Financing Activities
In August 2010 the Company undertook a placement of 95.3m shares at a price of 10.5 pence (approximately 18.25 Australian cents) and raised the equivalent of AUD 17.4m. In September 2010 the Company made an offer to shareholders on the same terms and issued a further 70.3m shares and raised an additional AUD 12.8m. The net amount raised from both fundraising rounds after transaction costs was AUD 28.9m. During the half-year the Company’s investment in inventory has increased from AUD 1.1m in June 2010 to AUD 4.9m at December 2010. This increase will be directed to fulfilling the existing order backlog and to meet expected future sales.
Operational Overview
Ceramic Fuel Cells Limited is a leader in developing solid oxide fuel cell technology to provide highly efficient and low-emission electricity from widely available natural gas (and other hydrocarbon fuels in the future). A fuel cell is an electricity generator that converts gas into electricity and heat through an electrochemical reaction, without combustion or noise. Fuel cells can provide significant environmental benefits through high efficiency and low emissions.
Global energy markets are facing a transformation. Peak demand for energy is rising, requiring significant investment in new power generation and grid infrastructure. However there is widespread agreement that greenhouse gas emissions from electricity generation must be reduced. These forces create a very large global opportunity for low-emission energy technology, like solid oxide fuel cells, which can be deployed using the existing natural gas and electricity infrastructure. These market forces also encourage a move away from large centralised power stations towards ‘distributed generation’, where small scale power stations are installed close to where the power is used, with no transmission losses.
Ceramic Fuel Cells’ products have achieved electrical efficiency of 60 percent at the point of use, which the Directors believe is higher than any other electricity generating technology. When heat is recovered from the electricity production process, total efficiency is up to 85 percent – twice as efficient as the average among current European power stations.
This very high efficiency can significantly cut carbon emissions from power generation. There is now widespread recognition that maximising electrical efficiency is the key to creating the most value from small scale power and heating products, and the Directors believe the Company’s achievements can create a strong competitive advantage in this very large global market.
Customers and Products
The first products powered by the Company’s fuel cells are small scale units for homes and other buildings that produce up to two kilowatts of electricity as well as heat for hot water or space heating. In order to cater for different markets and customers, the Company is developing two products in parallel: integrated combined heat and power (mCHP) units, as well as a modular generator product called BlueGen. Both products use the Company’s Gennex fuel cell module and share many ‘balance of plant’ components, allowing the Company and its partners to create different products and customer offerings from the same core technology platform.
Integrated mCHP – Power + Heating + Hot Water
During the half-year the Company continued to develop fully integrated mCHP products with its European utility and appliance partners, including EWE AG in Germany, E.ON in the United Kingdom and GDF SUEZ in France. In these partnerships, Ceramic Fuel Cells supplies its Gennex fuel cell modules to appliance partners, which integrate them with high efficiency boilers into single integrated units to convert natural gas into power, hot water and space heating for homes. The appliance manufacturer or the utility then sells or leases the mCHP unit to the homeowner.
The highlight of the half-year was the Company securing a conditional order in December 2010 for up to 200 integrated mCHP products from German energy service provider EWE. This is the largest order the Company has received, with total revenue of up to EUR 4.9 million over two years. EWE will install the units in homes in the Lower Saxony region in northern Germany. EWE is one of the largest utilities in Germany, with 6,400 staff and revenues of EUR 5.8 billion. Based in Northern Germany, EWE also has operations in other German states as well as Poland and Turkey.
The order is conditional on EWE receiving partial funding under the German
government’s national hydrogen and fuel cell technology innovation program. This
Government program is providing EUR 700 million between 2008 and 2018. EWE has
submitted a formal funding application and a positive decision is expected in early 2011. Subject to EWE obtaining Government funding and to the units meeting agreed performance targets, EWE will order 70 units for delivery in 2011 and 130 units for delivery in 2012. The performance targets, unit prices and the rates for ongoing service and support have been agreed in a contract signed by EWE and the Company.
This is a significant follow-on order from EWE, the Company’s longest standing utility customer. The Directors are confident that the German government will support the project and we look forward to updating shareholders in due course. Apart from Germany, during the half-year the Company continued to operate integrated power and heating units in the United Kingdom and France. In the United Kingdom, the Company is in discussions with its utility partner E.ON UK to
finalise the details of the next stage of product deployment. In February 2009 the Company and E.ON agreed the profile of a future volume order for mCHP units. Subject to the Company meeting agreed price and performance targets, E.ON UK will place a minimum order of 100,000 units from 2012-2018 in order to retain exclusivity for Ceramic Fuel Cells’ mCHP products in the UK market.
In France the Company is working with GDF SUEZ, one of the world’s largest diversified energy utilities and the dominant gas utility in France (with 11 million customers in France). The Company has successfully built and operated integrated units with GDF SUEZ and its appliance partner De Dietrich Thermique (now part of the BDR Thermea group). In December 2010 the partners agreed to the next stage of the product rollout, in which Ceramic Fuel Cells and BDR Thermea will build the next generation of product for testing by GDF SUEZ. This version of the product will use the same core Ceramic Fuel Cells components, which BDR Thermea will tightly integrate with a high efficiency boiler into a physically smaller unit.
BlueGen sales – Power + Hot Water
Apart from the integrated product, the Company has also developed a modular power and heat generator called BlueGen, to provide low emission power plus heat for hot water. One BlueGen can provide about double the electricity the average home needs – excess power can be exported to the grid – plus hot water for an average family’s needs. Like the integrated product, BlueGen uses the Company’s Gennex fuel cell module to achieve electrical efficiency of 60 percent – far higher than any other small scale electricity generator.
During the half-year the Company continued to receive orders for BlueGen units from leading energy companies and other foundation customers. To date the Company has received orders for 63 BlueGen units, from customers in Germany, Switzerland, the United Kingdom, The Netherlands, Italy, Japan, Australia and the USA. A total of 21 BlueGen units are installed and operating in customers’ sites.
Highlights during the half-year and up to date include:
The Company has sold its first BlueGen units in Italy, to leading energy company Edison S.p.A. Edison will install one BlueGen unit at its test laboratory and then at its headquarters in Milan, and will install two further units with customers when modifications to the unit’s power management system are completed to comply with Italian grid requirements. Edison is one of Italy’s leading electricity and gas companies, with 2009 revenues of EUR 9 billion.
In December the Company sold three BlueGen units to E.ON UK. One BlueGen will be
installed in early 2011 at the E.ON training centre in Tipton, where E.ON’s Property Services department trains its staff in the installation and maintenance of gas and electrical appliances. The other two BlueGen units will be installed at demonstration sites. The Company believes that the BlueGen installation at the E.ON training centre will be particularly beneficial. Having a well trained network of installers and service technicians is critical to deploying BlueGens and integrated mCHP products in larger volumes, and to receiving accreditation in order to access the UK feed in tariff. During the half-year the Company received further orders from leading Germany energy companies, including EIFER (the European Institute for Energy Research) and EnBW, the third largest utility in Germany, and Gasag, based in Berlin. BlueGen has been accredited by the relevant German Government authority (BAFA) and BlueGen customers in Germany are now eligible to receive the feed in tariff for small power and heating products
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