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December 14, 2001
Capstone Generates Interest in Microturbines
    by William Baue

Capstone Turbine Corporation offers environment-friendly alternatives to electricity generation for multiple applications.

On December 10, Capstone Turbine Corporation (ticker: CPST) announced a milestone for its microturbine electrical generators: four units had been in operation around the clock for more than two straight years. The firm’s stock price, however, has not performed so steadily. After a June 2000 initial public offering at $16, the share price rose to just under $100 by the end of August 2000, then fell throughout the past year to its $3.87 close yesterday.

Capstone manufactures 30- and 60-kilowatt microturbines, which are stand-alone electrical generators known for their low emissions. Microturbine applications include converting oilfield, landfill and sewage waste gases into electricity, backup power, premium power, and onboard power generation in hybrid electrical vehicles (HEVs).

The volatility of Capstone’s stock has had as much, or more, to do with investor fickleness as it has with the company’s financial prospects.

“The whole energy/technology sector has come in and out of favor,” said Eric Prouty, a research analyst at the Boston-based investment banking firm Adams, Harkness & Hill, Inc., in explanation of Capstone’s market performance. “Don’t forget this all occurred during one of the worst bear markets of all times. Also, the company did miss some of its numbers, some of the estimates.”

The market’s adoption curve of the microturbine will determine Capstone’s long-term viability, according to Mr. Prouty. “The real question is, will the microturbine get to the cost points, the reliability points, etc…, where it can compete against diesel or gas engines,” said Mr. Prouty. “People need to understand what the long-term o/m—operations and maintenance—costs are on these products.”

Capstone’s demonstration of microturbines’ long-term endurance will prove key to the company’s success. Its longest-running model was installed at the Capstone research and development facility in December 1998. Since then, the 30-kW microturbine has been running almost continuously, except for minor routine maintenance. It has logged over 25,000 operation hours, which translates to almost three years.

“The performance of these units is very encouraging,” said Capstone President and CEO Dr. Ake Almgren. “Capstone’s targeted design life is 40,000 hours before major overhaul. The high endurance results of these units across a wide variety of applications and geographies is further hard data supporting that we are well under way toward that target.”

In November, Capstone unveiled their installation of 60-kW microturbines at five General Motors dealerships in California. The microturbines will generate electricity onsite, in conjunction with solar panels manufactured by BP. This setup promises to save money while also reducing demand on the electrical grid and improving air quality.

Initial investor enthusiasm for Capstone came at a time when electrical grids were maxed out. Electrical generation with microturbines represented an attractive alternative. However, upon closer examination, investors realized that it was premature to consider replacing grid electricity with onsite electricity. The GM dealerships will thus serve as test cases for this experiment in alternative electricity generation.

“I think there’s a place for the microturbine out there,” says Mr. Prouty, predicting the stabilization and eventual growth of the microturbine market and perhaps that of Capstone as well.


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