Growing telecommunications markets worldwide have helped Spokane Valley-based fuel-cell maker ReliOn Inc. expand its sales reach, but some of its largest U.S. customers in that industry are holding back on capital purchases due to the recession and other uncertainties, says Gary Flood, ReliOn's president and CEO.

The company here makes critical backup power systems that use hydrogen fuel-cell technology, and the telecom industry provides 80 percent of its revenue. Its systems, though, also are used by the utility, transportation, and government sectors.

ReliOn's modular fuel-cell design sends hydrogen through notebook-sized cartridges in which an electrochemical reaction generates direct-current electricity and a byproduct of water vapor that forms when hydrogen gas piped into the fuel cells combines with ambient oxygen.

Flood says ReliOn's revenue has grown every year since Spokane-based Avista Corp. spun it off in 2003, although he adds, "We wish it would grow faster."

ReliOn's growth has slowed since last year due to a multi-industry slump in capital purchases in the U.S., he says.

"We saw a decline in capital spending begin in early 2008, and it was persistent through the year," Flood says. "We haven't seen it substantially pick up."

ReliOn originally estimated it would become profitable by this year, he says. Now, that goal isn't expected to be reached for a couple of years.

One area that hasn't grown is ReliOn's work force, which has been reduced to 45 employees, down from 80 a year ago. Most remaining employees have technical backgrounds, Flood says. "A lot of engineers are working on the core technology. We are technology innovators."

ReliOn develops the technology and manufactures its fuel-cell cartridges at its 29,300-square-foot plant at 15913 E. Euclid. Key Tronic Corp., also of Spokane Valley, manufactures most of the electronic circuit boards used in ReliOn systems.

ReliOn's individual units generate 200 watts to 12 kilowatts of backup power, and the total capacity of the units it has produced so far is approaching 2,000 kilowatts, Flood says.

He says improvements in the technology have doubled the electrical output per fuel cell, effectively cutting the cost of the electricity the cells produce in half since the company started making hydrogen fuel cells.

ReliOn's domestic sales force is distributed around the country, some based in sales territories and others close to certain customers.

Worldwide, ReliOn has 600 customers in 18 countries, Flood says.

While most of its domestic sales are direct, ReliOn works with distributors throughout the world. Its international sales are following the growth of global telecom markets, specifically in Central and Latin and South America and most of Asia, Flood says.

"Many parts of the world are skipping a step," he says. "They are going directly to wireless communication systems without building expensive hard-wired infrastructure, but they still need electricity."

Some of ReliOn's customers don't want to be named, but the list includes the top four or five telecom providers in the U.S., including Verizon and Sprint.

ReliOn employs a low-temperature fuel-cell technology, called proton exchange membrane (PEM). The process generates heat in the 120- to 140-degree range, which is lower than the temperature of a freshly poured cup of coffee, he says. Other fuel-cell technologies can generate operating temperatures of up to 800 degrees.

"PEM is the choice of the future for cars," he asserts. The technology, however, still needs to be improved to make it economically feasible to power automobiles, he says.

"It needs a lower dollar cost per watt" for automotive applications, Flood says. "It needs to be cents per watt. We're a couple of orders of magnitude away from that. We might not see a car for another 10 years."

ReliOn targets markets that are motivated by regulatory policies or lack of infrastructure to be early adopters of hydrogen fuel-cell technology, Flood says.

The company's products are well-established in California, where its technology is exempt from air-quality permitting.

ReliOn also has had strong sales in the Gulf Coast region of the U.S. In such areas, where powerful storms often damage the power grid, ReliOn's products have served as the primary source of power for certain applications for weeks at a time.

Where such systems are used most heavily, the fuel cells might need to be replaced annually or semi-annually. As for the other parts of the systems, Flood says, "We expect the life of the equipment to be much longer than 10 years."

Flood claims ReliOn's systems are cleaner, quieter, and more reliable than mechanical backup generators, but potentially big customers seem to be testing the systems in small lots, and most haven't decided whether to adopt them as standard equipment for certain applications.

"Getting big corporations to look at alternative technology always is kind of slow," Flood says. "The object is to be a standard component so we're not selling units by the twos and threes, but by the 40s, 50s, and hundreds."

He says he can't predict when customers will resume making large capital expenditures, because the telecommunications industry, which provides 80 percent of ReliOn's total revenue, is going through consolidation and other changes.

"A lot of our larger customers are going through reorganization," he says.

Recently, ReliOn introduced a 200-watt system for a target market with smaller-scale applications such as railway monitoring, perimeter security, and a variety of government applications, Flood says.

"We saw an opportunity in that market that was underserved," he says.

ReliOn has been an independent, investor-backed company since June 2003. Avista, its former parent, still is an investor, and Scott Morris, Avista's chairman, president, and CEO, is on ReliOn's board of directors. Avista is a friendly customer that provides a consulting relationship on fuel-cell applications in the utility industry, Flood says.

Most investors in the company are based in the U.S., although one is Canadian and one is Dutch, he says.

ReliOn's competitors include IdaTech LLC, of Bend, Ore.; Hydrogenics Corp., of Mississauga, Canada; and P21 GmbH, of Munich, Germany.