Stationary fuel cells have been steady performers for years delivering electricity at office parks, supermarkets, or wastewater treatment plants. But utilities, for the most part, have stayed clear of fuel cells.

Richmond, Virginia-based Dominion today said it will own and operate a 14.9-megawatt fuel cell power generation station in Bridgeport, Connecticut. Supplier FuelCell Energy claims it will the first publicly-traded utility in North America to use fuel cells for distributed power generation into the grid.

The multi-party deal calls for Dominion to provide power with five, three-megawatt fuel cells and a Rankine engine, which generates electricity from the heat the fuels cells make. Local utility Connecticut Light & Power Company will purchase the energy under a 15-year contract and another company will do the work of interconnecting the fuel cells to three substations. The power station will supply about 15,000 homes.

The city of Bridgeport is leasing two acres of land to Dominion and a state agency is providing financial incentives to FuelCell Energy, which will manufacture the equipment in Connecticut. Energy from the fuel cells, which run on natural gas, will qualify for the state’s renewable energy credits and can be used towards meeting the state’s renewable energy requirements for utilities.

Without significant support from the state, which is encouraging development of the fuel cell industry, it’s not clear such a deal, which took years to complete, would come together.

But the installation, expected to be operating by the end of 2013, could serve to demonstrate the potential of multi-megawatt distributed generation with fuel cell technology. FuelCell Energy CEO Chip Bottone called it a “game changer” for the industry.

Dominion vice president of business development Jim Eck says fuel cells can fit particular needs. In this case, it’s supplying low-polluting distributed energy, augmenting larger power plants. Fuel cells convert natural gas into electricity and give off much lower level of air pollutants than centralized power plants. 

“We believe this technology from FuelCell Energy is very scalable to multi-megawatt size,” Eck says. “We’re going to look the leverage of the experience here (for customers) looking for baseload energy and the ability to isolate off the grid.”

Eck says certain customers, such as data centers or army bases, may want to have on-site fuel cells for local generation as well as back up during power outages. As a utility, Dominion could operate those microgrids on behalf of those customers, he says.

In terms of cost, Eck says the energy from the fuel cells will be “very competitive” with distributed renewable energy sources and it provides reliability.

When compared to a centralized power plant, the cost of energy from fuel cells is still higher, Bottone says. But ramping up the company’s manufacturing volume from its current rate of 70 megawatts to 210 megawatts will bring the levelized cost of energy down by a third, which would bring distributed fuel cells close to the price of traditional power generators, he says.

It’s not the only time a U.S.-based utilty has bet on fuel cells of this size. Bloom Energy signed a large deal with Delaware utility Delmarva to place 30 megawatts worth of fuel cells near substations, but that project is not yet installed or finalized.

Dominion and Delmarva’s decisions to go with fuel cells on the grid–as well as Apple and eBay for their data centers–are votes of confidence for this technology at the multi-megawatt size. These generators are not even a blip on the power generation capacity of the U.S. grid overall, but they’re a sign of the growing interest and diversity of distributed generation.