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Why Southern Company and Bloom Energy Are Combining Fuel Cells and Batteries

Bloom Energy fuel cells behind a Home Depot store in New York.Bloom Energy fuel cells behind a Home Depot store in New York.
Bloom Energy fuel cells behind a Home Depot store in New York.Photo by Katie Fehrenbacher for Fortune

One of the biggest utilities in the U.S. and a Silicon Valley tech company are combing the latest in energy technology to sell a system that can both generate and store electricity onsite at a building.

Southern Company and its subsidiary PowerSecure announced on Tuesday morning that they are buying 50 megawatts of fuel cells from Sunnyvale, Calif.-based Bloom Energy.

Fuel cells are devices that generate energy through a chemical reaction commonly using natural gas. Unlike solar panels, fuel cells can create electricity around the clock, not just when the sun shines.

Bloom Energy has sold these boxes—and the energy they generate—to large retailers and tech companies like Home Depot (HD), Walmart (WMT), Apple (AAPL), eBay (EBAY), and Google (GOOG).

Under the new deal, PowerSecure is packaging Bloom Energy’s fuel cells with Lithium-ion batteries and electrical infrastructure, so that the electricity generated by Bloom Energy’s fuel cells can be stored and used by a customer when needed. Southern Company plans to sell the tech to corporate and industrial customers under long-term contracts.

The partnership and sale is a big deal for 15-year-old Bloom Energy, which reportedly has quietly and recently filed for an IPO. The company has about 200 megawatts of fuel cells installed around the world, so a 50-megawatt pipeline is substantial.

For more on the economics of clean energy, watch:

The tech union could also possibly help Bloom Energy continue to access certain incentives, like a California subsidy that more recently has pivoted toward batteries and away from fuel cells.

During a press conference about the new deal, Southern Company’s CEO Thomas Fanning called the partnership “a fascinating development,” and said it’s about being able to sell tech for the customer premise. Unlike Southern Company’s traditional model of transmitting electricity from a coal or gas plant many miles over the power grid to a customer’s building, fuel cells and batteries place the energy infrastructure right at the customer’s buildings.

Bloom Energy CEO K.R. Sridhar compared how energy technology is becoming more “distributed,” to how computing and telecom infrastructure have previously moved from centralized systems to distributed systems. On a call with Fortune, Sridhar said the new energy storage and fuel cell systems would be customized for customers, calling the energy that they’d create and store “designer electrons.”

Retailer Home Depot plan to use the new fuel cell and battery combo. Health provider Kaiser Permanente is possible interested in the energy storage option, but is deploying 30 megawatts of fuel cells using project financing provided by Southern Company.

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Southern Company (SO) bought PowerSecure for $431 million earlier this year to help it face the growing trend of energy infrastructure becoming more distributed. The 15-year-old PowerSecure sells tech to create “microgrids,” which is a portion of the grid that can operate independently from the rest of the power grid. The company has been selling backup generators, solar panels, and batteries that can help businesses either maintain operations through grid blackouts or to save money on energy bills.

Despite Southern Company’s investment in new technology, much of the company’s business still focuses on existing energy and grid technology and systems. Southern Company serves nine million customers through its subsidiaries and has 44,000 megawatts of generating capacity much of it from coal, natural gas, and nuclear.

A combination of economics, regulations, and new technology are pushing energy companies like Southern Company to slowly shift energy infrastructure toward cleaner and distributed sources.

Despite the explosion of computing and communications technology in Silicon Valley, energy tech—and the startups that have tried to make it—have had a tough time. At one point Bloom Energy had a reported valuation of close to $3 billion, and has been trying to go public for years.

The company raised over $1 billion from investors like Kleiner Perkins and NEA. Bloom Energy’s board includes former Secretary of State Colin Powell, AOL founder Steve Case, and Kleiner Perkins partner John Doerr.

Bloom Energy doesn’t disclose its financials or pricing of its fuel cells. But if the company does go public, it will eventually disclose more details about its revenues, operating expenses. and earnings.

Updated on October 26, 930AM PST to clarify that Kaiser is using Southern Company project financing and has yet committed to the battery tech option.