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How to invest in green energy companies: Ceres Power CEO’s advice on sustainable stocks

·4-min read
 (PA)
(PA)
Phil Caldwell, Ceres Power (Phil Caldwell, Ceres Power)
Phil Caldwell, Ceres Power (Phil Caldwell, Ceres Power)

Ceres Power has struck a deal to help a fellow Imperial College London spin-out bring the world’s cheapest flow battery to the market.

The green energy pioneer is taking an 8.4% slice of RFC Power, which is developing the low-cost storage technology considered a missing “puzzle piece” in the UK’s commitment to a net-zero grid by 2040.

The partnership comes as Ceres, led by Phil Caldwell, prepares to apply for admission to London’s main market after almost 20 years on the junior AIM index.

It’s £2.2 billion valuation - bigger than WH Smith and Aston Martin - would make it eligible to swiftly enter the mid-cap FTSE 250.

Such a move would be a welcome boost for London’s markets. Britain’s tech stars typically turn to the US as they outgrow the UK’s investor market, a trend the government and City is battling to reverse.

Caldwell believes a combination of investor pressure, carbon taxes and top-down regulation will soon push the cost of renewable energy to parity with traditional fossil fuel.

The market opportunity is huge

He said: “We’ve always lived with the assumption that fossil fuels are low cost, and that feeds our addiction to them.

“But as supply issues and carbon taxes push up the price, alternatives will start to become commercially viable.

“Storage is ultimately what will enable the penetration of renewables. It’s a huge market opportunity, there’s huge amounts of money going into clean energy technology and that’s what will drive it to a tipping point.”

Caldwell advises investors to focus on the wider sector rather than attempt to pick out individual blockbusters, saying: “You have to bet on the big themes. It’s clear that certain trends are starting to become irreversible.

“To get to net zero we need hydrogen, it’s clear we need storage, batteries will be here to stay with electrification of transport.

“So from an investor point of view if you invest in good companies with the right partnerships, scale and ambitions in those areas then that’s the way I would approach this.

“Sometimes people say ‘is there a magic bullet, one technology that’s going to solve everything?

“That’s clearly not the way it’s going to happen. It’s going to take all the tools in the box. For those companies that achieve scale in this space the market opportunity is huge.”

It’s going to take all the tools in the box

Caldwell said his company’s own planned transfer to the main market would open up new opportunities to attract investors and funding.

He said: “We could probably get a higher valuation in the US but we’ve already done the hard work building an investor base here and we’re proud to be a UK company.”

Inside a data centre (AFP via Getty Images)
Inside a data centre (AFP via Getty Images)

Ceres has partnerships with global engineering giants including Bosch in Germany, Weichai in China and Doosan in South Korea who deploy its tech to build low carbon power systems for industry, data centres and transport.

It raised £181 million in a March funding round with City pension funds joining cornerstone investors Bosch and Weichai who hold stakes worth 18% and 20% respectively.

The company more than doubled in size from 200 to 500 staff during the pandemic and commissioned a giant new prototype manufacturing facility in Redhill.

 (Ceres Power)
(Ceres Power)

Its share price more than doubled in 2020 as investors piled into the booming market for ESG-friendly ‘ethical’ stocks.

The business model mirrors that of Cambridge-based phone chip-maker ARM Holdings with technology licensed out worldwide to engineering companies skilled in high-volume manufacture, with Ceres taking a fixed-fee royalty for every unit of energy produced.

That asset-light structure brings with it a healthy 70% profit margin. William Tudor Brown, co-founder of ARM, recently joined the board.

 (PA)
(PA)

RFC, meanwhile, was spun out of Imperial in 2017 and is based at the university’s White City incubator campus.

It is developing rechargeable flow batteries able to store the energy produced from wind and solar more cheaply and for longer than existing capabilities.

The deal will add to Ceres’s arsenal of clean electrochemical energy technologies.

Tim von Werne, CEO of RFC Power, said: "Energy storage is a critical component of the transition to a low carbon energy system.

“This partnership with Ceres Power will accelerate RFC’s technology development and enable us to bring our long duration energy storage technology to market at the pace required to meet this global demand. “

Analysts at Investec said the long-duration energy storage is the “missing piece” required for the energy transition, adding: “We see it as positive that Ceres is building optionality here.”

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