Update on climate legislation

15 Aug 2022

US climate legislation will encourage sustainable fuels investment

Legislation expected to underpin the financing of Velocys’ US sustainable aviation fuel reference project

Velocys plc (VLS.L), the sustainable fuels technology company, welcomes the passing of the “Inflation Reduction Act of 2022” by the US Congress in relation to key legislation tackling climate change. Velocys notes that the legislation is expected to be signed into law by President Biden shortly.

Subject to becoming law, this landmark piece of legislation allocates approximately $369 billion to reducing greenhouse gas emissions and incentivises expanded production and use of domestic clean energy. Sustainable Aviation Fuel (“SAF”) tax credits are an integral part of the Act, together with other incentives and mechanisms to accelerate the deployment of advanced fuel technologies, generating non-fossil fuels with a significantly reduced carbon intensity.

SAF is the only current commercially scalable decarbonisation route for the aviation sector. Multiple pathways to SAF production are needed to satisfy the aviation industry’s decarbonisation targets towards “net zero”. Velocys provides its clients with integrated IP-protected technology enabling the production of synthetic aviation fuel from a variety of sustainable feedstocks with ultra-low to negative carbon intensity.

The SAF tax credits and associated incentives are expected to underpin the financing of Bayou Fuels, Velocys’ advanced SAF reference project in Natchez, Mississippi, US. Bayou Fuels is a planned cellulosic biofuels plant enabling the production of carbon negative fuel through the use of biogenic feedstock, renewable power, and carbon sequestration. The biorefinery will convert 3,000 tons/day of woody biomass forestry residues into 36 million gallons/year (nameplate) of renewable transportation fuels, predominantly SAF, with a negative carbon intensity. The biofuels produced will adhere to both the US Renewable Fuel Standard (“RFS”) and the Low Carbon Fuels Standard (“LCFS”) and earn additional incentives via the associated Renewable Identification Number (“RIN”) and LCFS credits.

As announced in November 2021, Velocys has already secured long-term offtake arrangements for 100% of the SAF output expected from the Bayou Fuels facility with Southwest Airlines (a 15-year agreement) and IAG/British Airways (MOU for a 10-year agreement) avoiding 8.8 million tonnes of CO2 over the term of the off-takes. This new climate legislation is expected to allow finalisation of conversion of the MOU to a full offtake agreement.

This critical legislative development in the US follows last month’s launch by the UK Government’s Department for Transport of its Jet Zero Strategy, setting out the Government’s approach for achieving net zero aviation by 2050. This includes an ambition for a minimum of five commercial-scale SAF plants to be under construction in the UK by 2025, and a mandate for the equivalent of at least 10% SAF to be blended into conventional aviation fuel by 2030. Velocys and British Airways are jointly developing the Altalto project, which is to build a full scale plant in Immingham, UK, to make SAF from commercial and residential residual waste, in anticipation of UK policy incentives competitive with those announced by the US. Importantly, the UK mandate is to be expressed in terms of greenhouse gas reductions, rather than simple volume, which will benefit Altalto due to its ultra-low carbon intensity.

Henrik Wareborn, CEO, said:
“The legislation passed in the US is of historic significance, putting the United States on a path to lower its emissions significantly by 2030, and beyond. We believe this landmark legislation represents a compelling model which other governments will seek to follow, in particular in its focus on total amount of avoided carbon instead of volume of sustainable fuel supplied, thus prioritising those technologies which offer routes to negative carbon intensity fuels.

“This development, coupled with the UK’s launch of its Jet Zero strategy, represents a major endorsement of Sustainable Aviation Fuel, and Velocys’ proprietary technology to produce it.”

For further information, please contact:

Henrik Wareborn, CEO
Philip Sanderson, CFO
Lak Siriwardene, Director of Communications
+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)
+44 20 7408 4090

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

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

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.