Strategic Management - Ceramic Fuel Cells Limited - Case Study Example

Business Report on Ceramic Fuel Cells Limited Ling Zhu (s0204410), Chao Zhang (s0202673), Jianrui Wang (s0203610), Chenxi Zheng (s0223558), Yuer Zhang (s0201170) Tutor Subject Date of Submission Executive Summary Ceramic Fuel Cells Limited (CFCL) is an Australian-European company whose main aim is the commercialization of the technology of a fuel cell for the purpose of serving power needs that are small-scale and stationary in characteristic and reduction of reliance on one end-user market by means of increasing on volumes and demand aggregation from various markets. The company primarily develops, makes and markets products of advanced nature for micro-combined Heat and Power (micro- CHP) as well as applications for distributed generation for businesses and households. The company’s SOFC technology boasts the highest rate of electrical efficiency at 60% from a generator of small-scale nature, significantly lowering emissions of Carbon dioxide by 67% in comparison to coal- generated electricity. Table of Contents Executive Summary……………………………………………………………………….. 2 Introduction………………………………………………………………………………... 4 Strategic Management…………………………………………………………………….. 4 SWOT Analysis…………………………………………………………………………… 7 Challenges facing CFCL…………………………………………………………………. 10 Conclusion and Recommendations………………………………………………………. 13 References………………………………………………………………………………... 14 Appendices: List of tables and figures…………………………………………………… 15 Introduction This report assesses the successes of the SOFC technology as an alternative energy source, its benefit to the economy in the company’s push towards a global presence. The report also analyses the internal and external environments at CFCL coupled with their impact on business performance. About Ceramic Fuel Cells Limited (CFCL) Ceramic Fuel Cells Limited (CFCL) has been a world pioneer in the provision of clean electricity on site by using fuel cells. The company is Australian- European whose core object is commercialization of the technology of a fuel cell for the purpose of serving power needs that are small-scale and stationary in characteristic. In September 2011, the company’s revenue from sales had increased by 81% to 3.5 million Australian dollars (CFCL- Annual Report, 2011). BlueGen®, one of their products, had over 200 orders, both in BlueGen® and micro- CHP products from customers, further solidifying CFCL’s reason for existence. Strategic Management This subject entails a specification of a firm’s vision, mission and objectives, policy and plan development- via programs and projects designed for achievement of stated objectives, and resource allocation for implementation of the policies, plans, programs and projects. It’s focused not just on how the company can boost its performance but on ways in which it can lead in the market. CFCL’s mission is maximization of naturally- occurring resources, in this case natural gas, via facilitating its conversion into energy- efficient electricity using fuel cell- powered generators and ultimately pushing sales volumes in both its current and emerging markets across the globe. This is explicitly described in CFCL’s major aim of reduction of reliance on one end-user market by means of increasing on volumes and demand aggregation from various markets, CFCL has been on a consistent push towards fuel-efficient energy by selling a generator that is of high efficiency and has minimized emissions (environmentally friendly) across existing markets in Europe and the United Kingdom and markets emerging in Japan, Australia and USA. Global presence is the company’s vision; this is described in the company’s current and emerging markets. Currently, they are in the lead globally for commercialization of the fuel cell across markets in the United Kingdom, Europe and Australia. The company has a broad operating base: It has facilities for testing, manufacturing, research and development (R&D) in Australia, an assembly plant for large quantities of fuel cells in Germany and a facility for producing ceramic powder in the UK. Also, it has patents in 27 ‘families’, with an innovation per family and patents (125 of them) granted in major world markets. The company has partnered with nine other countries (Germany, Netherlands, Italy, France, Switzerland, Japan, US, UK and Australia) based on suitability for its technology and prospects of growth, both currently and in later years- this substantiates how wide the company has spread. Its strategy lies on reduction of dependency on one market through facilitation of high quantities and aggregation of demand from diverse markets as a measure to make a fast downward shift of the curve for costs and make it move down sooner too. In its strategy, CFCL is gearing towards leveraging experience from end to end throughout the chain of value- from Ceramic Powder (Raw material) to major components (Modules for fuel cells) then final products (BlueGen®). It recently completed the development of generators for small-scale electricity production and BlueGen® so as to meet the needs of diverse consumer markets. The company also opened up a factory in Germany and increased revenue from sales by six times, with Australia and Germany having the highest sales records (CFCL Annual Report, 2011). CFCL signed agreements with service and distribution partners in The Netherlands, UK, Germany and Australia as a move towards cutting down of costs in terms of installation and services after sales for BlueGen®. CFCL recently incorporated outsourcing in its strategy; for instance, January 2011: It outsourced installation and servicing of its BlueGen product in Australia to Hills Holdings Limited, an Adelaide- based company that’s in the lead in manufacturing, distributing and installation of appliances for domestic (home) use. CFCL in 2011 entered into an agreement with Hills Holdings to initially distribute BlueGen in the South of Australia, and also do installation and servicing after sale of BlueGen all over Australia. Hills Holdings was also to help CFCL in market development for BlueGen. CFCL’s strategy aimed at making sales of its BlueGen in Australia via distributors and outsourcing of installation plus servicing of the units to achieve cost reduction. This strategic move is backed by the fact that in Australia alone, the BlueGen market’s estimate is at approximately over 100,000 units- households whose input is natural gas are over 3 million, placing a high demand on the BlueGen product. Bearing a wider market presence in mind, the agreement was an advantage to CFCL owing to the capability of Hills Holdings company- it conducts business in 3 main categories, that is household, hardware and green products, entertainment and electronic security, and industrial products. SWOT Analysis Internal Environment Analysis: Strengths CFCL’s SOFC technology boasts the highest rate of electrical efficiency at 60% from a generator of small-scale nature, significantly lowering emissions of Carbon dioxide by 67% in comparison to coal- generated electricity. The major advantage underlying SOFCs is the use of natural gas as the cell’s fuel, hence widely compatible with common fuels. The integrated uses and/or applications of SOFCs make them more targeted for usage in generation of heat and power for households and businesses, and also as auxiliary units of power for vehicle electrical systems. With the rise in energy use coupled with a push towards affordable and low-emission energy options present in global markets, CFCL as a pioneer is better placed compared to its competitors; BlueGen®, the first product by CFCL for gas-to-electricity conversion, was successfully delivered into the market, with impressive orders in the European market and a considerable interest in emerging key markets in Asia (Japan). In regard to electrical efficiency, CFCL’s SOFC is 60% electricity- effective, higher than all the other technologies in the small-scale power and heat consumption market, according to CFCL’s directors. Upon recovery of heat from the process of electricity production, 85% electrical efficiency in total is realized, making it twice more efficient than in current power stations in Europe on average. This fact gives CFCL a competitive edge over other industry players. In recent years, CFCL has formed strategic partnerships with countries such as the Netherlands, Germany and the UK for development of its products. This was done based on the suitability of the SOFC technology in those countries and prospects of growth. For instance, Mr. Rowe mentioned in 2008 that Germany is among fuel cell markets with the most advancement, with the government funding on demonstration programs substantial and considerable. In Germany, CFCL opened an assembly factory in Heinsberg in 2011. CFCL also opted to increase the production of cell stacks and BlueGen unit assembly operations at this Heinsberg plant. Furthermore, the market setup in Western European countries (The Netherlands, UK and Germany) supports deployment of new technologies in energy, making Germany a strong strategic partner in ensuring CFCL’s market presence in Europe. Weaknesses A major weakness facing CFCL has been the complexity of the science behind SOFC technology. One prime example at CFCL has been making sure that constituent materials in the cell don’t break or bend upon subjecting them to extreme (high) temperatures of operation for ceramic cells- 1000 degrees Celsius for Solid Oxide Fuel Cells. Still, maintenance of this temperature is a major weakness at CFCL; the current technology for SOFC must function at 800 degrees Celsius to avert unacceptably high losses from polarization. The high temperatures call for specialized and expensive materials for insulation and interconnections of the fuel cells; the materials also need significant quantities of energy and ample time to increase heat to operating temperature, a very expensive undertaking for CFCL. Analysis of the External Environment: Opportunities Global markets for energy are gradually transforming, occasioned by a rising demand in energy consumption. This requires substantial investment; with the increased push for green electricity, there is a big opportunity for new technologies in energy that is low-emission in characteristic, such as Solid Oxide Fuel Cells. These have the ability of being deployed by use of existing infrastructure for electricity and natural gas. In the same vein, market forces largely favor a shift from power stations that are large and centralized to ‘distributed generation’ where installation of power units, which are small- scale, is done where there is power usage. CFCL’s products have a 60% electrical efficiency, believed to be above all other technologies for power products and those of heating of a small scale present. The products also boast a high recycling rate of 85%- upon recovery of heat from production of electricity, efficiency totals 85%, double efficient in comparison to power stations in Europe. It is widely recognized that maximisation of efficiency in electricity is key to the most value creation from minimized-scale power products besides those for heating; according to CFCL’s directors, the achievements of the company can earn it competitive advantage in the present emerging market. Market structures and settings in European countries such as Germany provide a big opportunity of deployment of CFCL’s low emission systems. For instance, in Western Europe, legislation on energy rapidly evolved across markets like the Netherlands and UK. Public support for efficient technology led to the German government phasing out nuclear power; similar cases were also experienced in Switzerland and Italy. This meant additional generation of power from sources of high efficiency, thus an opportunity of deploying low emission systems. Threats The industry for renewable energy in Australia faces a major threat of going extinct. In October 2009, the price of a Renewable Energy Certificate (REC) was at 23 dollars, down from $38. The figure is below $50/REC enjoyed a couple of months before, posing a big problem to industry players. Also, the sector is said to be in a ‘holding pattern’, hence in an urgent need for revival. Germany leads Australia in solar systems, yet it isn’t as sunny as Australia. The situation is aggravated by apparent government reluctance to deploy viable renewable technologies. Despite the mandatory RET (Renewable Energy Target) by government that aided in funding industrial growth for renewable energy from wind, solar power (hot water) and hydro-electricity, it still falls short. The mandatory RET in 2006 was so small- at 9,500 GwH (Gigawatt Hours) of electricity; it was less than half of the projected 2010 electricity generation- that it got fully utilized in late 2006. Challenges faced by Ceramic Fuel Cell Limited (CFCL) From coming up with scientific innovations to commercialization of the Fuel Cell, it has not been an easy ride for Ceramic Fuel Cells Limited, despite the Solid Oxide Fuel Cell’s (SOFC) highly touted flexibility feature. The major challenge in development of fuel cells to date has been the complex nature of the input materials and scientific application behind the innovative technology. According to Trent Rowe, the Manager- Product & Marketing at CFCL, the technical hurdle lies in finding exact specified materials to enable the system’s functioning with reliability. But as the years progressed, CFCL has been coming up with metal alloys, ceramics and other various materials taken as crucial for the cell to operate. One technical challenge for example, has been making sure that there is no bending or breaking of the materials upon subjecting them to extreme temperatures of operation for CFCs (Ceramic Fuel Cells). Initially, CFCL had developed stacks that were metal-ceramic, but it had constraints due to availability of metal alloys; thus subsequently, the company made stacks from ceramics. There has been development of newer materials, making CFCL able to get back to developing stacks of metal- ceramics now with the capability of producing two times more power inside a package smaller in size. There are commercial challenges too; just like many other emerging technologies, commercialization of SOFCs is a major hurdle. CFCL needs to urgently address the issue of if SOFC technology is advanced enough to be made commercial. Secondly is whether the cells can be manufactured sufficiently and affordably so as to take care of the market. Third is whether demand is sufficient. According to Mr. Rowe, the major aspect is that the end-users look for lifetime, but this suffers a setback owing to the difficulty involved in undertaking accelerated testing. “To wait for five years to ‘prove’ lifetime is not an option as the technology will have evolved within those five years,” said Mr. Rowe. For CFCL, it’s well-placed to handle issues of commercializing and affordability. Being a developer and manufacturer, it has the capability of directing efforts in research over technology of the cell, stack lifetime and performance of the system on one hand, besides tolerances in manufacturing and requirements in infrastructure for up-scaling. In 2008, CFCL reported that power density advancements made it able to amplify output from its stacks, hence reducing cost per kilowatt for the stack units and overall saving to a tune of 3,000kg per year of carbonic acid gas. In the quest for optimization in a move towards commercial manufacturing, CFCL embarked on field trials in Australia, New Zealand and Germany in 2008 with focus being running tests on SOFCs with makers of utilities and appliances instead of doing household trials. Recently, a 20 million dollar investment at Heinsberg, Germany was opened (late 2009) for volume assembly and production of stacks- core component in both BlueGen® and Gennex module for the fuel cells- meant for the European market. Commercialization is the last challenge. Fuel cells come with much commitment to coordination on CFCL’s part. The fuel cell technology introduced a new concept to green energy in terms of centralized operation and extra fuel efficiency, and as thus, the requirement of coordination from all the business’ constituents- from retail to financing and generation management. Even if fuel cells are still in stock, a delay would still be there as aspects of packaging, implementation and control are put into consideration by utilities and regulators. According to Mr. Rowe, facets such as government rebates, tariff feeds and connection standards are considered by regulators from the perspective of market readiness. Ceramic Fuel Cells Limited currently manufactures components of fuel cells in Melbourne by itself. It depends on a single supplier of components for the cell- it entered into an agreement for volume supplies with HC Starck to ensure high quality production on a large scale of the cell components in 2011 and in overall, meet forecast cell demand. It commenced talks with HC Starck on the required investment to ensure increased capacity in production for satisfaction of future demand in the same year. In the 2011 Annual Report, CFCL had several technical objectives; for instance, one of the objectives was the extension of its cell stack’s lifetime towards a 4-5 year commercial target. Although it was unable to conduct tests for ‘accelerated lifetime’, it continued to come up with models for predictive lifetime via statistical methods in extrapolation and evaluation of data, so as to provide room for shortening of the process of conducting tests. During 2011, CFCL improved its stack’s lifetime, and the work is still progressing this year. Second, CFCL was to continue working on robustness of the cell system; it particularly worked on ‘Thermal cycling’, or repeatedly turning of the unit on & off. SOFCs are capable of generating the most efficiency in electricity due to their operation at higher temperatures compared to other fuel cell types. CFCL made progress in 2011 and planned to carry on the work this year so as to deliver a commercially acceptable and consistent performance level. Conclusions and Recommendations For the industry dealers in fuel cells, the outlook is positive, with emerging global markets gearing up towards being active fuel cell adopters and also developing manufacturing capacities of their own domestically. For CFCL, a large potential for sales of its generators is there; the company got receipts of prospective customer inquiries from Asia, particularly India and China, South Africa, The Middle East, Russia, North and South America, Eastern and Central Europe plus Australian states. Therefore, its management must focus on current resources for sales build-up in markets where CFCL is already present, especially in Australia and Western Europe. As revenue increases as well as scale, management will then embark on capitalizing on the opportunities to get into potential global markets. With outsourcing now part of CFCL’s strategy, management needs to focus on cost reduction of units while maintaining consistency and quality plus volume production. It should outsource fuel cell manufacture as well as volume components. References Ceramic Fuel Cells Limited. (2011). Annual Report 2011. Retrieved from http://www.cfcl.com.au/Assets/Files/20111019_CFCL_Annual_Report2011.pdf Cuevas-Cubria, C., Schultz, A., Petchey, R., Beaini, F. & New, R. (2011). Energy in Australia 2011. Retrieved from http://www.ret.gov.au/energy/Documents/facts-stats-pubs/Energy -in-Australia-2011.pdf EcoGeneration. (May-June 2008). Ceramic fuel cells- Completing clean energy generation. Retrieved from http://ecogeneration.com.au/news/ceramic_fuel_cells_ _completing_clean_energy_generation/002105/ GlobalData. (February 17, 2012). Ceramic Fuel Cells Limited (CFU) - Financial and Strategic SWOT Analysis review. Retrieved from http://pdf.marketpublishers.com/global_data/ceramic_fuel_cells_limited_cfu_financial_ _strategic_swot_analysis_review.pdf Traditional Equities. (2010). Nanotechnology Market Review: Fuel cells technologies. Retrieved from http://www.itmpower.com/cmsFiles/investors/Tradition_FuelCellReport_Apr2010.pdf Wachsman, Eric D. & Singhal, Subhash. (2009). Solid Oxide Fuel Cell commercialization, research and challenges. The Electrochemical Society Interface, Fall 2009, 38-43. Retrieved from http://www.electrochem.org/dl/interface/fal/fal09/fal09_p038-043.pdf Appendices List of Tables and Figures Table 1: Porter’s Five Forces Analysis of the Fuel Cell Industry Table 2: Consolidated Balance sheet for CFCL as of June 30th, 2011 Read More