AFC Energy Regulatory News (AFC)

1 March 2016

AFC Energy PLC

("AFC Energy" or the "Company")

AFC Energy 2016 Strategic Milestones

AFC Energy (AIM: AFC), the industrial fuel cell power company, is pleased to announce its eight 2016 strategic milestones and outcomes. The milestones for 2016 seek to build on the accelerated technology development achieved in 2015 and provide clarity over the outcomes sought across the Company during the remainder of 2016.

Further commentary around each of the strategic milestones is provided in an appendix to this announcement.

Fuel Cell Stack and Balance of Plant ("BoP")

Milestone 1 Develop a second generation ("Gen 2") fuel cell stack and BoP during the second half of 2016

Milestone 2 Operate the Generation 2 fuel cell stack and BoP over an extended test period (>1 month) before the end of 2016

Milestone 3 Confirm the availability and longevity of the fuel cell system to meet minimum industry standards required for commercial deployment as agreed with project partners

Product Development

Milestone 4 Conclude basic design and engineering on a single cartridge 10kW system capable of deployment in 2016

Milestone 5 Conclude basic design and engineering on a 1MW capacity fuel cell system capable of deployment in 2017

Commercial Opportunities

Milestone 6 Commence scoping studies for at least three international fuel cell projects with a focus on the Middle East and Asia

Milestone 7 Secure contracts for at least two international fuel cell projects for delivery in 2017

Milestone 8 Secure value added strategic partnerships with recognised industrial & institutional groups

Adam Bond, AFC's Chief Executive Officer, said: "We made significant progress across the business in 2015 in delivering against our previous set of milestones. 2015 saw a significant de-risking of AFC's proprietary fuel cell technology, which culminated in the delivery of the Company's first industrial scale fuel cell system in Germany. I firmly believe that the delivery of these new milestones will continue this momentum as our technology finishes its journey to allow the commercial deployment of AFC's fuel cell system."

For further information, please contact:

About AFC Energy

AFC Energy plc is developing an alkaline fuel cell system ("KORE"), which converts hydrogen into "clean" electricity. AFC's key project POWER-UP demonstrated the world's largest operational alkaline fuel cell system at Air Products' industrial gas plant in Stade, Germany in January 2016. The Company is now looking to build upon an already established pipeline of commercial opportunities and drive the findings from the development phase of the technology into a technically optimised and commercially relevant fuel cell systems. For further information, please visit our website: www.afcenergy.com

Appendix

AFC Energy 2016 Strategic Milestones

Fuel Cell Stack and Balance of Plant ("BoP")

At the conclusion of 2014, AFC Energy's fuel cell stack managed to increase in capacity from nine cells operating in sequence, to delivering its first 25 cell stack system. Then, throughout the course of 2015, progress was made to not only increase the size of the stack four fold to 101 cells operating in sequence, but then again, to increase the number of cells operating in sequence across 24 cartridges to a total of 2,424 cells; representing an increase of nearly 100 fold in the course of twelve months.

Furthermore, 2015 also provided a clear focus on extracting maximum power across the fuel cell stacks to a point where, despite a nameplate capacity of 10kW per cartridge, the Company managed to secure a maximum output of 11.7kW of power generation per stack. We do not believe we achieved its maximum output at that time.

Last year also saw AFC Energy deliver for the first time a fully modular BoP, engineered and designed by the Company, housing 24 fuel cell stacks in Stade, Germany. The BoP was fully operated in both manual and automatic modes, demonstrating the engineering capability of the fuel cell system at an industrial scale with the majority of cartridges operating near, at or above their 10kW operating nameplate capacity.

Overall, 2015 provided many ground-breaking firsts for AFC Energy.

Whilst the focus of 2015 was to deploy a fully industrial scale fuel cell system into Germany and extract maximum power output across the 24 cartridge stack configuration, which achieved 204kW of output capacity, it is important to recognise a fully commercial fuel cell system requires five key drivers for success:

1. Power density and output

2. Availability

3. Longevity

4. Efficiency

5. Cost competitiveness

To date, AFC Energy has demonstrated its fuel cell cartridge is capable of delivering, or indeed exceeding, 10kW of power output per stack. This arguably is one of, if not the, key de-risking achievement of the technology to date. The Company notes however that the fuel cell system also needs to fully demonstrate the other four factors to ensure a fully commercial and viable technology into the future.

Importantly, in the context of the 2016 milestones, the trials in Stade Germany and the accelerated development activities undertaken in 2015 identified further areas where improvements can be made to optimise the fuel cell's ability to satisfy each of the five key drivers.

To this end, the Company has made reference to its decision to progress towards a second generation "Gen 2" fuel cell stack and BoP. This second generation stack will build on the successes and findings of 2015 to provide a more robust fuel cell system capable of wider international deployment. As with all technology companies, AFC Energy can never remain static and therefore is already looking at more radical advances through ever advancing technology developments in cutting edge material and manufacturing processes. Notwithstanding this, AFC Energy is continuing to aggressively identify and develop commercial opportunities for the short-term deployment of its fuel cell systems into the international power market.

It is AFC Energy's intention that the Gen 2 system will be fully developed in the second half of 2016.

In this regard, the operational demonstration of the fuel cell system in Germany, the delivery of 1.3MWh of power into the grid, and the confidence gained by AFC Energy in achieving the full name plate capacity of the fuel cell stacks, means the Company sees limited technical value in immediately seeking to re-run the system to achieve 240kW, but rather is actively focussing on the refinement of the system to prove the Gen 2 stack and BoP. This decision underpins the confidence AFC now has in being able to achieve 240kW across its KORE system.

Therefore, throughout the first half of 2016, the Stade facility will be utilised to run further testing on the fuel cell system and BoP with the second half being utilised in particular to trial the improved Gen 2 fuel cell stack and BOP, and confirm the longevity targets for the new system.

To date, AFC Energy has divided its time between the development of the fuel cell technology, stack design and BoP. However, following the announcement in February 2016 of plantIng GmbH's appointment, the decision was made that AFC will now wholly focus on the required optimisation activities associated with the fuel cell stack. The vast majority of engineering work to be completed in optimising and refining the BoP will be outsourced to plantIng, which has already identified several key design augmentations to enhance the operational characteristics of the system as a whole.

Product Development

To date, AFC Energy's fuel cell system has focussed on delivery of its proprietary 240kW KORE module designed for large-scale stationary applications. However, the market push over the past twelve months has demonstrated the need for a wider variety of products and systems capable of different operational profiles.

To this end, 2016 will see the development of two new system configurations to be developed in conjunction with AFC Energy's engineering partner, plantIng: a single cartridge 10kW system capable of deployment in 2016 and a 1MW capacity fuel cell system capable of deployment in 2017.

Commercial Opportunities

With the giant strides made in 2015 in accelerating the progress of development activities across the fuel cell value chain, it was extremely encouraging to fully understand the scope of opportunity for immediate deployment of AFC Energy's fuel cell system across the global energy market. The immediate challenges of low oil prices, historically low power prices and uncertainty over the access to finance across the international capital and debt markets has highlighted the immediate challenges facing the energy sector. However, strong interest in AFC Energy's product, particularly in the Asian and Middle Eastern markets continues to reaffirm the scope of opportunities that exist for AFC Energy.

A global target of 1GW of power generation under development or in operation from AFC Energy fuel cells internationally still remains an aggressive target and one to which AFC Energy will continue to strive towards.

In 2016, as operational data begins to come through from current and future generations of fuel cells, and in particular from the ongoing trials AFC Energy will be conducting in Germany, the Company expects to gain further traction in the conversion of existing Memorandums of Understanding, Heads of Agreements and Joint Development Agreements into binding contracts. This must remain a key focus for the demonstration of the commercial viability and application of our systems in the short term.

To this end, AFC Energy continues to work with its partners across a number of opportunities and is pleased to say there remain several prospective partners, clients and projects currently under investigation, which have as yet not been announced to the market.

AFC Energy will also seek to commence scoping studies for at least three fuel cell projects internationally with a focus on the Middle East and Asia and seek to convert at least two such studies into confirmed contracts.

It is important to highlight that in 2015, a Memorandum of Understanding was executed between AFC Energy and an unnamed global manufacturing partner. Discussions remain in place with this party. However, in light of the activities currently underway to complete a Gen 2 fuel cell stack and BoP over the course of the second half of 2016 and grow the pipeline of projects in which AFC Energy fuel cells have short-term applicability, a decision has been made to delay confirmation of manufacturing agreements and assess the best model in which to proceed with a manufacturing partner.

Finally, we expect to diligently pursue value added partnerships with recognised industrial and institutional players to support the ongoing commercialisation of the AFC Energy technology platform across manufacturing processes, project financing and project deployment across key markets.