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Fuel Tech Takes Coal-Burning Efficiency to China

This story was published via The Medill News Service on January 22, 2008. It was written for a class while Molly was attending Northwestern’s Medill School of Journalism.

Batavia-based Fuel Tech Inc. announced Tuesday a plan to demonstrate and test, in China, a chemical intended to boost efficiency and reduce toxic emissions in coal-fired plants.

The company stated that its technology, called Fuel Chem, uses computerized models to spray a chemical mix into the furnace or boiler of a coal plant as the coal burns. The chemical’s main purpose is to reduce slag formations.

Slag is the key to running an efficient coal plant, analysts say. As coal burns, it produces ash, which settles in the boiler and hardens, reducing the effectiveness of the operation. The company claims the Fuel Chem cocktail also enables plants to burn a broader spectrum of coal, along with reducing toxic emissions.

“This isn’t so much about the pollution control,” John Kearney, a stock analyst at Morningstar Inc., said. “There are some pollution benefits to installing this, but Fuel Chem is more about the efficiency of the plant.”

There are approximately 3,000 to 4,000 coal plants in China, compared with about 1,500 in the U.S. Development and renovation are continuing at such a rapid rate that some experts estimate China is opening two new plants a week.

Richard Hoss, an equity analyst at Roth Capital Partners LLC, said, “This is the initial penetration. It’s symbolic.”

“This is a big deal,” Kearney agreed, “because China generates an estimated 70 percent of their energy from coal. It’s a big opportunity for Fuel Tech to just expand their market and market size.”

But Jesse Herrick, a research analyst at Merriman Curhan Ford & Co., is a dissenting voice. “I am somewhat concerned about patent protection,” he said.
“China is well-known for being able to reverse engineer things and duplicate products. There’s definitely a concern on that front when entering the Chinese market with a new technology.”

Analysts feel Fuel Tech may have a competitive edge because of its partnership with ITOCHU Hong Kong Ltd. – a subsidiary of ITOCHU Corp., a Fortune Global 500 company – which sells products and services to combustion unit customers in China.

“There are some other players out there,” Kearney said, “but Fuel Tech has the most clients at this point. They’re seen as kind of a market leader in this area for the time being.”

Herrick expressed concern about two competitors – GE BETZ, a unit of General Electric Co., and Environmental Energy Services Inc. He said: “From the channel checks that I have done, it appears that you can get this product for about half the price and just as effective. And in addition, less intrusive when dealing with a coal-fired boiler. Those were some of the primary drivers for my downgrade” from buy to sell.

Fuel Tech’s revenues dropped 24 percent to $15.2 million in the quarter ended Sept. 30 from $20.2 million in the prior-year period. The stock is down 35 percent from last year at this time, to $16.36 from $25.51.

This comes after a big year for the company. Fuel Tech was featured on the cover of Fortune Magazine’s July/August issue after its revenue jumped from $53 million in 2005 to $75 million in 2006, a boost of 42 percent. The company’s net income also increased, by 11 percent, to $7.5 million from $6.8 million.

Fuel Tech stock remained steady Tuesday, despite the down market, and closed at $16.36, down 10 cents.

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