DANBURY, Conn.)--FuelCell Energy, Inc. (NasdaqNM:FCEL), a leading manufacturer of ultra-clean and efficient electric power generation plants for commercial, industrial and government customers, today reported results and accomplishments for its fourth quarter and fiscal year ended October 31, 2006.

Financial Results

Total revenues for the fourth quarter of fiscal 2006 were $9.1 million, up 15 percent from the $8.0 million reported in the same period last year. Product sales and revenues increased 61 percent to $6.7 million from $4.1 million. Research and development contract revenue was $2.5 million compared to $3.8 million.

Commenting on fourth quarter results, R. Daniel Brdar, FuelCell Energy’s President and CEO said, “During fiscal 2006, we successfully positioned the Company to expand in targeted geographical and Renewable Portfolio Standards (RPS) markets. In California, where we sold 11.35 megawatts – 2.6 megawatts in the fourth quarter, we are the market leader. Importantly, our orders in the quarter were for multi-unit or megawatt applications. In addition to the orders in California, we received a 1.2 megawatt order from Enbridge, Inc. for our DFC-ERG natural gas pipeline application.”

The Company's product backlog, including long-term service agreements, as of October 31, 2006 totaled $27.9 million, an increase of 39 percent from the $20.0 million reported as of July 31, 2006 and higher than the $26.4 million reported at October 31, 2005. Research and development contract backlog totaled $30.1 million, versus $15.8 million as of the prior year end, primarily reflecting the awards of contracts from the Department of Energy for large scale stationary solid oxide fuel cell development and the U.S. Navy to continue work on the ship service fuel cell.

The net loss to common shareholders for the fourth quarter was $25.1 million or $0.47 per basic and diluted share, which included stock compensation expense of $1.2 million or $0.02 per basic and diluted share. In last year’s fourth quarter, net loss to common shareholders was $19.5 million or $0.40 per basic and diluted share. The ratio of costs to product sales and revenue improved to 3.19-to-1 from 3.36-to-1 in the year-ago period. Factors that impacted cost ratio in the quarter included lower product costs offset by short term pressure on selling prices in California, delays in Connecticut’s RPS program and higher after-market costs on a larger installed fleet. The higher net loss in the 2006 quarter primarily resulted from higher product sales, largely sub-megawatt units, and costs associated with transitioning to produce larger units. Moving forward, sales of lower cost sub-megawatt and megawatt-class units are expected to improve the cost ratio and resulting operating margins. In the quarter, research and development contracts provided positive gross margin of $0.5 million compared to a negative gross margin of $0.3 million in the same period last year.

Total cash and investments at October 31, 2006 was $120.6 million. Net cash and investments used during the quarter was $13.0 million. The Company received approximately $3.6 million in incentive funding for California-based power purchase agreement projects. Power purchase agreement capital costs totaled $0.6 million during the quarter, and other capital spending totaled approximately $1.2 million. Depreciation and amortization expense for the quarter ended October 31, 2006 was approximately $2.7 million.

For the year ended October 31, 2006, FuelCell Energy reported revenues of $33.3 million, an increase of 10 percent, compared with $30.4 million reported in fiscal 2005. Product sales and revenues were $21.5 million, 24 percent above the $17.4 million in the year ago period. Research and development contract revenue was $11.8 million compared to $13.0 million in 2005.

For the year ended October 31, 2006, FuelCell Energy reported a net loss to common shareholders of $84.2 million or $1.65 per basic and diluted share. Fiscal 2006 results included a one-time conversion premium of $4.3 million or $0.08 per basic and diluted share for the conversion of the Series B Convertible Preferred Stock and stock compensation expense of $4.4 million or $0.09 per basic and diluted share that was not in the prior year. Net loss to common shareholders for fiscal 2005 was $74.3 million or $1.54 per basic and diluted share. The ratio of costs to product sales and revenue was 2.86-to-1 compared to 2.99-to-1 during 2005. Research and development contracts provided positive gross margin of $1.4 million compared to a negative gross margin of $0.2 million in the prior year.

CEO Commentary and Corporate Highlights for Fiscal 2006

“During 2006, we achieved key milestones in our strategy to drive down unit costs, build our leadership position in key markets and deliver reliable, ultra-clean power to a diverse and growing customer base for multi-unit and megawatt-class fuel cell applications,” said Brdar. “Demand for larger scale projects is increasing and we are well positioned to capture additional market share. During the course of the year, we achieved a 39 percent reduction in the cost of the DFC3000 unit, boosted the electric power output of the Company’s ultra-clean power plants by 20 percent, and prepared bids for over 40 megawatts of projects for Connecticut’s Project 100 that will be submitted in December.”

Achieved Targets for Reducing Product Cost

The Company achieved its cost reduction goals announced last year for its Direct FuelCell® (DFC®) power plants bringing the cost of its multi-megawatt DFC3000 down to $3,250 per kilowatt (kW) from $5,300/kW:

    * Significant savings came from “value engineering” -- developing lower-cost designs for various elements of the power plant -- and improving the efficiency of the Company’s manufacturing, testing and commissioning processes.
    * The cost reduction also resulted from the 20 percent uprate of all DFC products announced in August. By improving thermal management of electrochemical activity within the stack, the Company increased the power output from each cell which produces more electricity from the same basic power plant components.

Increased Market Penetration

California continues to be FuelCell Energy’s leading market where the Company sold 2.6 MW and shipped 1.2 MW of product to customers in the fourth quarter. DFC power plant sales in California during the fourth quarter included:

    * 750 kW for a resort that is transitioning its facility to meet sustainability and energy efficiency goals.
    * 750 kW for the city of Tulare, where renewable dairy processing by-products will be converted into electricity to power a wastewater treatment facility.
    * 500 kW for Gills Onions for a plant that will use biogas generated from onion-processing waste to generate electricity.
    * 600 kW for the Dublin San Ramon services district wastewater treatment facility.

Continued Meeting Customer Expectations

    * FuelCell power plants have now generated over 150 million kilowatt hours (kWh) of power.
    * Over 50 global DFC power plant sites are running under commercial conditions with high availability.
    * In California, customers with FuelCell Energy baseload power plants (providing power 24/7), maintained uninterrupted business operations during peak electric demand periods when other businesses were required to shed load by the local utility.

Shaped the Business to Support Multi-megawatt Growth

Capitalizing on demand for more and larger megawatt power plants is a key element of the Company’s strategic plan. RPS markets in particular represent a growing opportunity for FuelCell Energy’s power plants and the Company has taken the following steps to address these RPS opportunities:

    * Engineered a lower cost product for multi-megawatt configurations (2 to 50 MW) to provide ultra-clean, baseload 24/7 power, a key element for solving grid constraints and supporting RPS markets.
    * Initiated production process improvements to increase the efficiency and capacity of assembly and test operations. The Company’s annual production capacity is 50 MW.

Government R&D Contracts

    * The Company’s 250 kW Direct FuelCell/Turbine® (DFC/T®) established a record-setting mark of 56 percent electrical efficiency – higher than any other power generator of its size.
    * FuelCell Energy entered the first phase of a $180 million, 10-year U.S. Department of Energy project to develop a solid oxide fuel cell-based, large scale hybrid system.
    * The Company has been authorized by the Office of Naval Research to complete a land-based demonstration of its ship service fuel cell power plant and begin design work on a next generation ship-based prototype.
    * The U.S. Department of Defense selected FuelCell Energy to develop a cost-efficient system for separating pure hydrogen from the gas that is exhausted from the fuel cell reaction, providing fuel for hydrogen vehicles or for industrial uses.

Focus for 2007

    * Cost Reduction --FuelCell Energy will continue to emphasizze its cost out initiatives to deliver the most cost efficient and environmentally friendly power generation solutions and meet the needs of the emerging RPS markets. In fiscal 2006, the Company achieved its cost out objectives, bringing the DFC3000 product cost down to $3,250/kW. The Company expects that volume could reduce the cost another 10 to 20 percent in 2007. The DFC300 and DFC1500 are targeted to achieve 20 percent cost reductions through improvements in strategic sourcing, value engineering and operations.
    * California – In California, high electricity costs and environmental regulations create a growing repeatable market with compelling value propositions for customers. California extended its Self-Generation Incentive Program to 2012.
    * RPS Markets -- FuelCell Energy has prepared over 40 MW of multi-megawatt bids that will be submitted by its partners to the Connecticut Clean Energy Fund (CCEF) in December. CCEF has announced that its project selections will be made public March 30, 2007.
    * Natural Gas Pipeline Applications -- FuelCell Energy sold a 1.2 MW fuel cell power plant to Enbridge, Inc. for inclusion in a Direct FuelCell-Energy Recovery Generation™ (DFC-ERG™) system that generates ultra-clean electricity while recovering energy normally lost during natural gas pipeline operations. The DFC-ERG opens major new market opportunities for the Company worldwide – in North America the initial market is estimated to be 200-300 MW.
    * Asia -- Japan and Korea continue to be among our best markets due to high electricity cost, environmental regulations and incentives. In 2006, Korea enacted its first-ever subsidies to promote renewable energy technologies as part of a national carbon dioxide reduction effort. Fuel cells are eligible for the recovery of 28 cents per kWh and 50 MW of generation will qualify for these funds which are intended to drive the installation of megawatt-class power plants.

“With the emergence of the RPS markets, the growth of the California market and continuing product cost reduction, we are positioned to move to profitability,” Brdar concluded.

Conference Call Information

A conference call is scheduled for 10:00 a.m. ET on December 19, 2006, to review results and discuss the Company's outlook. Listeners can gain access to the call live or over the Internet by clicking on the web cast link on the Company's homepage at http://www.fuelcellenergy.com. A playback version will be available for seven days after the call by calling 800-839-3413 for the U.S./Canada and +1-402-220-7236 for international.

About FuelCell Energy, Inc.

FuelCell Energy develops and markets ultra-clean power plants that generate electricity with higher efficiency than distributed generation plants of similar size and with virtually no air pollution. Fuel cells produce base load electricity giving commercial and industrial customers greater control over their power generation economics, reliability and emissions. Emerging state, federal and international regulations to reduce harmful greenhouse gas emissions consider fuel cell power plants in the same environmentally friendly category as wind and solar energy sources -- with the added advantages of running 24 hours a day and the capacity to be installed where wind turbines or solar panels often cannot. Headquartered in Danbury, Conn., FuelCell Energy services over 50 power plant sites around the globe that have generated more than 150 million kilowatt hours, and conducts R&D on next-generation fuel cell technologies to meet the world’s ever-increasing demand for ultra-clean distributed energy. For more information on the company, its products and its worldwide commercial distribution alliances, please see www.fuelcellenergy.com.