AFC Energy Regulatory News (AFC)

14 November 2016

AFC Energy PLC

("AFC Energy" or the "Company")

AFC Energy Successfully Completes Generation 2 Fuel Cell Testing -

Achieves Milestones 1 and 2 of 2016 Strategic Milestones and Demonstrates Ability to Operate on Lower Grade Hydrogen

AFC Energy (AIM: AFC), the industrial fuel cell power company, is pleased to announce that it has successfully completed the development of its Generation 2 ("Gen2") fuel cell system. The Gen2 system incorporates design changes to extend the operating life of the fuel cell stack whilst increasing stack availability* and reducing stack cost. These features represent three of AFC Energy's key metrics of commercialisation, relative to the KORE fuel cell system commissioned in Stade in January 2016.

The successful delivery of the Gen2 design follows testing of multiple fuel cell stacks at Stade, Germany and Dunsfold, UK, to deliver power continuously for a period in excess of one month, each at high levels of availability. Two of these stacks continue to generate power today.

Confirmation of the Gen2 stack design improvements, and testing multiple stacks continuously in excess of one month, have together successfully delivered Milestones 1 and 2 of the Company's eight 2016 strategic milestones (in addition to those achieved earlier in the year) announced in March 2016 and are therefore key to being able to meet the expectations of project partners. 

The improved Gen2 technology platform reflects the efforts of AFC Energy's technical team this year and is the sole application of proprietary AFC Energy technology.

Collaboration with the Company's Joint Development Agreement ("JDA") partner Industrie De Nora S.p.A. ("De Nora") has created material opportunities for further improvements to AFC Energy's technology package, as demonstrated by work undertaken with De Nora since August 2016.

In addition to the Gen2 fuel cell stack demonstration, the Gen2 testing programme demonstrated a further two key incremental outcomes, which show that AFC Energy's fuel cell system is:

1. capable of accepting lower grade hydrogen relative to the laboratory standard hydrogen (99.999%) that has been used at the Company's testing facilities since 2006. This provides multiple key advantages including the opening up of new lower grade hydrogen source opportunities and partners internationally, thereby increasing AFC Energy's addressable market potential, whilst also lowering the likely cost of hydrogen in commercial applications. Lower priced hydrogen will directly affect the cost of electricity generation and the economics of AFC Energy's system across different market segments internationally; and

2. cycles (on and off) with total operation of a cycled stack for over one month at greater than 90% availability (albeit with expected gradual levels of degradation after each cycling event).

More details of each Milestone are provided in the Appendix.

Adam Bond, AFC Energy's Chief Executive Officer, said:

"The accelerated and diligent progress AFC Energy has made over the last nine months in delivering our Gen2 fuel cell system has been remarkable. The technical progression achieved materially supports our discussions with prospective commercial partners and in being able to utilise lower grade hydrogen has the potential to reduce the final cost of electricity generation from AFC's systems. These two milestones, in addition to those achieved earlier in the year, positions us for delivery of commercial contracts which we continue to pursue and in turn provides the traction needed with our partners for the deployment of units and the fulfilment of the outstanding 2016 milestones.

I would like to take this opportunity to thank AFC Energy's technology team, the Air Products team in Stade, and plantIng for their efforts in achieving these milestones and for their commitment to supporting AFC Energy's product development and validation at Stade."

⃰ Defined as the amount of time the fuel cell stack is available to generate power over a given period of time.

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About AFC Energy

AFC Energy plc is developing an alkaline fuel cell system, 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 Achievement of Strategic Milestones 1 and 2

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

Following conclusion of the Stade fuel cell KORE commissioning in January 2016, AFC Energy's technology team identified a number of findings in the fuel cell stack, the BoP and the operating profile of the system which justified commencement of an incremental fuel cell development work programme which would culminate in a second generation fuel cell system. AFC Energy is pleased to confirm it has delivered work on the Gen2 design on schedule.

In achieving Milestone 1, key areas of work which were required to successfully deliver the Gen 2 fuel cell stack and BOP include:

· AFC Energy undertaking extensive Computational Fluid Dynamics ("CFD") and Finite Element Analysis ("FEA") modelling to confirm understanding and simulate the interaction of liquids and gases and stack integrity within the fuel cell stack system. Modelling was based on industrial scale operating data achieved at Stade which has allowed key improvements to be made to the fuel cell stack

· Utilising insights from the numerical and experimental analyses, key modifications were made to the air flow plates used within the fuel cell stack to enhance design and inherent efficiency of the air supply network to the fuel stack

· Revisited failure mode effect analysis studies for the fuel cell and BOP based upon operational observations from Stade and evolved the base design and manufacturing processes where required

· Improved control measurements of the base design and upgraded base design control sequence

· In anticipation of remote deployment of Gen 2, integrated enhanced remote data logging and remote access control capabilities

· Identification of enhancements within the manufacturing process and adoption of superior manufacturing techniques and controls to improve the robustness of the overall fuel cell stack assembly process

· Reduced fuel cell stack parasitic losses through enhancement of electrical components and layout within the stack

In addition to the stacks referred to in Milestone 2 which have already operated for in excess of a month (and continue to operate), a number of other stacks were also trialled as part of the Gen2 testing with successful outcomes, including:

· Operation of fuel cell stack systems on, for the first time in Dunsfold, significantly lower rated (quality) hydrogen with minimal adverse impact on operation or cell degradation. This implies the AFC Energy fuel cell system has the potential to expand its addressable market to lower quality hydrogen sources without the added cost of incremental gas treatment

· Demonstration that the system was capable of cycling throughout the duration of an extended test period. Even accounting for the expected degradation of the power output, which occurs as a consequence of cycling the fuel cells, the stack operated for over one month with availability over 90%

Milestone 2 Operate the Gen2 fuel cell stack and BoP over an extended test period (over one month) before the end of 2016

Enhancements to the base fuel cell stack and BoP design which was used in the January 2016 KORE commissioning were, through an iterative process, incorporated into the Gen2 design. These were confirmed and validated through multiple longevity tests conducted in Stade, Germany and Dunsfold, UK that, as individual systems, exceeded one month's continuous operation. Importantly:

· the Gen2 fuel cell stack in Stade has been operational for over 30 days and continues to operate. This stack has been fed with lower grade hydrogen than that used in the testing process for Gen2 at Dunsfold, UK;

· an additional Gen2 fuel stack has been running in Dunsfold for over 30 days and continues to run. This stack has been running on the higher-grade hydrogen used in the testing process;

· an additional Gen2 fuel cell stack has been operated in a cycling mode for a period of 30 days and achieved in excess of 90% availability. This cycling mode of operation is a good test of the robustness of the stack design; and

· at Dunsfold, a Gen2 fuel cell stack has also been tested on a lower grade hydrogen stream to prove the robustness of the design. This resulted in output as expected, without significant impact on degradation of the fuel cell stack.