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Ceres Power set for a make-or-break year as it looks to China

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Ceres Power LON:CWR the FTSE250 listed, Horsham-based alternative energy development company has had a year of change, and although profits still remain elusive, much is expected of the fuel cell and green hydrogen company in the coming years.

The company will celebrate its ninth year as a listed company next month, and in July it made the big step from AIM to London’s main market, which shows the increasing importance of hydrogen technology in the UK (and global) energy landscape and the heightened interest in fuel cells.

The Armchair Trader has written extensively about the growing importance of green hydrogen in the transition to net zero story over the last few years, and (depending on who you speak to) hydrogen could be the breakthrough technology of the next decade, surpassing lithium-ion batteries as the go-to carbon neutral solution for the transportation sector.

Is Hydrogen the future?

Green Hydrogen stocks will undoubtedly play an important role in the clean energy revolution, and there are a number of contenders in the mix to help the sector grow, both on the operational/(environmentally-friendly) coal face side of the equation, such as Element2, which recently won a UK government grant to build four hydrogen refuelling stations in the country’s north-east, and ITM Power LON:ITM; as well as financiers, supporting the industry from the sidelines including Hydrogen One Capital Growth Plc LON:HGEN and Hydrogen Future Industries [LON:HFI], not forgetting innovative Special Purpose Acquisition Company (SPAC) Pineapple Power Corporation LON:PNPL, currently in the process of negotiating a reverse take-over of Element 2, as it seeks to assist with the financing of the UK’s growing green power economy.

But with the promotion of Ceres Power to the Main Board and into the FTSE250, it becomes top-dog in the sector. The company – like many of the innovative future industries in the UK – started life in a university laboratory, in Ceres’ case at Imperial College London with a GBP300,000 grant, and was spun-out into a corporate entity in 2001 by principal researcher, Professor Brian Steele. Steele never saw what his research would become, and what his innovative, novel solid oxide fuel cell would morph into, dying in 2003.

However, the legacy of Steele’s research led to the world’s first commercialised combined heat and power (CHP) system, which was trialled by British Gas in 2007. Sid loved it and ordered 37,500 units and took a 10% stake in Ceres which it held onto until 2012. By this time however, Ceres has started talking to global corporations, including Japanese motor manufacture, Honda. The company appointed chemical engineer, Phil Caldwell as CEO ten years ago, and he stabilised the company – which was still in the tentative research phase – and focussed the company on the commercialisation of solid oxide fuel cell technology for electric vehicles.

An established player in the EV game

By 2016, Ceres Power was an established player in the EV game linking-up with China’s Weichai Power to electrify buses in the world’s most populous country. Like British Gas beforehand, Weichai was impressed and took a 20% stake in Ceres. Bosch, the German multinational engineering and technology company also threw in its chips into the pot five years ago, buying 4% of Ceres for GBP9m as part of a manufacturing partnership.

That year, Ceres saw its first commercial product launch in Japan and later in the year buses started picking up commuters and schoolchildren in China, driven by Ceres’ power units. Asia got the gist of what Ceres was doing, and in 2019 South Korea’s Doosan Corporation signed an GBP8m partnership with Ceres to develop and licence solid oxide fuel cells that would be used to power commercial buildings. As before, Doosan was impressed, and extended the collaboration by committing to build a 50MW manufacturing facility for Ceres solid oxide fuel cells CHP units in South Korea by next year; a deal worth up to GBP37m over three years to Ceres.

Over in Germany, Bosch liked what it got and increased its investment in Ceres in 2020 by GBP48m to take its stake to 18% of the Sussex company. The UK eventually jumped on the (electric) bandwagon, and Ceres opened up a manufacturing plant in Redhill.

Expansion into Hydrogen

By the end of lockdown Ceres Power was talking serious money, as it was planning an expansion into hydrogen. In March 2021, the company raised a further GBP181m in a placement supported by further investment from Bosch, Weichai and the directors backing themselves. The proceeds were deployed on further development of solid oxide fuel cells and into solid oxide electrolysis to generate green hydrogen.

Ceres raised the bar by pitching the UK Department of Transport in a project to develop clean fuel ocean-going transportation vessels which involved the government, General Electric Co. NYSE:GE, Mediterranean Shipping Company and Southampton-based cruise liner operator, Carnival Corporation [LON:CCL].

Energy storage is a big market for Ceres, and the company started collaborating with another Imperial College spin-out, RFC Power, in 2021 to develop the world’s lowest cost flow battery – a hybrid between a fuel cell and a battery that decouples power from energy, taking an 8.4% stake in the startup. Ceres locked in a 12-month option to acquire the balance of the outstanding share capital in the company for up to GBP25m. This comprises a 50% initial payment on exercise and a 50% deferred payment based on commercial success, both payable in Ceres shares. Earlier this year Ceres increased its stake in RFC and maintains the option to acquire the company outright next year.

Collaboration with big strategic partners

Further collaboration with its two big strategic partners, Bosch and Weichai led to a three-way deal to look at opportunities both in EVs and stationary CHP applications in China. The Bosch collaboration led to a joint demonstration earlier this year of an industrial-scale 1MW green hydrogen unit which will start testing and proving in a two-year trial in Stuttgart next year. Oil major Shell LON:SHEL also joined the hydrogen party (somewhat tardily) earlier this year, agreeing to run a megawatt-scale hydrogen unit at its facilities in Bangalore, India.

Ceres is a company moving forward with momentum. It is at the vanguard of development of solid oxide fuel cells, with innumerable applications in transportation and civil engineering, as well as being one of the global leaders in green hydrogen technology.

But as a share the company hasn’t been great. It’s not a profit-making company and so no dividends are forthcoming.

Ceres opened trading at 210.6p on 24th October. Over the year-to-date Ceres returned -41.5% and over one-year also fell by -34.2%. The company’s shares ranged between 196.1p and 518p over a 52-week period. The company has a market capitalisation of GBP403m.

In its last results for the half-year to end-June, Ceres saw its pre-tax loss increase by 7.8% year-on-year to GBP26.4m. Management explained this away by saying the company was “[investing] in the future” having made over GBP30m in investments and R&D.

So, why invest in Ceres Power?

It did increase its revenue y-o-y by 17% to GBP11.3m but warned that the market should expect that revenues would continue to be depressed as it had hit licencing hurdles in China with its Bosch-Weichai tripartite agreement and it might not have cleared these regulatory obstacles in time for the revenues from the collaboration to be included in the 2023 numbers.


The last few results announcements have flattered to deceive and there are fears that the company is stuck in reverse gear, especially given that it is so dependent on a few big partners, who move with the grace and speed of a drifting oil tanker. So why invest in Ceres Power?

Well, although Ceres has done a huge amount in the alternative energy space since 2001, and has had some really innovative products, the world is still very much in the foothills of the transition. There are a number of technologies competing to be the ultimate global solution and hydrogen is one and solid oxide fuel cells is another. Until big corporations show their hand, it’s going to be hard to say which way the industry will evolve. Having Bosch, Shell, Honda and Weichai already onside is a great start, with potential future collaborations with MSC, the world’s biggest shipping line and Carnival waiting in the wings.

Ceres Power is one to watch

Then you have to ask, do you believe in hydrogen? Since the War in Ukraine and the scramble to find new sources of independent, cheap, and carbon-neutral energy, hydrogen has garnered a lot more attention. However, its early days still, but if you believe hydrogen is the answer, this is a stock for you. If not, walk away.

Second, with the myriad of solutions being developed globally, does Ceres have the right toolkit? I would argue it does, and with Bosch, Honda and Weichai in the back room, Ceres should (if it can get a deal over the line) have the muscle to develop its product to mass commercialisation.

It is a hugely innovative company. Its investment in RFC shows it is always looking to build a better mousetrap and its products, like the award-winning SteelCell solid oxide fuel cell that not only creates green hydrogen, but if you run it in reverse generates electricity, is the sort of product, should it get into the mass market, will have huge potential domestic and commercial applications, especially in vast coal-dependent territories like China.

It then comes down to whether you believe Ceres can make money. It hasn’t to date. However, if this China deal goes through, and it gains traction in India and South Korea the firm could be seriously in the money.

Now could be the time to get in at the ground floor, and this is definitely ‘one to watch’.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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