Memorandum submitted by Ceres Power Ltd
SUMMARY
1. Ceres Power welcomes this inquiry by
the Environmental Audit Committee. The UK faces a number of energy
and economic policy challenges over the next few decades, including
green job creation, industrial up-skilling and encouraging low
carbon investment in a recession. 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, the policy conditions must be right.
2. 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. Government should
provide fiscal support and help to fill the investment gap resulting
from the economic downturn fiscal support. 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.
3. 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.
These include our proposed measures addressing a range of problems
we face that highlight the need for Government policy intervention
to improve and enlarge the skills base for the UK environmental
industries.
WHO WE
ARE
4. 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 would be more than happy to provide further evidence to the
Committee on the potential of fuel cell micro-CHP.
5. 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 ECONOMIC
AND SOCIAL
BENEFIT OF
PLANNED GREEN
INVESTMENTS
6. Microgeneration products, such as fuel
cell micro-CHP, could provide 30-40% of the UK's electricity needs
according to a study informing the Government's sector strategy
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.
7. 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).
THE EXTENT
TO WHICH
THE CHANGES
IN PUBLIC
SPENDING WILL
CONTRIBUTE TO
SUSTAINABLE DEVELOPMENT
AND ENVIRONMENTAL
PROTECTION
8. 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.
9. Fuel cell micro-CHP was not directly
assigned funding under the Budget 2009 despite facing large
funding challenges during its product development phase. However,
following its volume market entry in 2011, it will start to reduce
carbon emissions into the long-term as a result of 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).
THE GOVERNMENT'S
LONG-TERM
POLICY FRAMEWORK
10. The Government's long-term policy framework
can encourage low carbon investment and increase employment in
environmental industries and their associated supply chains. Environmental
regulations, tax changes and new market instruments can create
the conditions under which microgeneration companies such as Ceres
Power can continue to lead in new low carbon products and services.
11. New market instruments rightly form
a central element of the Government's energy policy framework.
The Government's outlined plans for a feed in tariff in the Energy
Act 2008 and restated 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." FITs 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 to deliver cost-effective CO2 savings
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.
12. Tax changes can encourage low carbon
investment through use of the existing corporation tax systems
to bridge funding gaps and meet added supply chain demands created
by the credit crunch. In the case of Ceres Power as well as many
other environmental industries this could assist in making available
the necessary funding to support the product development phase
through to market launch.
13. 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 an environmental
industry 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.
14. When Government considers further changes
to the long-term policy framework it should not stifle deployment
of new technologies simply because the policy has not caught up.
Several potential instances of this potential risk relate to DECC's
Heat and Energy Saving Strategy and are concerning to Ceres Power:
— Design of the extended CERT (Carbon Emissions
Reduction Target) and CESP (Community Energy Saving Programme)
should 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.
— 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.
15. Coordinated support across the Government
policy framework is vital. Should the Government decide to use
the enabling legislation and introduce FIT reward for micro-CHP,
it is imperative that this is integrated and works in tandem with
any obligation on energy 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.
THE GREEN
FISCAL STIMULUS
16. Government 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.
17. 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.
18. 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.
The nature of these jobs that could be accelerated by green fiscal
stimulus measures are in high-value R&D manufacturing and
engineering, fuel science, product innovation, energy and applied
science, and the enabling industry geared to providing innovative
products and services. In the case of Ceres Power, this latter
category will include electricians and gas appliance fitters whose
new green jobs will build on our fuel cell scientists when our
micro-CHP product reaches market entry in 2011.
THE LOW
CARBON INDUSTRIAL
STRATEGY
19. Conditions in the UK need to be right
in order that UK plc should benefit from a Low Carbon Industrial
Strategy rather than other countries with a more attractive economic
climate and approach to regional development funding.
THE SKILLS
BASE FOR
UK ENVIRONMENTAL INDUSTRIES
20. Ceres Power has faced a range of problems
that highlight the need for Government policy intervention to
improve and enlarge the skills base for the UK environmental industries.
Government spending has concentrated on the three R's and basic
IT skills—an "educational recovery" plan that
contrasts with a pressing need to tackle professional scientific
development and facilitate science in a commercial setting. Ceres
Power faces the ongoing challenge of specialists not matching
our position within the environmental industries—our innovative
product is not matched by a human resource whether as an energy
scientist or a combined heat and power installer.
21. To enhance the skills base for UK environmental
industries Ceres Power suggests the following policy measures
are considered:
— Support policies addressing the management
development of scientists and engineers to widen their roles and
assist their corporate development.
— An international conference bursary scheme
to foster UK environmental leadership through learning from international
best practice.
— Encouragement of professional support
networks.
— NVQ 3+ focussed support.
— Support for environmental industry initiatives
to development in-field support infrastructures eg the use of
equivalent schemes to the existing Microgeneration Certification
Scheme to cover new technologies such as fuel cell micro-CHP.
— Creating programmes to encourage multi-skilled
tradespeople (eg gas fitters and electricians).
22. Ceres Power hopes that such measures
could be considered within the remit of the forthcoming DIUS Active
Skills paper detailing how the wider skills system will support
the Low Carbon Industrial Strategy. We also hope that the Government
will respond without delay as was stated in New Industry, New
Jobs (April 2009) to the UK Commission for Employment and Skills
when it publishes its recommendations for delivering a simplified
and effective skills service for business.
2 June 2009
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