FuelCell Energy (NASDAQ:FCEL) just announced an updated and extended joint development agreement with Exxon Mobil’s (NYSE:XOM) technology and engineering unit. The expanded deal centers on carbon fuel-cell technology which captures carbon dioxide emissions from industrial sources while “simultaneously generating electricity and hydrogen.” FCEL stock is popping up by roughly 3% as of this writing.
According to a press release, FuelCell will continue to develop the underlying carbon-capture technology alongside Exxon with an ultimate aim to accelerate the platform for commercial deployment. To achieve this target, the agreement has been extended through the end of 2026.
Much of the deal focuses on the carbon-capture technology’s “pilot project” at the Esso Nederland BV Rotterdam Manufacturing Complex. Notably, the European Union (EU) co-funds the initiative “under the Emissions Trading System Innovation Fund.”
Significantly, the agreement allows FuelCell to demonstrate the viability of next-generation “cell and module design.” Moreover, the technology features an optimized design for large-scale installations that “could improve the economics of carbon capture and could potentially lower the barrier to broader adoption of carbon capture in the marketplace.”
FCEL Stock Enjoys a Large Addressable Market While Facing Big Risks
Understandably, FuelCell CEO and President Jason Few was excited at the positive implications for FCEL stock. The executive said the following about the news:
Through this updated agreement, we can move more quickly to provide access to this superior technology in our existing platform targeting small to mid-scale opportunities while we demonstrate large scale carbon capture at Esso’s refinery in Rotterdam […] Reaching this stage is a significant milestone for FuelCell Energy, as the technology so far has met or exceeded key technical performance criteria, and that’s a victory for the talented scientists and engineers from both of our companies.
To be sure, FCEL stock stands to benefit from a large addressable market. According to Spherical Insights, the global carbon capture, utilization and storage (CCUS) market reached a valuation of $2.98 billion last year. By 2033, the segment could be worth $25.3 billion, reflecting a compound annual growth rate (CAGR) of 23.8%.
This is a seemingly tremendous backdrop for FCEL stock. However, FuelCell also faces obstacles in the form of broader skepticism. For example, World Resources Institute notes that contemporary carbon-capture systems “do not capture 100% of emissions” while energy is also required to power these systems. One major criticism of the technology is that it puts a “band-aid” over the core issue, which is the continued use of fossil fuels.
Why It Matters
Of course, the bullish thesis surrounding FCEL stock is that the underlying company can crack the carbon-capture code. Still, analysts seem pensive about FuelCell, rating shares as a consensus hold. With that said, the average price target of $1.48 per shares represents about 27% upside potential.
On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
