the future

Ceramic Fuel Cells Limited 3rd Quarter Trading -2-

In May the Company appointed RES On-Site Limited, part of the RES Group, as a non-exclusive distributor in the United Kingdom. RES On-Site will target the commercial microgeneration energy market throughout the UK. RES On-Site holds MCS (Microgeneration Certification Scheme) installer accreditations in a wide range of technologies and is adding the microCHP accreditation to this and so will provide installation and after-sales service for BlueGen products.


The RES Group is a leading international renewable energy company with operations across Europe, North America and Asia Pacific. To date the RES Group has delivered more than 5GW of renewable energy projects worldwide. RES On-Site sells and installs a range of low emission power and heating products for commercial, industrial and public sector customers, including wind, biomass, solar PV and solar hot water.
Australia
The Company is continuing to work with its existing distributors, Hills Holdings Limited and Harvey Norman Commercial division, to market BlueGen units to commercial customers, such as Governments and Councils, commercial buildings, hotels, property developers and architects, and schools and educational facilities.
During the quarter the Company received its first order from Harvey Norman Commercial division, for a BlueGen unit to be installed in Sydney at the Ultimo TAFE centre for technical education.
The Company and neco have agreed to terminate neco's distribution agreement from 1 July 2011. The Company has agreed to expand the distribution territory of each of Hills and Harvey Norman Commercial to include Victoria.
Training for Installation and Service Partners
An important part of deploying the BlueGen product into the market is to ensure high-quality installation and after sales service.
For early units Ceramic Fuel Cells provided all these services. In order to focus its engineering resources, and reduce the support costs for commercial products, the Company is actively transitioning towards just providing manufacturer's technical support, with local distribution and service partners providing installation and on-site maintenance services to customers.
The Company has prepared comprehensive training materials and has conducted initial training for European service partners in the Heinsberg factory. Further training will be conducted for Australian service partners in Melbourne.
3. Integrated mCHP product
As previously announced, the Company has received an order for up to 200 integrated power and heat generators 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.
The order was conditional on part of the project funding being provided by the German government's national hydrogen and fuel cell technology innovation program. In July the German Government formally approved funding for the project.
In this project Ceramic Fuel Cells is supplying the core Gennex fuel cell module and related components to its local manufacturing partner, Gebruder Bruns Heiztechnik GmbH, which is integrating the fuel cell module with a boiler into an integrated power and heating product for supply to EWE. EWE will then install the units in homes in the Lower Saxony region in northern Germany.
Based on an earlier letter of intent from the funding authority, EWE has already installed eight integrated units into homes.
EWE plans to install a total of 55 units by 31 December 2011. Subject to these units meeting agreed performance targets, EWE will then order a further 145 units for delivery in 2012.
This is a significant follow-on order from EWE, the Company's longest standing utility customer. 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.
Apart from the project in Germany with EWE, the Company is also developing and deploying integrated mCHP units in France and the UK.
In France, the Company is developing the next generation of an integrated mCHP unit for the French market in partnership with BDR Thermea. This unit is currently undergoing testing for CE approval, and will then be operated with GDF-Suez.
Similarly, the Company has also developed and will shortly deploy two integrated mCHP units in the UK that represent the next generation of an integrated product for the UK market. This development is being undertaken in partnership with E.ON UK.
In line with the Product Development Agreement signed in 2009, the Company and EON.UK are in ongoing discussions about further opportunities to develop and supply mCHP products for the UK market.
4. Australian Government's Clean Energy Future Plan
On 10 July the Australian Federal Government released its Clean Energy Future plan. The plan includes a range of policies designed to reduce Australia's greenhouse gas emissions and drive investment in new clean energy sources such as renewables and gas.
The centrepiece of the plan is the introduction of a carbon price - initially a fixed price of AUD 23 per tonne from July 2012 to 2015, then moving to a market-based emissions trading scheme.
Ceramic Fuel Cells strongly supports the Government's policy of putting a price on carbon to cut Australia's emissions and to reward energy efficiency.
We are pleased that the Government's policy document recognizes that "Electricity generation accounts for the largest share of Australia's current emissions, so Australia's transition to a low-emission future requires a significant transformation in this sector."
The Government's policy documents include detailed modelling on Australia's energy future, including the following points:
-- A carbon price will drive a significant shift in electricity generation, away from high emissions coal-fired generators to renewables and low emissions gas-powered generators.
-- Once the carbon price is introduced, there will be no new commercial-scale coal-fired power stations approved and commissioned in Australia, at least without carbon capture and storage (CCS).
-- It will take until the 2030s to know if CCS is viable - and if it does not become viable, gas will provide significant additional generation.
-- Investment of AUD 50-60 billion in new gas-fired power generation is required between now and 2050.
-- Gas remains an important component of Australia's power generation, increasing by more than 200 per cent by 2050.
-- Wholesale electricity prices are projected to increase by 40 per cent from 2013-17 and 38 per cent from 2018-22. This is under the "core policy" scenario. Under a "high price" scenario prices go up by 78 per cent and 94 per cent.
-- Household retail electricity prices will go up by 10 per cent from 2013-17 and 8 per cent from 2018-22 (or by 17 per cent and 21 per cent in the "high price" scenario).
Once a carbon price begins to increase wholesale power prices, and to drive the shift from coal to gas-fired generation, the benefits of high efficiency electricity generation will become more valuable, to energy utilities and to households and businesses.
The carbon price is forecast to drive very large investment in gas-fired generation; and the Company's products are the most efficient form of using gas to generate power close to where it is used. The Company believes that as households and businesses continue to be hit by rising electricity bills, on-site high efficiency generators like BlueGen will provide a compelling alternative.
Apart from the carbon price, the Government's policies released on 10 July also contain a large increase in funding for clean energy, including:
-- Clean Energy Finance Corporation: The Government will invest AUD 10 billion (over 5 years from 2013-14) in a new commercially oriented Clean Energy Finance Corporation (CFEC). Five billion dollars will be invested in renewable energy, energy efficiency and clean technology. "The clean energy stream will invest more broadly; for example, in low-emissions cogeneration technology, but will still be able to invest in renewable energy".
-- Clean Technology Investment Program (AUD 800 million over seven years from 2011-12): Competitive grants (minimum grant size of AUD 25,000) for manufacturing businesses to invest in energy efficient capital equipment and low-emissions technologies, processes and products. Examples of where funding will be utilised include "investing in co-generation plants".
-- Low Carbon Communities (total funding of AUD 330 million over six years from 2010--11): The expanded Low Carbon Communities fund will provide competitive grants for local councils and community organisations to undertake energy efficiency upgrades and retrofits to council and community use buildings. Examples of projects that could be funded under this stream include "installation of cogeneration/trigeneration systems".
Ceramic Fuel Cells looks forward to the Federal Government implementing these policies, as well as complementary measures, particularly a broad-ranging national energy efficiency scheme.
This would build on the work done by the Task Group on Energy efficiency in 2010, and on existing policies for energy efficiency such as the AUD 1 billion Tax Breaks for Green Buildings program, which provides tax incentives from July 2012 for commercial building owners to invest in energy efficiency, including efficient on-site power and heating.
5. BlueGen Product Approvals and Feed in Tariffs
During the June quarter the Company's operations and engineering teams invested significant time and resources in having BlueGen approved under regulatory regimes in several markets.
Germany
BlueGen received full CE safety approval in April 2010. This allows BlueGen products to be installed in homes and buildings in Europe. This is a full "type" approval for all BlueGen products - it is not just a "prototype" approval for field trial units.


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