VLS.L Regulatory News (VLS)

27 October 2022

News Release

Velocys plc

("the Company")

Improved Decarbonisation of Velocys US Reference Project

Bayou Fuels project will set new benchmark for carbon savings

Significantly improved negative carbon-intensity expected to be beneficial for planned project revenues and project financing

Velocys plc (VLS.L), the sustainable fuels technology company, announces that its proposed facility Bayou Fuels in Natchez, Mississippi, US has been re-optimised for maximum decarbonisation to a negative carbon intensity of -375g CO2e/MJ (previously -144g CO2e/MJ); abating the carbon emissions from the equivalent of 1.1 million return economy trips from San Francisco to London per annum.

The significant improvement in negative carbon intensity has the potential to increase future revenue for Bayou Fuels and enhance the attractiveness of the project for third party project funding. In particular it will allow the Bayou Fuels project to derive maximum benefit from the 45Z tax credits under the Inflation Reduction Act of 2022, which incentivises the total amount of avoided carbon instead of the volume of sustainable fuel supplied, thus prioritising those technologies which offer routes to negative carbon-intensity fuels. The Bayou Fuels project has a 15-year fixed price offtake agreement with Southwest Airlines, which together with a further MOU for a 10-year fixed price offtake account for in aggregate 100 per cent of the SAF produced and underwrites a floor on certain credits. Pursuant to the existing Southwest offtake agreement, each gallon of SAF generated by the project is expected to generate tradable greenhouse gas credits for which Southwest guarantees, with respect to the SAF sold to it, a minimum price payable to the project. The enhanced negative carbon intensity will increase the credits generated under the Inflation Reduction Act ("IRA") and the California Low Carbon Fuel Standard, improving the revenue and economic profile of the project.

The Bayou Fuels project, when it enters production in 2026, will now use renewable energy derived from sustainable biomass power instead of solar power which will approximately double the carbon savings for its aviation customers, thereby enabling maximum carbon abatement from the Velocys conversion pathway. The Bayou Fuels SAF prospective carbon intensity of -375 g CO2e / MJ avoids more than 15 times as much CO2 as a typical HEFA SAF gallon from soybean oil.

Velocys carried out preliminary boiler engineering evaluations, identified the most appropriate carbon capture system, confirmed the availability of sustainable biomass and re-evaluated the layout of the overall facility in order to validate the use of biomass power at the plant. 

Henrik Wareborn, CEO, said:

"The Inflation Reduction Act means that future SAF production must focus on the number of tonnes of avoided carbon and not gallons of fuel produced. The use of biogenic feedstock, biomass power and CCS at our project in Mississippi equates to a yearly reduction of 1.8 million tonnes of carbon and means our technology is ideally positioned to benefit from the SAF tax credits of the IRA."

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Notes to Editors

Velocys is an LSE-listed, international sustainable fuels technology company, traded on the AIM, providing customers with a technology solution to enable the production of negative Carbon Intensity synthetic, drop-in fuels from a variety of waste materials. Synthetic fuel is the only commercially available, permanent alternative to fossil aviation fuels. The Velocys technology is IP-protected in all major jurisdictions.

Two reference projects (Bayou Fuels, US, and Altalto, UK) are designed to accelerate the adoption and standardise the Velocys proprietary Fischer Tropsch (FT) technology with an integrated end to end solution, including renewable power and carbon sequestration.

Velocys is enabling commercial scale synthetic fuel production in response to the clean energy transition, with significant additional positive air quality impacts.

www.velocys.com