Going Blue To Go Green

By James Dunn | More Articles by James Dunn

With carbon pricing and/or taxing back in the news – let’s not get into a semantic debate about it – it is an apposite time to re-examine one of the more interesting energy exposures on the Australian Securities Exchange (ASX), Ceramic Fuel Cells Limited (CFU).

CFU is trying valiantly to commercialise its BlueGen gas-to-electricity generator units for home use. The company was formed in 1992 by the CSIRO and a consortium of energy and industrial companies and listed on the Australian Stock Exchange in 2004. CFU shareholders are still waiting for the company to make a profit, which sounds like a situation to avoid, but the story is certainly not without its attractions.

CFU is a world leader in developing fuel cell technology to generate highly efficient and low-emission electricity from natural gas. The company’s BlueGen unit is a dishwasher-sized solid oxide fuel-cell unit that converts mains natural gas into electricity, water and heat. This “distributed generation” for household use delivers far more efficiency (and lower carbon dioxide emissions) than coal-fired electricity.

Distributed generation – Using ceramic fuel cells, BlueGen electrochemically converts natural gas into electricity at up to 60 per cent electrical efficiency. Electricity is consumed locally, with unused power being exported to the grid.

The company has sold BlueGen to major utilities and other foundation customers in Germany, the United Kingdom, Switzerland, The Netherlands, Italy, Japan, Australia, and the USA. CFU is also developing fully integrated power and heating products with leading energy companies E.ON UK in the United Kingdom, GdF Suez in France and EWE in Germany.

Over the course of a year, each BlueGen unit can produce about 13,000 kilowatt hours of electricity – more than twice the power needed by an average Australian home – and surplus electricity can be sold back to the grid. The heat by-product is enough to produce 200 litres of hot water a day. Think of it as a mini co-generation plant for the home.

A BlueGen unit operates continuously, generating 1.5 kilowatts of electricity per hour plus heat for hot water, 24 hours a day, seven days a week, regardless of weather. The unit has a peak electrical efficiency of 60 per cent, which according to CFU is higher than any other form of small-scale electricity generation. And if the heat from the BlueGen unit is used to produce the house’s hot water supply, total efficiency increases to up to 85 per cent – which is three to four times better than that of the average coal-fired grid.

A BlueGen unit allows a homeowner to cut the house’s carbon dioxide emissions by up to 18 tonnes a year.

The units are also ideal for small business premises.

Inside the BlueGen unit.

The core concept is “distributed” capacity of low-emission electricity generation – instead of the electricity being created by a coal-burning power station and sent off along the transmission network, the generation is based at the level of the home.

That is why it has higher conversion efficiency than grid electricity – on the grid, after combustion at the power station and transmission losses over the poles and wires before it gets to your house, conversion efficiency is about 25 per cent.

The BlueGen units cost about $30,000 a unit. The attraction for the home (or small business) owner is how quickly they can make the unit pay back that cost in power savings, which will depend on their power and water costs to start with. But the payback period is much quicker than with solar.

Importantly, in September 2012 Victoria became the first state to offer a feed-in tariff to users of any electricity-generating technology who can generate more power than they can use: in other states, and previously in Victoria, feed-in tariffs only apply to solar power generation. Victoria cut the solar feed-in tariff from 25 cents a kWh to 8 c/kWh, but extended the scheme to include all electricity generators of less than 100 kilowatts – which brought BlueGen into the mix.

At the moment, CFU is concentrating its efforts in Europe, where the feed-in tariffs are more generous. In particular, Germany is very interested in the concept, recognising that BlueGen can help counter the huge fluctuations in output that continue to hamper the large-scale adoption of locally generated power from wind and solar – and at a lower cost. CFU has moved its manufacturing base – and chief executive officer’s office – to Germany.

BlueGen is a low-emission (of carbon dioxide) source of power, while wind and solar are no-emission sources – well, apart from their construction, that is. One of the keys for CFU will be acceptance of its technology such that they can scale-up manufacturing volumes, which will lower the cost of the fuel cells to make them even more competitive. The other will be acceptance by governments that low-emission sources are more achievable than the unfeasible no-emissions Nirvana they seek.

High electrical efficiency – BlueGen produces electricity at high efficiency – up to 60 per cent electrical efficiency. That’s the same electrical efficiency as a large Combined Cycle Gas Turbine.

On no financial metric does it make sense to buy CFU. It does not make a profit. It was suspended from trading earlier in the year until it could raise £5 million to meet its working capital commitments. It trades at 4.5 cents a share, down from levels above 30 cents five years ago. That could not be said to be a promising sign – but the actual technology at the heart of the story remains promising.

About James Dunn

James Dunn was founding editor of Shares magazine and has also written for Business Review Weekly, Personal Investor, The Age and Management Today. He was subsequently personal investment editor at The Australian and editor of financial website, investorweb.com.au.

View more articles by James Dunn →