SAF Offtake with Southwest Airlines

November 10, 2021

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(Bayou Fuels) 15-year offtake agreement enables 575 million blended gallons of net zero SAF for Southwest Airlines; Alongside offtake MoU with IAG, commitment 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 its first offtake agreement for the sustainable aviation fuel (“SAF”) to be produced at the planned Bayou Fuels biorefinery project in Mississippi, USA (“Project”), with Southwest Airlines Co.® (“Southwest”).

The agreement covers the purchase by Southwest of an expected 219 million gallons of SAF at a fixed price, over a fifteen-year term starting as early as 2026, when the biorefinery is scheduled to begin commercial delivery of fuel. After blending, this will enable approximately 575 million gallons of net zero SAF. (Net zero is determined as a fuel with a carbon intensity of zero (0) gCO2e/MJ or lower on a lifecycle basis.)

The offtake agreement covers two thirds of the Project facility’s planned output and has the potential to generate multi-billion revenues over the life of the contract. Each gallon of SAF generated by the Project is expected to generate tradable greenhouse gas credits for which Southwest guarantees a minimum price payable to the Project (included in the fuel fixed price), de-risking a significant proportion of the revenue stream to the Project. The Project may additionally benefit from the value of greenhouse gas credits if sold above the minimum price by Southwest.

In addition, Southwest and Velocys have established a long-term strategic relationship as a part of the offtake agreement – potentially advancing future Velocys SAF-producing facilities and allowing Southwest first offer rights to purchase significant volumes of SAF from such facilities.

Through the combination of biogenic feedstock, renewable power and carbon capture and storage, Velocys’ carbon mitigation technology will enable the commercial-scale production of SAF at the Bayou Fuels plant with a strongly negative carbon intensity of up to -144g CO2e/MJ, which is expected to achieve a total of 6.5 million tonnes of avoided CO₂over the term of the contract.

Henrik Wareborn, CEO of Velocys, said:

“Today’s announcement is a major milestone for the Bayou Fuels reference project and further strengthens our conviction in the important role sustainable fuel will play in the future of the aviation industry.

“It is very encouraging to see Southwest make such a strong commitment to using fossil free fuel as part of its environmental sustainability plan and to see Velocys technology performing a central role in making this possible.

“This unique long dated offtake, encompassing fuel purchases and sales of greenhouse gas credits, underpins the financing of the construction capital for the Project.

“This agreement shows that commercial scale demand for SAF can be satisfied already by the middle of this decade and that Velocys plays a pivotal role in enabling this.”

Stacy Malphurs, Vice President of Supply Chain Management & Environmental Sustainability for Southwest Airlines, said:

“We’re excited to enter into a 15-year offtake agreement with Velocys, enabling Southwest to utilise negative carbon intensity SAF to produce significant quantities of net zero fuel after blending with conventional jet fuel.

“As we work toward our ultimate goal of carbon neutrality by 2050, this offtake agreement will play an important role in our strategy to reduce our carbon emissions intensity and incorporate SAF into our operations on our journey improve our environmental stewardship.”

Further terms of the Offtake Agreement

The agreement is subject to certain customary conditions precedent including completion of satisfactory financing for the final engineering phase and certain construction milestones, eligibility for greenhouse gas credits as well as the enactment of the proposed SAF tax credit legislation.

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.

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.

https://www.velocys.com

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 of -144g CO2e/MJ. 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.

SOUTHWEST AIRLINES CO.

In its 51^st year of service, Dallas-based Southwest Airlines Co. continues to differentiate itself from other air carriers with exemplary Customer Service delivered by nearly 54,000 Employees to a Customer base that topped 130 million Passengers in 2019. Southwest has a robust network of point-to-point service with a strong presence across top leisure and business markets. In peak travel seasons during 2019, Southwest operated more than 4,000 weekday departures among a network of 101 destinations in the United States and 10 additional countries. In 2020, the carrier added service to Hilo, Hawaii; Cozumel, Mexico; Miami; Palm Springs, Calif.; Steamboat Springs; and Montrose (Telluride), Colo. Thus far in 2021, Southwest has initiated service to Chicago (O’Hare) and Sarasota/Bradenton both on Feb. 14; Savannah/Hilton Head and Colorado Springs both on March 11; Houston (Bush) and Santa Barbara, Calif. both on April 12; Fresno, Calif. on April 25; Destin/Fort Walton Beach on May 6; Myrtle Beach, S.C. on May 23; Bozeman, Mont. on May 27; Jackson, Miss. on June 6; Eugene, Ore. on Aug. 29; and Bellingham, Wash. on Nov. 7. Southwest will begin service to Syracuse on Nov. 14.

Southwest coined Transfarency^® to describe its purposed philosophy of treating Customers honestly and fairly, and low fares actually staying low. Southwest is the only major U.S. airline to offer bags fly free^® to everyone (first and second checked pieces of luggage, size and weight limits apply, some carriers offer free checked bags on select routes or in qualified circumstances). Southwest does not charge change fees, though fare differences might apply.

Southwest is one of the most honored airlines in the world, known for a triple bottom line approach that contributes to the carrier’s performance and productivity, the importance of its People and the communities they serve, and an overall commitment to efficiency and the planet. Learn more about how the carrier gives back to communities across the world by visiting Southwest.com/citizenship. READ MORE

Velocys gives ABLC presentation on sustainable fuels--Report on the Bayou Fuels project given at the Advanced Bioeconomy Leadership Conference (ABLC). (Bayou Fuels; includes link to VIDEO)

SAF offtake with Southwest Airlines alongside offtake MoU with IAG, commitment for 100% of Bayou Fuels SAF (Velocys)