Ceres Power and the new clean tech boom

It’s one of the most successful and most popular green energy companies among investors, so we asked Ceres Power (LSE:CWR)'s CEO Phil Caldwell about his different business model, what his fuel cell technology company has that others don't, share price valuations and if the new green energy boom can last.

Lee Wild, head of equity strategy, interactive investor: Hello. Today I have with me Phil Caldwell, chief executive of fuel cell technology company Ceres Power.  Hi, Phil.

Phil Caldwell, CEO of Ceres Power:  Hi there.

Lee Wild: There’s been a fresh wave of interest in clean technology companies like yours and, for those who don’t know, could you explain in simple terms who Ceres Power is and what it does.

Phil Caldwell:    Yes. So, Ceres Power is a leading solid oxide fuel cell technology company.  What does that mean? So, we develop a very high efficiency fuel cell that is the most efficient way to generate power from any fuel, and it can be everything from low carbon to zero carbon and zero emissions technology.  And, its applications are numerous, it goes into stationary power, it can go into transportation, and if you run it in reverse it can also generate green hydrogen.

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We work with some of the world’s leading organisations, like, Bosch in Germany, Doosan in South Korea, Wai Chi in China, and our purpose as a company is, really, to provide businesses with the technology they need to address climate change. So, we’re all about clean energy technology.

Lee Wild: Now, you’ve a different business model to rivals, like ITM Power (LSE:ITM) and others, what’s the difference and is your approach better?

Phil Caldwell: I wouldn’t say better, I’ve got huge respect for companies like ITM. But we’ve taken an approach which we’ve taken from the chip industry, so people might be familiar with ARM. And, what we believe is at Ceres we’ve got a very unique technology, nobody makes fuel cells in the same way that we do using low-cost steel, low-cost ceramics. 

And, because it’s highly differentiated and protected by very significant intellectual property (IP) we’re able to operate on a licencing business, and the advantage of that is, one, it’s a very high margin business model. So, we generate margins in our just recent results of 67%, whereas, a lot of players in the industry are in that 20-30% gross margin. 

Also, we really like this model because we get to partner and scale the business simultaneously in different applications and different geographies.  So, at the same time we’re working, let’s say, in transportation in China with Wai Chi, we’re working with Bosch in Germany on stationary power, we’re also in the South Korean market with Doosan in power systems for shipping and utility scale.

So, it enables us to really address multiple markets from the same core technology base and do what we’re best at, which is develop the core technology and leverage the capabilities of highly skilled global players like Bosch, for example.

Lee Wild: Well, look, many governments are committing to net zero emissions, and you say in your recent results that many of the existing players that are active in the power markets are examining their technologies and how well equipped they are to make this transition. Now, why should they choose Ceres Technology and not a rival technology provider?

Phil Caldwell: It all comes down to what’s the best technology for that particular application. And, we are particularly strong in stationary power because we have amongst the highest efficiencies out of any of the technologies available. And, because of our unique way of actually producing and manufacturing fuel cells we have something that’s highly scalable and a low cost path.

 So, it’s really driven by our partners and they are very sophisticated engineering and equipment manufacturers, you know, so companies like Bosch, for example, they spend over a year deep dive into the technology due diligence before they select a company or technology like Ceres.  Similar approach with the Japanese, I think we’re only the non-Japanese fuel cell on sale in Japan now, and that tells you a lot about, not just the quality of our technology but also the quality of our people in terms of our engineering and our skillsets.

Lee Wild: It’s a growing market, there is likely to be plenty of business to go around.

Phil Caldwell: Yes, absolutely.  I mean, I think there’s a misconception in clean tech that there’s...you know, I often get asked by investors, which technology is going to win. And, you know, that’s, kind of, it’s just flawed, I mean, if we’re going to tackle climate change in the time frame that we need to, you know, you might have heard this phrase, we’re going to need every tool in the box. That means we’re going to need renewables, we’re going to need batteries, we’re going to need fuel cells, we’re going to need electrolysers, we’re going to need storage, all of these technologies must come to play because they all have a role in this energy system of the future.

And, if you think about the size of that opportunity, you know, if you think about hydrogen is talked about as being the fuel of the future, you’re talking about going from something like 50 million tons of hydrogen today, mainly fossil based, to 500 million tons of hydrogen required to achieve no more than a 1.5°C temperature rise by 2050. So, you’ve got the clean tech sector has significant scale up that has to happen in the coming decades, and that’s a huge business opportunity for companies like Ceres.

Lee Wild: You partly answered my next question, actually, I was going to say, it’s been over a decade since the clean technology sector was last this popular, really want to know do you think the boom is sustainable? Why are things different this time and what will be the catalysts that justify the current share price valuation and generate further share price gains for shareholders?

Phil Caldwell: Yes. I think, to answer your question, it is sustainable. I’ve been in fuel cells now for 18 years, so I saw the first wave of interest in clean tech, the back end of that first clean tech bubble, kind of, and then where we are today. And, I would summarise it as, it was technology push, when I first got into fuel cells we were trying to push fuel cells into applications where people, big companies didn’t really need them.

And then, what’s happened is a couple of things, you’re getting huge disruption of existing industries. You’ve got renewables becoming the cheapest form of energy available and totally disrupting conventional utilities. You’ve got electrification coming in, totally disrupting conventional transportation.  You’ve had regulations come in on the back of diesel gate, you’ve got air quality issues.  And now, we’ve got the very urgent targets on climate change.

Clean tech version one didn’t have any of that macro geopolitical kind of factors associated with it, it was very much technology push. Now, you’ve got huge demand and that demand has intensified, I would say, in the past year to 18 months, because everybody now, all the developed nations have big incentives post-Covid for agreeing recovery. You’ve got Korea with huge incentives around hydrogen and fuel cells, China committing to being carbon neutral by 2060, and now the European Union with huge targets on hydrogen and fuel cells.

So, those policy decisions plus the disruption of conventional industries now mean that the private sector is investing more than ever in bringing these new technologies to market. And I’ve mentioned some of our partnerships but you’ve seeing that all across the sector. Then, finally, institutional money is now flowing in in the shape of ESG [environmental, social, governance] type money, so you have this perfect storm of, it’s a must do agenda, it’s now a political agenda as much as it’s commercial.  There’s big disruption, there’s a huge commercial agenda, and now you’ve also got the capital finally flowing in that can really make a difference, so it’s here to stay.

In terms of your question about valuations. Yes, sure, there’s been an increase, a rapid increase in valuations of companies like Ceres where, you know, are emerging as one of the leaders in these kind of technologies. I think that’s because there’s something of a scarcity of these kind of companies and, really, for us now it’s about delivering growth. Because, I think to justify these kind of valuations we’re a technology business, were a tech company, it’s common in other industries, you see a lot of excitement around the growth potential of these companies and we have to fulfil that.