we get an order. I'm sure that is hard -- it's hard to do that. So I think it's something we could be in a demonstration mode 12 months from now, maybe sooner, with the right customer. But in all reality is probably that timing.

Yes. No, that makes sense. And Greg earlier, you touched on sort of different applications where this can make sense. I guess, sort of geographically, U.S. versus international locations, which parts of the world or do you see kind of the greatest longer-term opportunity here for CCS?

I would say the U.S. is probably the place where we're having the most interesting conversations around it. It is -- for most folks, other places, the gas story is either, one, where they see it as they're not -- it's just not a troubled buyer where they've got guides nice to go to a different direction. So they see it as more of a transition period. I think the U.S. is probably place where I'd see the applicability, that most upfront.

Understood. Well, let me hand over to Dave to touch on a couple of topics here. And then I'm going to circle back to biogas, I think.

It would be great. Thanks, Stephen.

Thanks, Greg. Thanks much for your time and your insights. I'm curious, you've mentioned kind of the opportunity that you're looking for to partner with companies potentially in this technology. Wondering what you're looking for in those partners? Is this just more of a capital provider? Or is it a strategic partner that would be able to use the products in its own business potentially? What are you looking for there?

Listen, ideally, I'd like to find somebody who would buy our core technology at scale, right? Somebody who really prove out that it's there. So it's probably more of an industrial type customer or a utility. And then, what I'd like to ideally find is, you can either -- there are several things you can do with the CO2, right? You can sequester it from the back end of the earth. You can sell it as part of an input into somebody else's cost to offset your own cost of electricity. Or you could use it. I think our ideal customer would be somebody that would take that offtake in that CO2. It's fairly pure. So it can be used in a lot of different applications. So we would not -- we welcome any of those customer scenarios, as an opportunity to prove out our technology. And I think as we introduce the technology, you'll see all of those use cases. But selfishly, I'd like to find somebody that didn't use it as a proof point in that process, because that would a full circle sale for us.

Got it. Yes. That makes sense. And as you think about the market conditions that could potentially accelerate the commerciality of this product, what would you look for? Or what would we look for that could spark incremental interest here is, like a price on carbon I would imagine the ore, just the value of carbon in certain of these industrial processes, for example, other things that you would maybe watch for as market milestones or catalysts to get the industry moving further?

Yes. No, I think those are right? It's always going to be incentives to do or disincentives to do or just commercial opportunities. Ideally, we always all like to rely on the commercial opportunities is to drive behavior. It would drive behavior over the long run. But any of those would be things that would move the market sooner. So I think for me, what is going to drive the opportunity sooner is, most of these larger scale opportunities are going to be very sensitive to cost. And what their cost of electricity is. I mean when you're doing something at this level of scale, $0.01 here, or $0.005 definitely matters to their overall commercial line. So I think the more competitive we can be on delivering this product to them, we'll drive far more adoption of it at scale.

Yes. That makes sense. And I guess, as you think long-term and just the -- I'm thinking in KR as based on longer-term of just the energy landscape. How does this carbon capture potential technology, it seems, it could be a pretty important technology, a game changer longer term, how does it fit in with your other, with hydrogen, with your fuel cells, et cetera?

Yes. I mean listen, we've always said, right, the benefit of the Bloom server is its fuel flexible, right? it can run on natural gas. It can run on hydrogen. It can produce hydrogen. It can run on biogas. It can run with carbon capture technology. I think, given the discussion we're having on carbon neutrality and as we think about our core product, for me, as a CFO, I look at it and say, that is an enabler to extend the life of this product, right? It just is going to allow us to play with less CO2 and drive a discussion that allows to continue to sell our natural gas server even longer. Listen, we still create the most efficient way in which to convert natural gas to electricity with lowest emissions but to the extent for us to enhance that with carbon capture technology, provides a greater level of utility to our core product, and that's always what you want, especially, if you're thinking about product line.

Got it. That makes sense. Should we think longer-term that aspirationally, this could shrink down in size to be applicable to your typical core C&I customer base in a way that you can offer the same kind of natural gas-based fuel cell with a Carbon Capture add-on on the end? Or is this probably in the large-scale space for the foreseeable future?

Yes. I think we dream and say, it could probably get there as we continue to take the cost out of it and make it clear. I think practically, it won't be there. I think it is something that is, in order for it to be advantageous at scale, it will probably be something that needs to be in a large application.

Got it. Yes. Just curious, in terms of -- like is this an active area where you have a short list of potential partners there?

Yes.

Or is it long list of partners just -- where do you think stand in terms of those conversations?

Yes. No. Listen, it's that we look at our technology road map, right. And there are 6 key things we're working on carbon capture. And sequestration is a key part of that road map. I think it is when CAD and the team are working through the technology with Martin there. They are very focused on providing solution. We've been engaged with a few different customers across the different types of customer spectrum, actively looking for demonstration units, in which we can engage with folks on. I do think it is an opportunity for us to differentiate ourselves versus others at a large scale. And I think it is unique to our value prop, right? As you think about our product, whether it's fuel cell or whether it's our solid oxide fuel cell or anything else in the market. Your ability to differentiate yourself versus other forms of electric generation, I think this product for us will be a game changer. In that it is more of an option on our existing technology. It doesn't require great deal of engineering or inventation or anything else, not that inventation I think is actually a word, but invention in order to make it come online. So I think it is more of a technology solution that is available. And the discussion is really around its commercial applicability in different use cases that are going to be there. So I think it is a discussion we've actively have. There's probably a [ stream ] that I thought of apparent for today, and they're across the spectrum. And some are more of our traditional power generation and where they could use sequestration technologies. Others are ones in which they would love to capture the CO2 and use it in a manufacturing process and others that look to actually capture it and sell it as a way to offset their costs. So I think each of these different use cases will evolve. With all these, you like to find demonstrations across that, right? This each customer is going to have a different view. And they're going to look for customers that exist like them or business models like them when they go to apply new technology.

Yes. And you're casting a wide net. I would imagine at this point, having conversations across the spectrum, looking for those?

Yes. Yes. Absolutely. Absolutely. So the team is very much engaged on it. We've -- you are seeing some crossovers in some of these discussions. We are active in our discussions around our hydrogen fuel cells, our hydrogen electrolyzers. There is a natural convergence point there around hydrogen with blue hydrogen, and where that you can use our existing fuel cell with carbon capture technology and effectively capture the hydrogen that's created through the process and just take -- and take that off, where we'd cycle it back through today to create electricity, you could cycle that off. A lot of the fuel cell to operate as is, the CO2 and create blue hydrogen for a different application. So the carbon capture technology comes in a lot of different places, just not on the power generation side.

That's fascinating. I mean your core technology has -- it seems like a bunch of adjacent kind of adaptable uses with different fuels, with different outputs. So Carbon Capture is one that sparked our interest.

Yes.

And looks like an exciting opportunity to the extent that scales. You have so many other projects that you're expanding here, too. And one of the other ones that we were interested in touching on was biogas and how the market is looking in terms of the prospects for that. Stephen, I'll hand it over to you, maybe to touch on that product opportunity.

Thanks.

Yes. Thanks, Dave. Yes, we are very excited about biogas for Bloom. And Greg, I wonder if you could just start by sort of setting the tone for the magnitude of the opportunity. I think many years ago, I and many others thought of biogas as very small, very niche, but the scope and the scale has gotten much, much bigger?

Yes. No, it's been interesting thing. It's an area we've learned a lot. And it's a lot of different sectors as you think about it where -- you've obviously got your agricultural sector, especially around dairy. And your ability to use digestors there to create a biogas. And that is big in California, especially with the LCFS credits that exist for EV charging. You also have in the market different landfills that exist today and the size, and this is a global issue today, where there -- where we are, in a lot of cases, encapsulated those and we are letting the methane escape through that process. And you've got the wastewater treatments facilities, where we're collecting and we're collecting the recovery issue -- the recovery, I'm trying to think of a nice way of saying it, but you recover out of the water, the biomass I guess is the best way to say.

The biomass, yes.

And you start adding up the size of these numbers and they very quickly move into the thousands of opportunities in the gigawatts, in electrical basis and you start converting that into billions. And what is interesting for us is, each of those markets has a little bit different component to it. I think as you think about the dairy market, and we've got a few relationships in California around that, where we're able to learn a lot. And the applications there are 1 around -- what's unique about the using of the fuel cell in this scenario is that, it does not require a lot of cleanup of the gas in order to use it in machine. Different than combustion, right? Where, whatever gets into the machine is going to get combusted and changed chemically. For us, it flows through. So the cleanup or the polishing of the gas is primarily around just keeping it from [ gunking ] up the works of machines in reducing the stack life. So there's not as newly as much preparation that needs to happen. You do need skate in front of it to clean it up, but it's not nearly the level of cleanup that you have. And what's interesting for us is, you begin to start to look at these models, right? The dairy model with the LCF, very clearly, where I see the value in that is, as they clean that gas up and you look to begin to move that gas and whether you put it in the pipeline or not, there's a lot of cost associated with adding pipe effectively out to where the dairies are. And some of the examples that we've had with the team that we've been working there is, great opportunities to convert the biogas at a conversion site around the dairies and then use the electricity in the grid and leverage the existing grids. The grid structure that exists rather than about omni gas. [indiscernible] And that may be a more efficient use of their capital. Probably with what's happened in Texas, last month, we've been working very hard on our wastewater treatment solution. And it was a bit a convergent there for us, as we went back and looked at it, right? Some of the issues you had in Texas is, some of the lines between the electric, between the gas and even the water all cost. So you had a single point of failure that brought a lot of those systems now. What's interesting for us is, you look at wastewater, and you've got a cycle there, where you've got the biomass that you could use to convert into electricity and power the facility on its own. You of course would add probably, back up natural gas to make sure you always had enough gas in which to keep it going. Which you could see almost a cycle where you had an event, similar to what we had in Texas, a month ago, where we lost water and we lost sewer there. And that's -- they would have been able to continue to power on because they could have gone through their -- use their own fuel source, locally, in order to go do that. And you start to do -- look at it -- it's very cost-effective way. I mean you save the -- $0.02 to $0.03 that we put in our models for gas. You do have to add back a little bit for cleanup. So you're not saving all that money. It's a very cost-effective way to do it. When you start thinking about, even counties in Texas, in the amount of size, in the wastewater treatment, you give into 90 megawatts of electricity in a county, right? And we shipped 130 megawatts last year out of our facility. So I think it's a big opportunity. While Bloom is the one where you've got landfill, and we've got an active project going on right now. We're not public on the customer. But this is a great example where you've got escaping methane out of a landfill. And by converting it into the fuel cell, you make it into electricity and CO2. You can add on to that a sequestration technology, but even without that, CO2 is far or less harmful than methane. And if anything, you've created a carbon-neutral electrical source and power out of that. So I think it's a tremendous area for us. And we're putting a lot of resources and teams around it. And I think it's directly -- it's one of those places, you always look for where your technology on its own has inherent advantages. And I think this is one of the places where fuel cells in general, but solid oxide fuel cells in particular have a unique advantage employing in this space.

Well, I really didn't think through the scale of what you could do in places like Texas. But in so many ways, that just seems like an ideal solution for that market. And you've already had some successes here. I mean your California Dairy Association agreement is a good example. Would you mind sort of talking about that, as maybe something that you could replicate, elsewhere?

Yes. So we're working with CalBio around a project there. We're working with a couple of other dairies as well. I think for us, it is a great example where we can take our technologies, help show them how to polish, how to perform a polish on that gas in order to create electricity on behalf to help power their individual dairies on that. I think it creates a pretty virtuous cycle for us on that. And it will be a road map of where we go. From a marketing standpoint, I've never thought I'd be in this job and get a report on the pounds of manure available by state. As the teams grown out and thought about that, and you start thinking about it. I'm from Upstate New York, right? Where a dairies are our fundamental way of life up there. And you start talking about is, those are great opportunities in which to -- we should go, based on the pounds of manure that's created there. So I think it creates a great opportunity and a framework for us to go think about it. What's great about -- what I love about this technology and what I love about Bloom is that there is so many different use cases for our core technology, right? And I think about whether it was the Carbon Capture, we were talking about before or biogas or as we talk about hydrogen or we talk about applications on ships. And I think about Bloom and its future and where we sit today versus a year ago, post the balance sheet restructure and everything else that we did last year. We're really in a spot where we're going to invest. And we're going to create capacity in order to meet these needs. We're -- I talked about it a little bit on the earnings call, but we're very close to being able to announce that we have secured the facility to create the next 200 megawatts of stack capacity. We're not constrained today. But given our growth aspects, our growth aspirations, we fully expect to be growth constrained, if we don't invest. So we're going to invest, and we'll bring in another 200 megawatts on here by the end of the year. And we'll have opportunity to do another 400 megawatts in that same facility. And we think it's a cost-based investment that's worth that opportunity. And what I love about Bloom is, right, I can talk about leveraging my core technology and perhaps adding a Carbon Capture to it, in order to extend it or in the different markets that I couldn't then before or use biogas in places like wastewater treatment facilities or use it for hydrogen use. All those investments that I'm doing, I'm not waiting on anything to happen, right? I have different ways in which I can go. I'm not waiting for hydrogen economy to happen. I'm not waiting for biogas to happen. I'm not waiting for the world to need resiliency. I think all those are tailwinds in which we can apply our technology, our applications and support our customers and their needs. And we can allocate our capacity however, it makes commercial sense. And I think that's a unique value prop that Bloom brings to the -- it brings to the investor table that we have that ability to move across those different use cases. In our manufacturing facility -- our stack manufacturing facility, when a stack goes down the line, it has no idea. We have no idea, whether it's not -- it's going to end up in a biogas application, end up on a ship someday or end up at a water treatment facility. We're indifferent to that. And the amount of customization that's required to do on that, will be relatively light. We've got plenty of capacity in our Delaware facility. We can do 2 gigawatts within there, and we can continue to add jobs and resources as we continue to grow in that space, and we're really encouraged our ability to do that.

That's great. I think it's that versatility in so many different applications that Bloom can address that attracts us so much. Well, that's been a great discussion, Greg. Thank you so much. I think that was a fantastic discussion. We're very excited about Carbon Capture and biogas. Look forward to seeing some more announcements from you all.

Great. Thank, Stephen. Thanks, David.

Thanks, Greg.

Thank you.