Alongside offtake agreement with Southwest Airlines, offtake in place for 100% of Bayou Fuels SAF

Velocys plc (VLS. L), the sustainable fuels technology company, is pleased to announce that its wholly owned subsidiary, Velocys Renewables LLC, has entered into a Memorandum of Understanding (“MoU”) for the offtake of Sustainable Aviation Fuel (“SAF”) to be produced at the Bayou Fuels project in Mississippi, USA (“Project”), with International Consolidated Airlines Group S.A. (“IAG”).

The MoU covers the purchase by IAG’s constituent airlines, which includes British Airways, Aer Lingus and Iberia amongst others, of an expected 73 million gallons of SAF, in aggregate, at a fixed price. After blending, this will produce the equivalent, under US regulations, of 192 million gallons of net zero SAF (blended basis) during the term of the purchase contract, which will last for ten years from 2026, which is when the Project’s biorefinery is expected to begin delivering SAF. It represents one third of the facility’s planned annual output and complements the binding offtake agreement for the remaining two thirds annual output announced today with Southwest Airlines.

The intention of the parties is to convert the non-binding MoU, which includes all material terms for the offtake, into a definitive offtake agreement as soon as possible within the next six months; the MOU also includes an option for IAG to invest in the Project development phases.

The fixed price fuel purchase agreement includes a price support mechanism by IAG for the greenhouse gas credits associated with the SAF production. As a result, the agreement is expected to generate revenues of over $800M to the Project and achieve, under US regulations, an estimated total of 2.2 million tonnes of avoided CO₂ over the term of the offtake.

The Velocys carbon mitigation technology will enable the commercial-scale production of a deeply negative SAF at the Bayou Fuels plant through the combination of biogenic feedstock, renewable power and carbon capture and storage.

Henrik Wareborn, CEO of Velocys, said:

“We are delighted that IAG, our partner for many years through our work with British Airways, intend to purchase a large volume of SAF from the Bayou Fuels project. This long-dated offtake, encompassing support for environmental credits, will provide certainty of revenue for the Project which should enable construction capital financing. We have now secured long term offtake clients for 100% of the expected SAF production and associated environmental credits for the Bayou Fuels facility.

“Velocys’ focus is now on accelerating technology delivery with our partners to allow client facilities, including Bayou Fuels, to reach Final Investment Decision and then go into construction. Our capital-light, technology-licensing model will enable many more aviation clients to transition to Sustainable Aviation Fuel as required by the race to Net Zero.”

Luis Gallego, CEO of IAG, said:

“IAG is investing US$400 million in the development of sustainable aviation fuel in the next 20 years. This new agreement is another important step towards achieving our goal of 10 per cent sustainable aviation fuel use by 2030.

“Sustainable aviation fuel is a critical element for the decarbonisation of the aviation industry. Clear policy support is needed to attract investment to construct the necessary plants to deliver enough supply for the airline industry. This project has benefitted from strong policy support from the US, creating highly valued green jobs and economic growth. We would encourage the UK and the EU to follow suit in supporting the development and deployment of green technologies including carbon capture.”

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Certain information contained in this announcement would have constituted inside information (as defined by Article 7 of Regulation (EU) No 596/2014) prior to its release as part of this announcement.

For further information, please contact:

Velocys
Henrik Wareborn, CEO
Andrew Morris, CFO
Lak Siriwardene, Director of Communications & Sustainability
+44 1865 800821

Panmure Gordon (UK) Limited (Nomad and Joint Broker)
Hugh Rich (Corporate Broking)
Emma Earl (Corporate Finance)
John Prior (Corporate Finance)
+44 20 7886 2500

Shore Capital Stockbrokers Limited (Joint Broker)
Henry Willcocks (Corporate Broking)
Toby Gibbs (Corporate Advisory)
James Thomas (Corporate Advisory)
Liam Zabludowicz (Corporate Advisory)
+44 20 7408 4090

Buchanan (Financial PR)
Helen Tarbet
Simon Compton
+44 20 7466 5000

Radnor Capital (Investor Relations)
Joshua Cryer
Iain Daly
+44 20 3897 1830

Notes to Editors

 Velocys is an LSE-listed, international sustainable fuels technology company, traded on the AIM, providing clients with a technology solution to enable the production of negative Carbon Intensity synthetic, drop-in fuels from a variety of waste materials. SAF (‘Sustainable Aviation Fuel’) is the only commercially available, permanent alternative to fossil aviation fuels.

The technology is IP-protected in all major jurisdictions.

Two reference projects in the US and UK (Bayou Fuels and Altalto) 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 capture and storage. Velocys is enabling commercial scale SAF production in response to the clean energy transition.

Velocys technology pathway is enabling the next generation of low carbon sustainable fuels with significant additional positive air quality impacts.

Bayou Fuels project

The Bayou Fuels project in Natchez, Mississippi, US will take waste woody biomass and convert it into sustainable aviation fuel and naphtha using Velocys’ proprietary micro-channel FT reactors. The project will incorporate carbon capture and storage (CCS) to enable the commercial-scale production of SAF with an extremely negative carbon intensity. Integrating CCS and renewable power into the Bayou Fuels biorefinery maximises certain targeted revenue streams, such as those incentives derived from the California Low Carbon Fuels Standard, and U.S. 45Q tax credits. This is expected to have a meaningful positive impact on project returns.

Project financing for the final engineering phase of the Bayou Fuels project is targeted to occur in HY1 2022. The plant is designed to produce approximately 22 million US gallons per annum of SAF, which in turn after blending will produce approximately 57 million US gallons per annum of net zero SAF under US regulations.

www.bayoufuels.com