FuelCellsWorks

LONDON (Dow Jones)–AIM-listed fuel cell module company Ceres Power Holdings PLC (CWR.LN) said Tuesday it will receive GBP2 million from Centrica PLC (CNA.LN) unit British Gas after testing of its combined heat and power unit met all of the targets under the Alpha phase.

The 1-kilowatt CHP unit, which produces heat and electricity and is more efficient than conventional boilers, was tested on mains natural gas under representative residential operating conditions.

“This significant achievement underpins the potential mass market opportunity of the Ceres CHP product for the U.K. residential market,” said Gearoid Lane, Managing Director of British Gas New Energy.

Analysts said completion of the Alpha phase was positive news for the company as it continues developing its product, but cautioned that there were still challenges ahead.

“It’s important to note that the launch of the product is expected to be in the second half of 2011, thus it still has many hurdles to overcome before it is adopted in the residential market,” said Ambrian clean technology analyst Gurpreet Gujral.

British Gas witnessed key tests and verified data during the Alpha phase trials along with an independent third party.

“The successful completion of the Alpha phase is a very significant achievement and we are now investing in the company’s operational capabilities to deliver the residential CHP product in volume,” said Ceres Power CEO Peter Bance.

The company has already begun design and procurement for the Beta phase of the CHP program, which will produce Beta CHP units for in-field trials.

Preparation of the new manufacturing plant in Horsham, Southern England, is underway with operations scheduled to begin in the second half of 2009. The company is on track to launch the residential CHP product with British Gas in the second half of 2011.

Ceres Power already has a supply and distribution agreement with British Gas for 37,500 units and a second agreement with Calor Gas Ltd. for CHP units that operate on liquefied petroleum gas.

Ceres Power’s fuel cell modules convert natural gas directly into electricity and heat using a clean and efficient electrochemical process.

The module is part of a special boiler, or CHP unit, which is more energy efficient and produces less carbon dioxide.

British Gas, which has a 9.999% stake in the company, has said the fuel cells have the potential to reduce a typical customers household emissions by 2.5 tons a year and reduce domestic energy bills by several hundred pounds.

At 0959 GMT, Ceres shares were up 4.8% or 8 pence, at 180 pence, outperforming AIM.