After several years and millions of dollars worth of research, Avista Labs, the young technology-development affiliate of Spokane-based Avista Corp., believes it has come up with the most promising fuel-cell generator design to date for small-business and residential applications.


Now its going to find out how well that assessment matches up with the reality of the commercial marketplace.


The company has developed two initial hydrogen-fueled fuel-cell generators, one rated at about a half-kilowatt and the other at 3 to 3.5 kilowatts, and is just beginning to market them for standby office, commercial, and industrial use. It also has developed a hydrogen sensor safety device that it will use in its own fuel-cell systems and will be marketed separately for use in other manufacturers systems.


Frank Ignazzitto, Avista Labs vice president for sales and marketing, says the Spokane company already is talking with prospective customers for its fuel-cell generators and expects to make its first deliveries this summer.


Its a very exciting time, he says, confessing hes relieved at finally having a tangible product to sell.


The smaller generator, priced at $5,000, is about the size of a large microwave oven and is intended for targeted uses, such as to power a couple of computer servers, a small group of PC workstations, or perhaps some cash registers, if an electrical outage occurs, Ignazzitto says.


The larger generator, priced at $30,000, essentially groups together six of the smaller generators in a single cabinet about the size of a large refrigerator. It produces enough electricity to meet the backup-power needs of a small business.


The hydrogen sensor, priced at $600, is a small computer circuit board thats designed to integrate with a fuel-cell systems control equipment and shut down the system if it detects abnormal levels of hydrogen.


Avista Labs has modest expectations of selling perhaps a couple hundred fuel-cell systems through the remainder of this year, Ignazzitto says.


He adds, though, that, We see it dramatically ramping up from there.


In addition to its three initial products, he says, the company is working to develop a fully integrated system, by combining a fuel-cell generator with a separate processor that would extract the needed hydrogen from more readily available hydrocarbon fuels, such as natural gas and propane, for eventual residential use. It hopes to introduce fuel-cell systems designed for residential, primary-power applications by 2003.


Ignazzitto says the company plans to focus its efforts mostly on generators that produce a half-kilowatt to 35 kilowatts of electricity, and he adds, We dont really see ourselves going above 100 kilowatts.


Avista Labs isnt looking to derive revenue solely from the sales of fuel-cell systems and related components. It and a Chicago-based partner recently formed a company called H2fuel LLC to develop and commercialize a new technology for producing the hydrogen needed to fuel such systems.


Through its various commercialization efforts, the company hopes to carve out a lucrative portion of what is expected to be at least a $10 billion industry by 2010. Growing environmental concerns have made fuel cells a focal point of energy research, and the energy crisis in the Western U.S. has helped intensify that effort.


Simple in concept, but


Fuel cells are relatively simple in concept. Theyre like batteries in that they have no moving parts, but rather convert a fuel to usable energy through electrochemical processes. In fuel cells, the ingredients used to create the electrochemical reaction are hydrogen and oxygen. The main difference is that a battery has a finite supply of reactants, while fuel cellsideally speakingcan run indefinitely as long as reactants are replenished.


However, while the knowledge for creating fuel cells dates back to the 1830s, the challenge of developing reliable fuel-cell systems that can be mass-produced at relatively low cost and that can compete against conventional energy sources has been more daunting. Recently, though, economic factors have been swinging more in fuel cells favor, due to rising energy costs and technological advances.


The market potential of fuel-cell generators is obvioustheyre clean, quiet power providers that can be installed right next to the businesses or homes they serve. They can operate independently of a power-grid network and thus are immune to outages caused by bad weather or other unforeseen occurrences, their supporters say. Theoretically, they can provide electricity to the most remote locations on the planet, including to isolated villages in underdeveloped countries that lack extensive power-grid systems.


Thats a big motivating factor for us, says Peter Christensen, Avista Labs vice president of technology and intellectual property. Everyone here is very passionate about what theyre doing. They really believe theyre going to change things (globally).


First, though, as it moves out of infancy toward full-scale commercialization, the company must take some baby steps, evaluating market reaction to its initial products and refining its offerings accordingly, company executives say.


Avista Labs has developed and patented a modular, cartridge-based fuel-cell power system that it believes will appeal to consumers because it allows them to remove and replace individual fuel-cell cartridges when they failwhile the power system continues to operate. We are the only one doing hot-swappable fuel cells, Christensen claims.


The companys system uses proton exchange membrane (PEM) technology, which refers to one of several types of fuel cells. PEM fuel cells create electricity by using a moist polymer membrane, which looks and feels like a piece of black plastic that might have come from a garbage can liner.


The membrane, though, is coated with a platinum-based catalyst that separates hydrogens single electron and proton. The proton then migrates to the opposite side of the membrane from the electron, thereby producing an electrical current. That proton migration, or exchange, is the real magic of the process, Christensen says.


PEM technology typically uses stacks, which are multiple conductive bipolar plates squeezed together tightly with PEM fuel cells in between them, to provide power.


The problem with that design is that the fuel-cell stacks must be disassembled if a membrane fails, meaning the entire power system must be shut down, and they require separate systems, such as pumps and compressors, to provide the needed air, water, and cooling to the fuel cells, Christensen says.


Modular PEM technology


In Avista Labs modular PEM fuel-cell system, the membrane is nestled inside the hard-shelled, book-sized cartridges, between pieces of metal that extract the electrical current.


Hydrogen is injected through a small port in the back of the cartridge, and the oxygen needed for the energy-making process comes solely from the air circulating through the fan-cooled generator housing. The resulting electricity passes to the outside through two exposed prongs that connect to receptors inside the housing.


A patented self-humidifying process devised by Bill Fuglevand, Avista Labs vice president of research and development, and his team keeps the membranes moist, as they must be to function properly, by trapping water thats created through the electrochemical process, negating the need for an external water supply.


Avista Labs two initial fuel-cell generators hold 12 and 72 of the fuel-cell cartridges, respectively, as reflected in their model names, SR-12 and SR-72. During a recent demonstration of one of the SR-12 models set up in the companys conference room, Ignazzitto and Christensen showed how the half-kilowatt generator continued to operate a desk lamp and stereo bookshelf radio with nary a flicker after one of its cartridges was removed.


A separate SR-12 unit flush-mounted in a wall in Avista Labs lobby powers a large backlit sign located next to it there during the daytime and an outdoor sign at night.


The generators hot-swappable cartridge design is crucial for ease of use, reliability, and consumer acceptance, since the fuel-cell membranes, like light bulbs, will fail eventually, Christensen says. Its unclear at this stage how often that might occur on average. The best data we have indicates a life of about 5,000 hours, he says. Thats adequate for backup-power applications, but not great for primary-power uses, he says, adding, Theres a lot of research going on trying to increase the life of the membranes.


Avista Labs plans to warranty its fuel-cell generators for one year, replacing for free any fuel-cell cartridges that fail during that time. It also will sell replacement cartridges for $150 and will recycle spent cartridges.


A key market-related question that will be answered in coming months is whether businesses will be willing to pay a premium for fuel-cell generators, considering the relatively high purchase and operating costs.


Gasoline-powered backup generators that provide power comparable to the output from Avista Labs fuel-cell generators can be bought for a fraction of the cost.


As for operating costs, Ignazzitto says a four-foot-long, 261-cubic-foot tank of hydrogen, which can be bought from Spokane-area suppliers for around $15, is enoughwhen hooked up to one of Avista Labs fuel-cell generatorsto produce around 10 kilowatt-hours of power, for a fuel cost of around $1.50 per kilowatt-hour.


Thats considerably more expensive, in some cases, than other types of backup generators or battery backups, but backup-power systems typically arent used for more than about 10 to 12 hours a year, he says.


Besides, Ignazzitto says the prospective customers he has talked to so far seem more concerned about issues such as reliability, ease of maintenance, noise, and emissions, than about how much the backup system costs.


One of the things thats a hurdle for us is we dont have the scale of some of these other (backup-power) industries today, he says, but he adds that he expects fuel-cell system prices to come down as that industry matures.


The residential market for fuel-cell systems, while obviously huge, could be even tougher to break into than the business market.


Kim Zentz, Avista Labs president and COO, says homeowners arent clamoring to be power-plant operators, and that the only way home fuel-cell systems will become widely accepted is if they are simple, reliable, and as cheap or cheaper than homeowners current energy sources.


Nevertheless, the company is confident it can come up with a system that will be a viable alternative to traditional energy sources, she says.


We know were going to compete very favorably with those choices, but were not going to replace the grid, Zentz says. Its more oriented to provide energy solutions for new construction or for higher-quality power on-site.


Optimistic outlook


Despite the sizable market challenges, and the strategic regrouping that followed an earlier decision to withdraw a planned public offering due to turbulent stock market conditions, Avista Labs CEO J. Michael Davis says, I think were in a great position.


The companys initial product offerings are limited, but appropriately so at this stage, and the company has the talent, staffing, and parent-company financial backing to accelerate its commercialization plan as market conditions warrant, he asserts.


Avista Labs executives are less worried about potential competitors getting into the marketplace first with fuel-cell products than about building broad public acceptance of fuel-cell power generation.


Im more concerned about somebody screwing up than somebody being successful. Were not threatened by anyone elses success, Davis says.


Ignazzitto, voicing similar sentiments, says, Right now we need the whole industry to succeed.


Avista Labs occupies the 23,000-square-foot, former Itron Inc. office-and-manufacturing building at 15913 E. Euclid in the Spokane Business & Industrial Park.


It consolidated its operations there late last year after having operated for a time out of scattered offices, including in the Spokane Intercollegiate Research & Technology Institute building near downtown.


The company now employs nearly 70 people, up about 25 from a year ago, and it likely will continue to expand its work force gradually in coming months, Ignazzitto says.


Avista Labs does research-and-development work at its building in the business park, but will be relying on contract manufacturer Logan Industries Inc., of Spokane, and other component makers, many of them local, to produce its fuel-cell systems.


In its latest consolidated quarterly results, parent company Avista Corp. reported that Avista Labs had a first-quarter net loss of about $2.1 million, compared with a net loss of about $1.5 million in the year-earlier period.