The deal, which will benefit both companies, is the largest commercial application of fuel cells to date.
"We've got to take this new technology and get it to a higher level of reliability," said Timothy Vail, who markets fuel cell technology for GM. "The only way we can do that is to get units built in some other market and then transfer that to cars."
Under the plan, which GM and Dow were to announce Wednesday in Washington, GM will provide Dow manufacturing plants with trucks containing fuel cell conversion equipment. Dow will provide the hydrogen fuel, a byproduct of one of Dow's principal products, chlorine.
Dow will pump hydrogen into the trucks, where it will be converted into electricity through hydrogen fuel cell technology. The electricity then will be pumped back into the facility's power plant for general use.
Automakers already are developing prototype hydrogen fuel cell vehicles, and many are convinced that the technology is the wave of the future. President Bush is among those promoting fuel cell technology, including $1.5 billion for research and development in his latest budget proposal. The Bush administration says it wants to see hydrogen fuel cell cars on the road by 2015.
Dow expects to get at least 35 megawatts of power, enough to power 25,000 homes for one year, over the lifetime of the agreement. It will run from 2005 to 2010 but could last longer if both companies wish.
Vail said that amount of electricity would cost $50 million at market rates, but he wouldn't say how much Dow will pay GM. GM and Dow plan to complete the agreement in the next two months and begin testing the equipment by the end of this year, Vail said.
He said the deal helps GM build a relationship with a potential hydrogen supplier. Dow, which is based in Midland, Mich., has supplied Detroit-based GM with other products for decades, he said.
Dow sells much of its leftover hydrogen to energy companies but is producing more than it can sell, Vail said.
"This is a small but significant step on the path to a more sustainable energy future," Peter Molinaro, a climate change expert with Dow, said in a news release.
GM and Dow still need to work out whether Dow will lease the fuel cell equipment or buy the electricity, GM spokeswoman Angele Shaw said.
Dow's largest manufacturing plant, a 30-acre complex in Freeport, Texas, will be the first to use the fuel cell technology. Vail said eventually it may be used at other Dow plants, including one in Germany.
The announcement comes the same day GM is delivering a fleet of fuel cell vehicles for use by lawmakers on Capitol Hill. Vail said both actions are intended to show that GM is serious about its goal to bring fuel cell vehicles to market by 2010.
"This fuel cell thing is for real," he said. "I think this is really going to accelerate the business."