Memorandum submitted by Ceres Power
SUMMARY
Ceres Power welcomes this inquiry by the Energy
and Climate Change Committee. The UK faces a number of energy
and economic policy challenges over the next few decades, including
energy security, job creation, industrial competitiveness and
carbon emissions reduction targets. Fuel cell micro-CHP, as a
low carbon microgeneration technology, should play an important
role in helping Government rise to these challenges but, in order
for this to happen, policy conditions must be right.
Policies, such as CERT (Carbon Emissions Reduction
Target), must take care not to stifle innovation and the transition
to feed-in tariffs must be in parallel with any future supplier
obligation programmes. The Government must follow up on high level
announcements with detailed measures that provide industry and
investors with reassurance. Budget 2009 promised £1.4 billion
of extra, targeted support in the low-carbon sector but lacks
sufficient information on how it will be spent. Greater reassurance
could help to fill the investment gap resulting from the economic
downturn although fiscal support will be needed as well. This
could be achieved through the existing R&D tax credit system
or by allowing loss-making low-carbon companies to claim immediate
cash funding against accumulated tax losses.
Ceres Power hopes that Government will provide
the necessary policy support to products currently in the product
development phase to help them reach the mass market, enabling
UK plc to benefit from the resulting jobs and economic growth
whilst remaining at the forefront of technological development.
We would be more than happy to provide further evidence to the
Committee on the potential of fuel cell micro-CHP.
WHO WE
ARE
Ceres Power is a UK-based AIM-quoted alternative
energy company that is developing a small scale combined heat
and power unit for residential applications. This "micro-CHP"
product uses fuel cells rather than engine technology such as
a Stirling Engine and therefore has very different and beneficial
characteristics. Ceres Power has secured major distribution agreements
with British Gas and Calor which will enable their residential
customers to enjoy convenient, low carbon, cost-competitive energy
using environmentally friendly products. It is also developing
a low-carbon energy security product for EDF Energy Networks.
We are proud of our place amongst world-leading
alternative energy companies able to support UK competitiveness.
Following our signaled investment commitment to building a high-value
mass manufacturing plant located in the UK, Ceres Power wishes
to avoid UK companies losing their competitive advantage or relocating
to more supportive countries. Our group will then be able to provide
the material benefits to UK energy policy goals of reduced customer
energy bills, major carbon savings and more secure energy supplies.
THE CONTRIBUTION
OF MICROGENERATION
TO CARBON
REDUCTION TARGETS
AND ENERGY
SAVING
Microgeneration products, such as fuel cell
micro-CHP, could provide 30-40% of the UK's electricity needs
according to a study commissioned by the Government from the Energy
Saving Trust and could therefore make a vital contribution to
reaching the Government's target of an 80% reduction in carbon
emissions by 2050.
The energy saving benefits of Ceres Power products
include:
— Reduction in the home's total energy
costs (gas + electricity) of around 25% to help affordability
and address fuel poverty
— Carbon emissions reduction of up to 2.5 tCO2 when
replacing today's boilers or 40-50% of a typical UK home's footprint
— A cost effective, mass market way to
reduce emissions in as-built and new-build homes
— Capable of significant impact on the
UK's carbon reduction targets, even by 2020 via linkage to
boiler replacement cycle with 1.5 million units per year
(ie 1Gw/yr potential for micro CHP deployment).
Ceres Power believes that large scale infrastructure
projects such as nuclear, renewables and successfully demonstrated
Carbon Capture and Storage technology are only part of the solution,
and only part of the opportunity in building a low carbon economy.
Micro-CHP powered by fossil fuels will reduce carbon emissions
into the long-term as a result of it displacing peaking plant
which will be high carbon for decades to come. Its value is reinforced
by the costs and difficulties of decarbonising the grid. It should
also be born in mind that micro-CHP's fuel type can also decarbonise
(ie to biogas, H2) on the same sort of timeframe as the electricity
grid can decarbonise, therefore it has a role to play for decades
to come (easily to 2030-50).
We now hope that Government will create the
conditions, as outlined below, under which microgeneration companies
such as Ceres Power can continue to lead in new low carbon products
and services.
DELIVERING MICROGENERATION
POLICY
In order to allow fuel cell micro-CHP to fulfil
its potential in terms of contributing to carbon reduction targets,
energy security and economic recovery, Ceres Power believes that
the following policy considerations are necessary.
1. Feed in Tariffs
The Government's outlined plans for a feed in
tariff in the Energy Act 2008 and rested its commitment to
introduce them in its Heat and Energy Saving Strategy (DECC, 2009):
"The new financial incentives planned to promote renewable
heat generation (the RHI) and small-scale low carbon electricity
generation (feed-in tariffs, or FITs) will help households who
wish to generate their own low carbon energy to overcome some
of the upfront costs of installations." FIT for micro-CHP
will help deliver the country's energy policy goals through accelerating
these products uptake in mass market volumes and should be designed
with this objective in mind and aim deliver cost-effective CO2 saving.
Micro-CHP offers the potential for excellent value for money in
terms of £ per tonne of carbon saved and technology cost
assumptions rightly form a key input into the FIT model when determining
its level of support for individual technologies.
2. Design of CESP and extended CERT must not
stifle innovation
It is imperative that the design of the extended
CERT (Carbon Emissions Reduction Target) and CESP (Community Energy
Saving Programme) does not prohibit or discourage the introduction
of new and innovative products which may come on line before December
2012. CERT and CESP must plan to actively support and incentivise
product innovations that are highly likely to become available
during the lifetime of these policies. A Government framework
should not stifle deployment of new technologies simply because
the policy has not caught up.
3. Greater uplift needed for microgeneration
technologies
Greater uplifts for microgeneration technologies
are needed to incentivise uptake in CERT and CESP. Failure to
increase the uplifts, or at the very least provide a more accurate
comparison of the carbon benefits of microgeneration with respect
to more traditional CERT measures, will extend the poor uptake
of microgeneration technologies under the current CERT arrangements.
4. Coordinated policy support
Should the Government decide to introduce FIT
reward for micro-CHP, it is imperative that this is integrated
and works in tandem with any obligation on suppliers through CERT
and CESP or its successors. Promotion of an integrated approach
will ensure that fuel cell micro-CHP is effectively supported
across a range of policies.
SUPPORTING LOW
CARBON INDUSTRY
Government investment and fiscal support is
required to support technologies in their "product development"
phase such as fuel cell micro-CHP. A significant proportion of
the investment required during this phase is normally provided
as investment from supply chain partners. The credit crunch has
eliminated the availability of such investment-in-kind due to
a collapse in funding for their core operating businesses starving
the new technologies of resources. Equity funding is also not
available to finance the product development phase of new technologies.
5. Budget stimulus package detail
The 2009 Budget built on existing Government
policies by promising £1.4 billion of extra, targeted
support in the low carbon sector, including £70 million
for decentralised small-scale and community low carbon energy
and £405 million to support low carbon industries and
advanced green manufacturing. Little detail on the stimulus package
has been provided on this however, giving little reassurance to
industry and investors.
6. Corporation tax funding
We recommend that Government uses the existing
corporation tax system to bridge the funding gap created by the
credit crunch and to assist in making available the necessary
funding to support the product development phase through to market
launch. The following are examples of how this could be achieved:
— Extend the existing R&D tax credit
system to enable claims to be made against a much broader range
of expenditure and against part-funded development programmes.
— Allow loss-making low carbon companies
to claim immediate cash funding against accumulated tax losses
rather than offset these tax losses against future taxable profits.
This could be achieved by the companies issuing a "green
bond" secured on the accumulated tax losses and to sell these
green bonds to the Bank of England as part of the current quantitative
easing programme. The bond could be repaid by the company at any
time (eg through an equity/debt refinancing when markets recover)
or out of the future taxable profits of the business.
7. A Green New Deal
As unemployment in the UK rises, the economy
is desperate for the new jobs that low carbon technologies can
provide. For example, Ceres Power has already created nearly 100 jobs
in the UK and plans to create further employment in high-value
R&D manufacturing and engineering. Conditions in the UK need
to be right in order that UK plc should benefit from a Green New
Deal rather than other countries with a more attractive economic
climate and approach to regional development funding.
May 2009
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