AFC Energy Regulatory News (AFC)

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16 December 2021

AFC Energy PLC

("AFC Energy" or the "Company")

Year End Operating Statement and Launch of New Hybrid Fuel Cell Technology Platform

AFC Energy (AIM: AFC), a leading provider of hydrogen power generation technologies, is pleased to provide its Year End Operating Statement for the year ended 31 October 2021.

Commercial Highlights

Product Highlights

Operational Highlights

Corporate Highlights

Adam Bond, AFC Energy's Chief Executive, said: "2021 has been a transformative year for AFC Energy, supported by a strengthened balance sheet, the successful first high profile product deployment with Extreme E, investment from and global partnerships with ABB which continue to expand, and the all-important commencement of work into the global maritime industry. That, alongside the new talent entering the business, advancement of high energy dense polymer fuel cell technologies and an increase in contracted revenue continues to drive AFC Energy forward. We are highly motivated by what 2022 is to bring with a number of company firsts expected, as we continue to deliver on a technically and commercially viable transition initially away from the $20bn diesel generator market, underpinned by the collective aim of achieving a near term Net Zero future."

Increasing Awareness of Benefits of Alkaline Fuel Cells

Hydrogen continued to take centre stage throughout 2021 as a key fuel in the decarbonisation of industry and played a prominent role at the UN Climate Conference, COP26, in Glasgow. With the opportunity to represent AFC Energy at the COP26 conference, our CEO engaged in several meetings during the event which saw, amongst other things, a high-level Memorandum of Understanding signed with Her Highness Sheikha Shamma bint Sultan bin Khalifa Al Nahyan, CEO of Alliances for Global Sustainability and member of the Royal Family of the United Arab Emirates, in support of the growth potential of the hydrogen economy in the UAE.

With customers and partners becoming increasingly aware of the challenges hydrogen presents as a viable gaseous fuel in remote off-grid environments, the importance of hydrogen carrier fuels such as Ammonia and Methanol, and AFC Energy's ability to leverage its technology to capitalise on such fuels, is becoming increasingly understood.

This, coupled with AFC Energy's unique approach to system integration of both upstream fuelling technology (such as ammonia crackers) and fuel cell power generators, continues to highlight and raise awareness of the role we expect to play in disrupting the US$20bn a year diesel generator market.

With news of AFC Energy's recent success in being integrated into the >1MW maritime market, we are now confident of our abilities to capitalise not only on the sizeable stationary power market, but increasingly on arguably the largest market for alkaline fuel cells, international shipping.

Strengthened Contracted Revenue and Pipeline

Commercial agreements currently worth £4.5m (at the time of this statement, including post year end contracts) reflect an increase from last year. Throughout the course of 2022, we expect this to further increase as commercial interest in our technology continues to rise in off-grid power systems.

Commercial agreements for 2022 are expected to take several forms, including outright fuel cell system sales or leases, funded customer product development programmes, and engineering fees.

Through our strategic partnership with ABB, we are engaging with several e-Mobility and data centre customers across the US and Europe and see the first £4m order placed by ABB last month as a true sign of the market demand for zero emission off-grid power solutions fuelled by hydrogen and hydrogen carrier fuels. ABB took the early decision that its product demand was to be focussed on the "S" Series AEM fuel cell system and that across its portfolio of use cases, it was the highest energy density system that would provide the greatest go to market opportunity. The £4m order received from ABB last month therefore highlights not only an early product sale of the "S" Series platform, but also fast-tracked development that will provide ABB with the operating data upon which to package fuel cell systems for client deployment.

In our 2021 interim report, we highlighted some of the challenges that quantifying our pipeline can bring in properly representing the value of projects under development by AFC Energy. Clearly, working with world class partners such as ABB means the market deployment potential is material and to put an estimate on this can be misleading, both to the positive (in overstating) and the negative (in understating). For this reason, we continue to refrain from quantifying a pipeline at this stage, however, we remain confident of achieving published analyst market forecasts for revenue generation this year.

The size of the off-grid power market, both in stationary and mobile applications, should not be under-valued and, when considered in the light of the maritime market alone, which is measured in thousands of megawatts, we continue to believe the strength in AFC Energy's addressable markets is weighted heavily towards its technology's ability to accept low grade / low cost hydrogen with a focus on that derived from hydrogen carrier fuels such as ammonia and going forwards, methanol, discussed in more detail below.

Strategic Partners

The quality and number of strategic partners has also strengthened throughout the year with a focus not only on ABB, but also several other announced collaborations during the course of 2021.

Key amongst those in the temporary power and construction industry are Altaaqa Alternative Solutions ("Altaaqa"), one of the world's largest distributors of diesel generators based out of Saudi Arabia, and MACE, one of the UK's leading construction contractors.

We are progressing well on negotiations with Altaaqa for a dealership agreement across the Saudi and MENA regions based on their strong focus on transitioning away from fossil fuels in remote power. Altaaqa's current market leading multi gigawatt fossil-based power generator business across Saudi Arabia and surrounding regions fits very well with our aspirations for targeting the Gulf region for fuel cell deployment.

Work has also been continuing constructively with MACE with the two companies undertaking several work programmes since March, including engagement with regulatory bodies, multiple site measurement and assessments of power needs (considering variable power loads from cranes) in advance of system deployment in 2022.

ACCIONA and Julich have been engaging with AFC Energy on our new product portfolio expected for release in 2022. Due to previously communicated delays on each site, an opportunity has arisen to review product deployment for each site with a particular interest in the new "S" Series systems which are expected for early deployment in 2022. A delegation from ACCIONA visited AFC Energy in November 2021 with the intention of confirming their preferences for system deployment with a focus on high energy density.

Technology and Product Range

AFC Energy's technology and product roadmap was for many years dominated by the "L" Series, liquid electrolyte technology which has been in full operation as part of the Extreme E racing series for the past 12 months. The "L" Series platform has highlighted the possibilities of alkaline fuel cells and their fuel flexing capability across both Hydrogen and Ammonia.

With the incorporation of anion exchange membrane technology and its potential through the "S" Series fuel cell to drive down costs, increase energy density and reduce overall system footprint relative to the "L" Series, customers now have a choice on technology platforms.

The AEM "S" Series platform is being accelerated through the ABB sale agreement, across each of the "air cooled" and "liquid cooled" platforms with early delivery of a 100kW liquid cooled system expected in late 2022, and a 200kW liquid cooled system deployment, integrated with an Ammonia cracker, pencilled for early 2023. It is this product platform which will form the basis of all larger scale, high power dense systems expected to be delivered across the "S" Series where Ammonia is considered the low-cost hydrogen carrier of choice, including data centres and maritime.

Hybrid Fuel Cell Platform Launch (HFC)

The AEM "S" Series fuel cell platform affords customers with choice as it relates to the adoption of both Hydrogen and Ammonia fuelling strategies.

However, it is important to note that the market for Hydrogen carrier fuels focuses not just on Ammonia, but also on the adoption of Methanol.

As customers become increasingly aware of the benefits of hydrogen carrier fuels, such as Ammonia and Methanol, versus high-cost direct hydrogen, it is important that AFC Energy can secure its position as leader in off-grid power by being relevant to both of the world's principal hydrogen carrier fuels.

Following months of analysis of the AEM "S" Series stack architecture, designed for hydrogen or ammonia fuelling, it became clear that with nominal changes to system chemistry and design, a further iteration to the "S" Series was possible that would enable adoption of Methanol fuel (in addition to hydrogen). Whilst both utilise similar "S" Series stack architecture, the Company decided to delineate the AEM platform from what is now regarded as the "Hybrid Fuel Cell, or "HFC", platform.

Without the need for anion exchange membrane technology, proving times are materially accelerated and the HFC platform can be more expeditiously deployed to customer sites in commercial prototype form.

The HFC platform therefore provides added fuel flexibility in the product platform AFC Energy will release and we expect to see first HFC systems deployed in the first half of 2022 to customer sites.

This development provides the following advantages:

Critically, AFC Energy has long held the view that one of its strengths versus other fuel cell technologies available was its ability to be a "fuel flex" platform capable of accepting lower grade (and therefore lower cost) hydrogen as well as hydrogen derived from cracked ammonia. Adding methanol to its new fuelling optionality further enhances this "fuel flex" philosophy to provide maximum choice to customers along with the potential for earlier phase deployment of the new energy dense platform.

First deployments of the HFC system are expected to take place in the first half of 2022 to customer sites on lease terms. This way, the Company can begin monetising its air cooled "S" Series technology in advance of the anion exchange membrane being available later in 2022.

We are most excited about this new platform and believe it will further establish AFC Energy as a leader in the off-grid power market as industry sets about the transition away from diesel.

The S Series is set for validation at 100kW scale in the second half of 2022 as part of the ABB deployment announced a few weeks ago. Scale up of the batch-to-batch manufacturing process is underway and is a precursor to a larger mass produced "reel to reel" process.

Investment into Staffing and Scaled Up Manufacturing

With the proceeds from our capital raises in 2020 and 2021, AFC Energy has seen an influx in high quality engineering, commercial, research and manufacturing teams required to deliver the Company's business plan over the coming years.

The engineering team has now moved into new offices as part of the upgrade to local aircraft hanger facilities at the Company's head office in Surrey over the summer, with the remainder of the hanger installation available for manufacturing scale up.

Over the last 6 months, a mapping of the automated scale up infrastructure required for stack deployment has been made and the first pieces of machinery have started to arrive for site acceptance and commissioning. These semi-automated assembly lines are expected to facilitate delivery of the next few years worth of fuel cell stacks for customer deployment.

Outlook

After a transformational year the outlook for AFC Energy is very strong. The recent commercial orders from ABB and the certification of the Company's fuel cell systems and crackers for maritime installation, the value of alkaline fuel cell technologies across our key addressable markets is becoming increasingly apparent.

2022 will see a number of new systems deployed to the market, many from the Company's new product range.

With the introduction of the AEM and HFC "S" Series systems, AFC Energy is now confident that it affords maximum optionality to its customers in fuelling in a way that no other fuel cell technology can. We expect to leverage this "fuel flex" approach to all our commercial partners and customers and believe with this market offering, and the power density we expect to achieve from our "S" Series platforms, that 2022 will see many new opportunities emerge for the Company to capitalise on its leading position to displace diesel generators within the next decade.

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About AFC Energy

AFC Energy plc is commercialising scalable alkaline fuel cell systems, to provide clean electricity for on and off grid applications. The technology, pioneered over the past twelve years in the UK, is now deployable in electric vehicle chargers, off-grid decentralised power systems and data centre applications with emerging opportunities across maritime and rail as part of a portfolio approach to the decarbonisation of local electricity needs.