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Ceres Power – Understanding The Basic Idea

Updated 6 Jan 2022

Key points:
-Ceres Power is creating a possible building block of the climate change solution.
-The problem for valuation of Ceres is that it’s only a possible building block.
-The world may or may not decide to take that Ceres route to a solution.
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Ceres Power Holdings PLC (LON: CWR) shares could be one of the great investments of our times. They also could not be. We could say this about any company of course but the issue is deeply important for Ceres. For what they do – fuel cells – could be the grand solution to climate change. It could also not be and it’s not, not really, the individual company Ceres which is going to determine that.

This little note is not about the details of Ceres nor trying to predict short term price movements. It’s a backgrounder on the basic technology and how that fits into the market as a whole.

We all know about climate change, we all agree that whoever comes up with the technological solution is going to make a fortune. We’d like a piece of that when they do and thus why we look at companies like Ceres.

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To beat climate change we need to be able to heat homes, power cars, generate energy, without emitting CO2. What Ceres does is one possible part of such a system, fuel cells. More specifically, they work with solid oxide fuel cells. This basic technology has been known for a century and a half but it’s only in the past decade and two that serious attention has been paid to their refinement.

We could all run off lithium batteries, as a large part of the current bet is. Certainly that’s the way the car industry is moving but perhaps it shouldn’t be. For an alternative is these SOFC fuel cells as with those from Ceres. So too for domestic heating, hot water and so on. It’s an entirely different approach to the same problem.

Essentially, one way to do this is to generate electricity free from CO2 – windmills, hydro, solar – and then everyone uses electricity to do things. So, heat pumps in homes, lithium batteries in cars and so on. But this hits a problem – it’s difficult to store electricity in quantity. We’re certainly nowhere near being able to put enough batteries on the grid to keep the country running more than a few hours.

However, it is also possible to think of “a battery” as being anything that stores energy. In this meaning coal is a battery, so is oil. That’s rather our basic problem in fact. But what if there were alternative methods of storing that wind and solar energy? “A battery” rather than “lithium batteries”? This is where fuel cells come in.

For it is possible – expensive but possible – to convert the wind and solar power into hydrogen by electrolysis. That can then be reformed up to ammonia, methane, the chemistry here is known. We can then run fuel cells off the methane, say. Or, we could say that the hydrogen itself is the battery, the fuel cells are the method of extracting that energy to use when we want to. (It’s also true that running the fuel cells backward can be a way of creating the hydrogen). We’ve now moved that wind and solar power across time, the one grand problem of the current system being that we can’t currently do that.

So Ceres Power is dealing with one potentially huge technology, those solid oxide fuel cells. But whether it becomes a world bestriding technological giant depends not so much upon what Ceres does as what the rest of the world does around it. If – and it is an *if* – the green hydrogen revolution takes off that SOFCs will become a significant part of the general energy mix. For if you’ve got cheap and green hydrogen then fuel cells are a part of that solution.

It’s entirely possible to think that lithium batteries and the like will have the technological space locked up. Or, the opposite, that the current push for green hydrogen is going to work. But it’s that second which is the breakout case for Ceres Power. Over the long term a useful working guide will be that Ceres will track that hydrogen revolution.