AFC Energy Regulatory News (AFC)

AFC Energy reaches first milestone in Coal Gasification Agreement

Alpha unit ready for shipping, stage payment due, additional partners secured

AFC Energy (AIM: AFC), the developer of low cost alkaline fuel cells that generate clean electricity from hydrogen feedstocks, is delighted to announce that, further to its initial announcement on 8th December 2009, it has reached the first milestone under its agreement with Linc Energy Limited (ASX: LNC, Market Cap: cA$717m) and with B9 Coal Limited.

Linc Energy Limited ('Linc' or 'the Partner') is Australia's leader in clean coal technology, and intends to integrate the AFC fuel cell system for use in its global Underground Coal Gasification ("UCG") projects.

The combination of cheap and easy-to-produce synthetic hydrogen from UCG will make an ideal feed source for AFC Energy's fuel cell systems. Linc Energy will utilise a simple membrane gas separation process on the UCG gases to ensure a satisfactory rich hydrogen mix is available for feed-in to the fuel cell system. In the two months since signing the agreement, AFC Energy has already configured and assembled an Alpha fuel cell system which is now ready for shipping to the first demonstration site, an operating UCG plant in Chinchilla, Australia. As such, the first payment is now due from Linc to AFC Energy.

Upon commissioning and successful trials of the Alpha unit, it is intended to install multiple modules at Chinchilla to form a larger c.50 kW AFC fuel cell system. All parties anticipate multiple installations of AFC Energy's 50kW system for full scale commercialisation.

Key terms of the agreement with Linc Energy are as follows:

·; AFC Energy has granted to Linc Energy worldwide exclusive rights to utilise and operate AFC Fuel Cells in conjunction with any UCG application for a period of 24 months

·; Linc Energy will purchase the first Alpha fuel cell system for £200,000, payable in instalments, with delivery anticipated within the next five months

·; Linc Energy will have the option for 24 months to extend the exclusivity period in perpetuity. To exercise this option Linc must invest £2.3 million in AFC Energy at a price determined in reference to the market price at the time of exercise

·; For Linc Energy-owned sites, Linc Energy will pay to AFC Energy an upfront payment calculated on the cost of delivery of fuel cell systems, and a royalty based on profits generated from the use of AFC Energy fuel cells

·; For Linc Energy-owned sites Linc Energy will pay to B9 Coal Limited, as introducer and broker to the transaction, a royalty equal to two percent of the net profits generated from the use of AFC Energy fuel cells

The operational system will permit the optimal usage of coal with minimal environmental damage. The project capital expenditure for power stations using AFC Energy's low cost fuel cell system is forecast to be less than that of conventional coal/IGCC power stations.

Ian Balchin, CEO of AFC said: "The Underground Coal Gasification opportunity securedthrough B9 Coal with Linc Energy is by far the largest potential market identified yet for AFC's low cost fuel cell technology. It is operational practically anywhere in the world where there are deep coal deposits and can create a 'Holy Grail' for future coal utilisation, with low-cost, highly efficient conversion of coal into power. When combined with Carbon Capture and Storage, this combination of AFC and Linc's innovative technologies can turn the dirtiest fossil fuel into the cleanest.

"We are very excited about working with Linc Energy and locking into the dynamism that has made them one of the fastest growing companies in Australia over the past few years. In parallel with our chlor-alkali opportunity, this programme enables AFC to demonstrate the increasingly wide application potential of its low-cost fuel cell technology".

Mr Peter Bond, CEO of Linc Energy said: "It makes infinite sense to marry the cleanest power generation technology with the cleanest gasification technology. The picture of success is that you have a UCG field producing cheap and efficient UCG gas, subsequently this UCG gas is piped above ground a short distance upon the same gas field, adjacent to the fuel cell installation. There the gas is cleaned and put through a membrane to enhance the hydrogen percentage that is fed into a smart and compact Fuel Cell power-generation facility that produces virtually no CO2 emissions. In fact the by-product that this power generation plant does produce is in high demand, and that is clean distilled water. The green power produced will then be fed into the local transmission grid. The future of this concept is simply staggering. It could easily be the ultimate answer for clean coal power many of us are looking for, and it's only one to two years away from commercial reality."

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