Ceres Power Hldgs (LON:CWR) is a leading developer of fuel cell micro-combined heat & power (mCHP) products for the residential market, using its own proprietary, patented technology. Work is well advanced on commercialising a wall-mountable boiler replacement/alternative, targeting UK and Irish customers, through agreements with British Gas (Centrica), Calor Gas and BGE, from whom conditional forward orders for 70,000 units have already been received. Detailed background on Ceres is available in the Stockopedia Wiki.
Following on from Ceres Power's product demonstration and results presentation to analysts and major shareholders last week, I had a number of queries for the company. Ceres' CEO, Peter Bance, kindly spent a considerable amount of time with me recently responding to my questions arising from the presentation. Some further collateral for investors not attending last week should be published on Ceres' website in the near future. I will highlight this when it becomes available.
Impressions
Before diving into the "meat" of the interview, I would just like to record some general impressions. Having been Ceres' CEO since 2003, Peter remains the company's strongest advocate and product evangelist. I did not detect any waning in Peter's evident determination to convert the (so far unfulfilled) promise of fuel cell technology into a practical & commercially successful mass-market product.
Q&A
Please note that the answers given are not verbatim but are my interpretation of Peter's responses to my questions. My comments/thoughts are in italics.
Q1. After our conversation following Ceres announcement of 2nd July, I understand that the main outstanding issues requiring resolution related to control software and overall system reliability. What progress has been made on those issues and how do they impact the timetable for gaining CE approval?
A1. Substantial progress has been made and the mCHP product should soon be ready for submission for CE approval. As stated in our results announcement, CE approval is anticipated to occur in Q4 of this year. Precise timing will depend on how smoothly the process goes, which could be likened to an "MoT test" for the product. Substantial work has already been done to ensure that individual subsystems will qualify.
It is expected that design refinement will continue during the beta and even into the gamma field-trial phases.
After all, the purpose of this testing is to uncover any issues that occur in the "real world" and to address them before full commercial launch. If nothing were found it would suggest some inadequacy in the test process!
Q2. Slide 10 states that there was no measurable degradation in cell performance after 100 thermal test cycles. Have you observed degradation under more stringent conditions?
A2. Conditions can be simulated that will lead to performance degradation. These conditions could be considered analogous to driving a car at high speed in low gear, which will lead to engine damage. Our objective is to determine an "operating envelope" for the fuel cells that does not lead to performance degradation. We then ensure that the mCHP system, as delivered, always operates comfortably within this envelope, thus ensuring adequate performance throughout the designed stack life.
Q3. Slide 16 of the presentation shows overall system output of 34% of gas energy-content input as usable electricity vs a 39% target. Do you expect that the target will be met in due course?
A3. Yes. As shown in the slide, the fuel cell stack already converts 58% of energy input to electricity. Further optimisation of the overall system design should reduce losses & improve efficiency.
Q4. My past recollection was that 1kW of power was required to cover a typical home's electricity consumption needs most of the time, but I observe from slide 16 that the current product ony delivers 800W of usable electricity. Is this adequate?
A4. 1kW was only an approximate figure (and may have been gross rather than net output). Per slide 29 you will note that British Gas has specified an output of 700W+ as being adequate, based on their measurements of real-world requirements. We already exceed this criterion.
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Q5. I observe from slide 37 that you now anticipate that the Horsham mother plant could expand to produce ~30,000 fuel cell modules p.a. You have previously indicated that capacity there could ultimately reach 1,000,000 fuel cells wafers p.a. My understanding was that this would lead to 50,000 modules p.a., each using 20x50W wafers.
A5. Design refinement has led us to a 1kW stack design now employing 100 wafers, each with a smaller form factor. This refinement leads to better stack reliability/life by putting less load on each wafer but without increasing overall stack weight/size. We can expand the motherplant to produce 3,000,000 wafers p.a. of this form factor, equivalent to 30,000 fuel cell modules.
Q5a. So that means you have had to change the stack design in the relatively recent past, to accommodate this improvement?
A5a. Yes, lessons from alpha-phase testing led us to this refinement for the beta-phase. It is important to note that this change does not represent any fundamental alteration to the design principles or welding technique but was relatively straightforward to incorporate into tooling being developed for mass production. Whilst we do not rule out minor changes, we do not anticipate any further substantive changes before the gamma-phase or commercial production.
Q6. I am pleased to see from slide 35 that British Gas intend to start marketing of the mCHP product this year. However, I am mindful that innovative British manufacturers in the past stimulating demand ahead of product launch and then failing to deliver sufficient product to satisfy demand. How will Ceres and British Gas avert this problem?
A6. Ceres and British Gas are well aware of this issue. Marketing will not be over-aggressive initially, so as to match demand to available supplies. We expect that marketing will begin in a "viral" manner, as units are rolled out for the field trials and users of the units spread the word.
This is why so much care is being taken during the alpha & beta phases, to try to ensure that those "early adopters" enjoy a positive experience. With the initial roll-out expected early 2011, following CE certification, comment in the financial press can also be expected which should boost demand for Ceres' shares and, IMO, raise the share price.
Q7. With the currently proposed feed-in-tariff (FIT) will it pay Ceres' users to leave the unit generating electricity constantly, rather than allowing the unit to load-follow?
A7. As things stand, this may be the case in certain households and could be enabled via an amendment to the control software, which could be uploaded remotely. However, we do not believe these subsidies will remain in place permanently, or at the current levels. As can be seen from slide 23, end users can expect substantial annual cost savings, even without a subsidised FIT. I was very pleased with comments by British Gas describing Ceres' unique load following capability as "game changing".
Considering the overall economics of UK power supply, where Ceres' unit comes into its own is during perriods of peak demand. At night, by contrast, current baseload power is adequately delivered by cheap baseload nuclear power. If, as we hope, a substantial number of Ceres units are installed in the UK, this will reduce the requirement to run comparatively "dirty" and expensive standby power stations to supplement the baseload supply during peak periods of demand. This is known as “peak-shaving” and a consultancy, Oxera, has confirmed this based on their modelling of the UK grid and the impact of significant increases in baseload nuclear and intermittent offshore wind. This despatchability of a Ceres Power CHP unit is a very valuable and unique capability, as confirmed by British Gas.
This is something investors in Ceres' competitors have failed to understand. All competing SOFC systems can only be operated reliably if left on continuously at full power. Due to the basic physics of Ceres' SOFCs, they run at temperatures that do NOT put so much thermal stress on their materials and those of their enclosures when starting up or shutting down. Moreover, again uniquely, Ceres has found that its cells can operate at reduced power levels, enabling the load following capability. In the long-run, a requirement to operate continuously, to avoid damaging the cells, makes them unsuitable for residential applications. AFAIK Ceres is the only company to have overcome this problem.
Thank you Peter.
Mark
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Ceres Power Holdings Plc is a developer of decentralized energy products. The Company is engaged in the development and commercial exploitation of microgeneration products based on the Company’s solid oxide fuel cell (SOFC) technology. Ceres Power has developed a manufacturable technology platform: the fuel cell module (FCM), using its SOFC technology and operating on mains natural gas or packaged fuels, such as liquefied petroleum gas (LPG). The Ceres fuel cell module provides a platform for the development of a range of related products for applications, including Combined Heat and Power (CHP) products for boiler replacement in private residential and social housing segments, as well as installation in new homes, operating on mains natural gas or packaged fuels, and portable products providing back-up power and prime power, as alternatives to generators and batteries, operating on packaged fuels including LPG, propane and butane. more »
19 Comments on this Article show/hide all
Oops - I've just realised that my recollection underlying Q5 was incorrect. Rechecking my notes, I find that the previous stack form factor contained 50 wafers, leading to an annual production capacity of 20,000 stacks. Hence Ceres' update represents an increase, rather than a decrease, to the planned ultimate manufacturing capacity at the motherplant.
Sorry!
Mark
Sorry to be a bit of a kiljoy here but is 700W really a decent "baseload" to power a household. A desktop computer and monitor come in at 300W. If you put your toaster/kettle/hairdrier on you exceed it straight away.
I assume one must have a "normal" electricity supply to boost this device for when you need the extra power. So this begs the question how much money do you save? If a KwHour (unit) costs 7p then one of these units will save you £613 assuming the gas costs nothing. Let's assume you the cost of gas is 50% of that so you save ~£300/year. So assuming the unit costs £1000 and lasts 10 years with say £100/year servicing costs etc.
Slide 23 says saving is £286/year.
So all in all you might save a tiny ammount say £100/year offset against that a lot of hassle I just don't see it working. I can't see many retro-fits of this product to existing boilers either as it seems to require extra boiler space and 9/10 there won't be room where the current boiler is situated. Also no mention of extra electrition work to install it.
Sorry but fundementally this is a no-go. It makes much more sense to generate the power efficiently from gas and then ship it down the existing electricity distribution channels. Why have thousands of power-units turning gas into electricity at the home. They probably won't be more efficient than the power loss during distribution.
One last point. Environmentally I'm not so sure either. How much less impact would there be on the enivironment compared to nuclear generation for baseline usage (700W/household) + gas generation + other for peak usage?
Sorry just doesn't stack up in so many ways. Nice for s'pedia to do this interview but the questions could have been a bit more challenging - always dificult I know when you have a guest but it didn't really address some of the fundemental problems IMV.
Log
In reply to loglorry, post #2
Hi Log,
I think it's time you changed your computer! I think you'll see from here that 100W is a more typical figure (computer + LCD monitor).
Ceres' unit actually produces 800W. 700W is the minimum figure British Gas (Centrica) specified. I somehow doubt that Centrica would have plucked that number out of thin air (it's actually based on detailed measurements of energy consumption in real homes).
Yes. The standard Ceres unit is not intended to replace a mains connection - and, of course, where the unit is configured to export electricity, it can feed excess power back into the mains.
Log, I'm afraid you're back-of-a-fag packet calcs don't add up. My day-time electricity costs (from the cheapest supplier in my area) are 10p/kWh. Ceres' calculations, shown on slide 23 have been independently verified by ElementEnergy (and take account of the unit's gas consumption*). The life of Ceres' unit is targeted to be similar to that of a high efficiency condensing boiler - so annual running costs should not be compared to zero but to that standard. It should be viewed as an alternative to a condensing boiler. I don't see Centrica, Calor & BGE backing this, if the economics didn't stack up.
What hassle? The unit is a direct boiler replacement and is intended to be as unobtrusive as a boiler. Of course, Ceres still have to prove they can do this in the real world but the development is well advanced and, IMO, Ceres are going about it in a highly professional manner.
On the environmental front, this is not an alternative to nuclear power. As explained in A7, where it is of most value to UK supply is in "peak load shaving" - reducing the need to run less efficient power stations during times of peak household demand. In that context, it is worth noting that Ceres' chairman is Dr Brian Count, formerly CEO of Innogy (owner of National Power, started his career in the CEGB), so one can safely say that the company has some expertise in national electricity supply.
In the UK we need every form of low-carbon electrical supply we can find in the coming years.
IMO Ceres' unit could form a useful part of the solution.
Cheers,
Mark
*The £1,374 figure is the basline estimated energy consumption (gas + electricity), as is the £1,088 "with CHP" figure. Study the slide carefully.
In reply to marben100, post #3
PS another attraction I see to the distributed generation model that Ceres' kit could offer is improvement to security of energy supply. Past underinvestment in generating & transmission capacity leads to a significant risk of future supply interruptions. There's a paper on that subject here: http://journals.pepublishing.com/content/6350356103218376/
Hi Mark
Trouble is all this info/stats are coming out of Ceres! As such I'd take it with a massive pinch of salt. Also there is a world of difference between "Independent" research paid for by Ceres and truely independent research. You have only got to look at some of the small cap research notes we see around this site which are actually paid for by the companies they are researching to know that there are lots of ways to skin a cat when presenting numbers.
My point on the environment is that the ceres product is replacing the "base demand" that could otherwise be provided by the carbon clean nuclear option. Imagine every house with one of these things ticking away at 700W then what you have left is a lots of peaky demand on the grid which probably requires more carbon expensive generation. Put another way you are making the most green generation nuclear redundant.
I really don't give a damn that they hired a chairman who has expertise in national energy supply. It doesn't change the fact that he works for them or more correctly draws a salary from them. I doubt he'd have got the job if he said he didn't belive in the potential for the product. I think you might be being a bit naive.
Have Centrica really backed them though? It looks to me like they have spent a tiny ammount of money trying out the idea. Clearly they don't want to be left behind if this takes off and they have positioned themselves accordingly. However I'd say they were far from actually backing the company at this point. They don't seem to be risking very much at all and what they are spending probably comes from some green initiative budget that they are obliged to fund.
The life of Ceres' unit is targeted to be similar to that of a high efficiency condensing boiler
Well I've had mine for 5 years and it has cost me a lot in servicing and repairs already and the last gas engineer suggested we look at replacing it soon. It all depends on the extra cost of the unit but I doubt they will last more than 10years and will probably require some spend during that time. Unless consumers are forced into it I can't see them doing it en-mass. Most people won't invest a bit today to save more tomorrow. If they did the credit card would not exist.
OK maybe my computer is a bit old and uses more power than most but you have to agree that really the costs associated with running a household electricity all come from things like toasters, kettles, dishwashers, washing machines, ovens etc.
What Ceres are selling you is some sort of expensive plugin with dubious green credentials, which will keep your low energy lightbulbs glowing and your Sky box on standby.
It is an innovative idea and it helps to look at things laterally but this is not going to fly in any big way.
And now let's look at the downside - ermmm well its 100% isn't it. They burn cash and maybe have to raise some more over the next few years. Sell less than they need to ever become profitable. Perhaps raise some debt and then they go bust. Absolutely not asset protection for the investor.
The only hope might be if HMG decrees that all new gas boilers have to have them but I don't see that happening any time soon.
Log
Don't get me wrong. If these extra gizmos worked differently I'd be very interested. For example if they could provide all your electricity requirements e.g. go from 10w output to 10Kw (or whatever) when you needed it by drawing down more gas then they truely would be very useful indeed. Assuming the cost of generation was much less than current prices.
It doesn't look like they do this though does it? At least not yet.
No log, that's not how it works. A key unique feature of Ceres' product is that it "load follows", rather than producing constant output (unlike its competitors). Output can vary automatically & rapidly from under 100W to the full 800W output (see slide 15, note the match between output & simulated demand*). You're right that it doesn't produce enough to power things like toasters, ovens etc but British Gas' studies show that these only account for a smallish proportion of aggregate consumption. Where is does help is with things like computers, TVs, fridges etc. These stay on for longer periods of time and AIUI more or less define peak household loading (of course there is the "kettle effect" during ad breaks of big events - but that's a different matter :0)).
Whilst the subsidised feed-in tariffs are in effect, they may have a distorting effect (and push the prospective cost savings up to over £600 p.a.) and make questionable energy-efficiency sense. However, Ceres' economics do not depend on them, as the calculations show
I can understand and respect your scepticsm of Ceres' claims. At this stage, it is undoubtedly a highly speculative investment. Perhaps I am biased because I have been an investor and have followed the company's progress for quite a few years now - but IME they're not prone to overhyping their capability and have been making slow but steady progress towards their commercially focussed goal. Clearly, though, I'm not the only one with that view, as British Gas and other institutional investors were happy to top-up the company's coffers to the tune of over £30m @ 165p/share late last year. Worth noting that they did this fund raising despite having well over £20m in the bank at the time, to be confident that they'd have enough to see them through to intial commercial production. Seems like a wise decision, with the benefit of hindsight.
Ceres may or may not succeed, but IMO they most certainly do not fall into the "dodgy microcap" camp, with directors pumping the shares for their own ends.
If you haven't done so already, please do check out the wiki for a better understanding of where Ceres is coming from: http://www.stockopedia.co.uk/content/ceres-power-hldgs-18106/
Cheers,
Mark
*Note that this was assessed by AEA. I don't think they're the kind of consultancy that would sign off at their commissioners' whims.
I'm not questioning managements intentions. I'm just saying clearly the product does not solve the problem (reducing fuel bills) sufficiently well to make it a must have item.
Forget about the feed in stuff as it won't be there for long and anyway and you can't rely on it from an investment perspective.
Bottom line is it is not a disruptive technology which is going to make so much of a difference that it will become standard. Given the risk and the rate at which they are burning cash I just don't see it going anywhere.
At the end of the day a widget to turn off a few more lights, make your fridge a bit more efficient or insulate your loft will probably give you a better return on investment. Just cos it has a sexy fuel doesn't mean people will buy it en-mass.
It seems like it works ok and might help but even if they deliver on what they say they will it is at best going to just make a small percentage different to peoples fuel bills.
Log
Hi Log
You seem to be missing the point a bit. You comments IMO assume that unit only generates electricity but it also generates hot water, no? I have 4 children that are always using hot water (almost constantly) if I get 800w as a bi-product whilst its doing that.....I'm a happy man.
Mitch
In reply to loglorry, post #8
Sorry to bang on log, :0)... but you may be wrong there, when you combine Ceres technology with this announcement: http://www.stockopedia.co.uk/shares/pressure-technologies-plc-LON:PRES/news/rns/101005pres003335n.htm/
Ceres mCHP is the most efficient way to convert this biogas into usable electricty and heat in the home. Much more efficient that doing so in conventional power stations (considering both thermal & transmission losses) and capable of producing better fuel-> electricity conversion efficiency than Stirling Engine alternatives.
Distributed generation is the disruptive technology and Ceres could offer the most practical way of delivering that. PV and wind ARE more hassle to install and, obviously, only offer interrmittent output not necessarily at the time it's needed.
Cheers,
Mark
The video of Ceres' product demonstration to analysts is now available on their website: http://www.cerespower.com/InvestorRelations/PresentationsandVideos/CHPProductDemonstration/
Great presentation. It's tempted me to top up.
Interesting to see CWR's share price has been near decimated in recent days. I was't keen on them as the thread above demonstrates. I have no idea why they have fallen in value but the technology was never appealing to me. Anyone with any extra info I'd be most welcome to here it.
In reply to marben100, post #11
Oh just noticed the RNS here http://uk.advfn.com/news/UKREG/2012/article/54397012 failed to get funding so they are giving up. Well that went well then didn't it :-) #toldyouso :-)
I'm a bit confused about all this, I recall about 10 years ago, seeing a boiler reported on working lunch that was basically a gas electricity generator that heated water as a bi-product. They were doing trials up north at the time, but the idea was that it ran at optimum speed, and generated electicity/ when needed , and when hot water was needed, any excess would be fed back into the grid. I don't really see why this product is any better than this, it sounds a whole lot more complicated, where as the other one was basically a gas generator that used excess heat to heat the water. I suspect these would be more expensive, because they're higher tech, I can see this technology being useful on boats and places where you'd rather not have a conventional boiler, but in your home is there really any advantage ?
cheers K
Kenobi - well I think it is pretty clear that it was never going to be that useful which is why they ran out of money and can't raise any more. Marben has posted on Twitter that it was down to poor product testing but I suspect if all they required was a bit of a tweak they'd get more money to do so.
As you can see in the thread above I always thought it was a poor idea and a very risky investment.
In reply to loglorry, post #16
Wasn't this a favourite pick of Paul Scott some time ago?
£2+ a couple of years back....and £3+ three years ago.....so a disaster for any holding over that timeframe.
Not sure when Paul took an interest and I'd guess he exited a while ago?
I have a feeling ee you are confusing this with a similar company who had a fuel cell for small boats/caravans that sort of thing that converted gas (from a propane canister) into electricity. I've forgotten their name now but I think it was a different company but I might be wrong.
I'll try and dig that up as I'd like to know what became of them too (assuming it wasn't CWR too).
Log
In reply to loglorry, post #18
You're right - it was Voller Energy (LON:VLR) according to this. Same lack of finance problem though - and was wound down several years ago.