Ceres Power tells The Observer it is aiming for the FTSE 100

Fuel cells convert chemical energy into electrical energy and differ from batteries in that the reacting chemicals can be replenished. There are plenty of companies - Ceres Power, Ceramic Fuel Cells, PolyFuel and Acta to name just a few of the British-quoted firms - claiming to be on the brink of introducing commercially available products for both portable devices, such as laptops, and domestic heating and power systems. And with the price of conventional power rising almost as quickly as legislation to encourage the search for greener energy, there is plenty of incentive.

That is undoubtedly the logic behind the tie-up between Centrica, parent of British Gas, and Ceres Power, one of the firms closest to producing a marketable cell for domestic homes. Chief executive Peter Bance's enthusiasm for the company's product, first devised 15 years ago by scientists at Imperial College, is infectious. If it works, it could be revolutionary.

Unlike most fuel cells, which need hydrogen - often in the form of methanol - Ceres cells can operate with natural gas, as well as propane . They are compact enough that a stack can supply all our domestic power needs and be put in a wall-mountable boiler the size of a conventional central heating plant. And while the boiler would cost £500-£1,000 more than existing types, the power savings mean that money will be recouped within a couple of years.

Ceres will be producing prototypes next year and is looking for a manufacturing site for a full product launch in 2008. It has some impressive partners: as well as British Gas, there's BOC, Rolls-Royce and Johnson Matthey, and two leading fuel cell firms.

'The FTSE 100 is in our sights,' Bance says. Given that Ceres is quoted on AIM and valued at £114m, or around one-twentieth of the market value needed to enter the Footsie, that is quite an ambition.

If the past is anything to go by, there is plenty of time for problems to arise. Six years ago, a fuel cell for vehicles produced by US group Ballard Power Systems was hailed as the future - and, indeed, there are London buses powered by such cells. But they cost more than £100,000 apiece - too expensive to be commercially viable.

One fuel cells analyst, who preferred not to be named, says the key thing in any company is links 'with the kind of companies that have the brand names and the resources to put behind the product'. Ceres scores on these, but others do too. Johnson Matthey, for example, has signed deals with a number of companies, while British Gas has had links with other alternative power companies, which were dropped when the technology was found wanting.

Robin Batchelor, co-manager of Merrill Lynch's New Energy Technology investment trust, prefers firms closer to commercial production. The fund's biggest fuel-cell holding is Medis Technologies, a US company selling fuel cell batteries for portable devices. It's a market that PolyFuels, a US company with an Aim listing, is also hoping to tap. But Batchelor's joint fund managers also question whether fuel cells will emerge as the alternative energy winners compared with solar, wind and wave technologies. Merrill's Poppy Allonby says: 'There are subsidy programmes for wind. But the relative costs are such that it does not need subsidy; fuel cells still have a long way to go.'

Source: The Observer