Fusion Fuel Green - Q1 2022

Transcript

Benjamin Schwarz (Head of Investor Relations)

Hello everyone, and welcome to Fusion Fuel Green's First Quarter 2022 Investor Update. My name is Ben Schwarz, and I'm Head of Investor Relations at Fusion Fuel. I would first like to remind everyone, this call may contain forward-looking statements, including but not limited to, the company's expectations or predictions of financial and business performance, which are based on numerous assumptions around sales, margins, competitive factors, industry performance, and other factors which cannot be predicted. Forward-looking statements are inherently subject to risks, uncertainties, and assumptions, and they are not guarantees of performance. I encourage you to read the disclaimer slide in the investor presentation for a discussion of the risks that may affect our business or may cause our assumptions to prove incorrect.

The company is under no obligation and expressly disclaims any obligation to update, alter, or otherwise revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. Thank you all for joining us today, and I'll briefly run through our agenda for the next hour. We'll begin with an overview of our value proposition as well as some commentary around what we're seeing in the market from a macro perspective. The management team will share some first quarter highlights, financial results, and a business update focusing on commercial progress and the latest on tech and production. We'll then close with some remarks from Fusion Fuel's chairman, and open up the floor then for a half hour or so of facilitated Q&A.

As in our previous quarterly calls, questions can be submitted in the chat box in the webcast platform at any point during the next hour. Alternatively, you can also submit your questions to the investor relations mailbox at [email protected]. Let's begin with an overview of Fusion Fuel's business case. For those who are new to the name or in need of a refresher, Fusion Fuel's in the business of developing and delivering cost-effective clean hydrogen solutions to accelerate the global energy transition. Our aspiration is to take a meaningful share of the global hydrogen opportunity, which between legacy demand and emerging applications, is already a significant market today, and one that's poised to experience tremendous growth over the coming decades. At its core, Fusion Fuel is a technology company.

We've developed and commercialized a proprietary integrated solar to hydrogen generator that unlocks grid independent hydrogen production at a market leading levelized cost. We are only one of a handful of companies that are producing green hydrogen today at our demonstration plant in Portugal, and are moving quickly to capitalize on that early mover advantage and execute on the substantial commercial pipeline that has been built over the last year and a half. We believe we have the right technology and the right team at the right time to make Fusion Fuel a major player in the green hydrogen business. Before we dive into the business update, and as we have in recent meetings, we want to take a step back and touch on the hydrogen market more broadly.

As has been the case for much of the last year, the economics of conventional hydrogen production remains under pressure. Most acutely in Europe amidst a sustained increase in the price of natural gas. Similarly, the levelized cost of green hydrogen extremely sensitive to electricity prices and the pervasive volatility in both the price and availability of renewables is challenging the economics and the viability of large scale electrolyzers, particularly when you include between $1 and $2 per kilogram in last mile logistics from centralized production. In this market environment, our integrated grid independent solution is significantly advantaged. Not only can we offer known long-term certainty of cost, but we can do so at market leading levels, at small or large scale without grants.

With clear line of sight to de-risk cost reductions from the ramp up of automated productions at our Benavente facility, along with the introduction of successive generations of our HEVO technology, which will help sustain our advantage even as the competition continues to drive down the cost curve. Having set that context, I'll now pass it over to Frederico, who will provide an update on the quarter.

Frederico Figueira de Chaves (CFO and Co-Head)

Great. Thank you so much, Ben. Good afternoon. Thank you everyone for joining us today. Today is an exciting day for both me and Zach. The first time that we present to you as co-heads of Fusion Fuel, and we're very excited to present the latest developments of the company. Before we go into the details and show you all the great things that are going on here, we'll briefly go through some of the financials and quarter highlights. First to note, as part of our drive to strengthen the senior levels of the company, we continue to hire key personnel, including most recently Zach, but also Jason Baran, who will, together with Zach, jointly oversee Fusion Fuel USA.

Later in the presentation, I'll provide more details on our personnel developments overall, but you'll see there's been huge advances in that department, and we still expect to increase significantly the talent in the firm. In this update, we want to highlight a very important development for us. As of today, we have secured confirmed binding income for 2022 of EUR 8.4 million, composed of both technology sales and grant income related to our projects and to Benavente. In addition, we have another six projects in late stage development that could generate up to EUR 20 million of revenue potential in 2022. That is EUR 8 million confirmed, an additional EUR 20 million income in late stage negotiations for a total of potential income in 2022 of EUR 28 million.

In the first quarter, we also entered into agreements with AESA regarding projects aimed at decarbonizing the industrial sector and hydrogen mobility projects in Spain. As well as with Hive to develop an already established portfolio of projects with Fusion Fuel's technology. I will touch upon some of the points here regarding Benavente and our partnership with Toshiba later on in the presentation. Regarding the financials, in the first quarter, we recorded an operating loss of EUR 3.8 million, of which EUR 3 million are related to operating expenses. Around EUR 1.6 million of those are related to personnel costs. That's the single biggest item. Overall, the costs are in line with the guidance we provided at the last update of between EUR 2.3 million-EUR 3 million of operating costs per quarter expected in 2022.

Even as you'll see with the ramp up later on in one of the slides of the personnel, our guidance flow continues to be between that, EUR 2.3 million-EUR 3 million of operating costs per quarter, expectations in 2022. We've booked EUR 800,000 of share-based payment expenses. These are non-cash expenses and are related to restricted stock units and options awarded to Fusion Fuel personnel. This is a charge that will be recurring as it's amortized over the vesting period. We do intend to keep using securities with vesting clauses as a means to attract talent, reward staff, and ensure alignment with shareholders. Therefore, a non-cash expense line related to these should be expected to continue over the coming years. As mentioned in previous quarters, we need to recognize the fair value movement on outstanding warrants.

With the increase in stock price in the first quarter, we need to account for the fair value movements of around EUR 4.7 million in the warrants. This is simply an accounting recognition. This is, as mentioned before, a non-cash item. With FX movements as well as movements in the value of short-term investments we hold, we booked a charge of around EUR half a million. The 115,000 euros charged to our equity-accounted investees is related to our Fusion Fuel joint venture and our share of their results.

This is an entity that has recently started last year, its activities continues its ramp up, and as we expect it to still continue to operate pre-revenues for a while, we do expect this line to continue to show a loss for the foreseeable future as we invest in that entity. One point I'd like to mention here, and it's also related to it, you will find more information on that in our 20-F regarding the full year financials for 2021. Our total assets. As you can see, we have here around EUR 23 million of cash and short-term investment instruments. Liquidity instruments.

In addition to these EUR 23 million, we have around EUR 23.5 million in PPE assets related to our two Évora projects, our HEVO-Sul project in Sines and our Benavente production facility. We have around EUR 11 million of inventory and materials that we have prepaid to secure their delivery. We have around EUR 5 million of VAT that we will be recovering through the regular process. This actually brings our total assets to around EUR 68 million, of which 23 is our cash and short-term instruments. It's important that everyone's aware that we have been significantly investing in the company and the assets of the company over the last year, and that is reflected in that total assets value. On outstanding shares and warrants, they remain unchanged from previous quarters.

The 92,000 restricted stock units are related to our employee initiative plan that we briefed upon in the last couple of quarters. The increase is regarding new hires that have been made as we award them restricted stock units with a several-year vesting period. The options granted are related to options granted to members of senior management and board of directors that vest over 3-5 years. Now I'll pass on to Zach, who will take us through some of our projects and the more exciting stuff of the presentation.

Zachary Steele (Co-Head)

Thanks, Rodrigo, and it's nice to meet everyone. Fusion has established ourselves as a leading player in the Iberian green hydrogen market and built a foundation for significant growth over the last year by building out a well-rounded and experienced management team and building off of our initial projects across multiple applications, which are mobility, industrial applications, and green ammonia. Fusion's decentralized electrolyzer provides multiple solutions to our customers, which is to sell turnkey technology solutions as sales, as well as to sell hydrogen, through our own projects that we develop. Our unique offering provides several key advantages. First, our modular technology is viable at competitive costs on even small volumes. Usually, centralized electrolyzers are not economical below 5 MW of capacity. However, Fusion can be competitive on projects as small as 25-50 kWh of capacity.

Second, Fusion's HEVO-Solar technology is grid independent, and we do not have energy cost fluctuations unlike our competitors, which is an important feature when energy prices continue to rise, as the majority of our cost is actually CapEx related. Third, through our integrated solar solution, we can take advantage of existing solar investment tax credits in the U.S. as well as cash grants in Europe, which further reduces our CapEx. As Ben noted earlier, we already have quite an advantage as from a levelized cost of hydrogen standpoint without grants, but with the grants or tax credits. It could be an additional 10%-30% cost reduction, which would make us world-class pricing for in the hydrogen markets. Lastly, we have a low carbon intensity, which is an attractive feature for industrial applications in particular.

Typical grid-connected power has an estimated 26 kilograms of CO₂ per kilogram of hydrogen, where our HEVO-Solar provides a solution with almost zero emissions. This means we're not just greener, but we can also provide better net backs on offsetting carbon taxes and tariffs for our customers, again, to further reduce their costs. Next page. Our solution, as you can tell on this page, is gaining traction globally. The pipeline has expanded substantially and now includes projects in five countries with a combined pipeline of over 170,000 metric tons per annum of green hydrogen. This pipeline represents over four times our expected capacity through the end of 2025. We have built a significant presence, as most people are probably aware, in Southern Europe, which is made up mainly of mobility and industrial application projects.

In MENA, we're developing a project in Morocco, which will be a low cost green ammonia export project. Lastly, with Jason Baran and I joined the company, we have recently started our business development efforts in North America. We're excited that in a short period of time, that we've already built early-stage opportunities totaling over 2,500 tons of green hydrogen potential. We believe the United States is about to take off as several subsidies are already in place that will help drive hydrogen development. These subsidies are the Green Hydrogen Hubs, which is over $8 billion of investment, the Department of Energy Loan Guarantee programs, and low carbon fuel standard credits in the states such as California. These programs, along with Fusion's unique ability to utilize the solar investment tax credit, makes the U.S. market very attractive as a platform for the company.

These projects we're highlighting on this page are at an advanced stage of receiving grants and/or near-term opportunities for technology sales, which represent a total of 43,000 tons of our 170,000 ton pipeline. We submitted for over EUR 60 million in grants for these projects and have been awarded thus far EUR 8 million. As noted earlier, we're already providing industry-leading cost of hydrogen without grants, but these grants just further help support us closing projects and building our pipeline. Over the coming months, we hope to announce that we've been awarded additional grants which will further bolster our project pipeline. As I noted earlier, our company is focused on several key applications, which are mobility, industrial applications, and green ammonia. These applications have a total addressable market potential of over 150 million tons per annum of hydrogen by 2030.

Our first application I'll discuss right now is mobility. Fusion Fuel provides a low cost, modular, scalable solution to our customers in the mobility sector. The mobility sector will grow to an estimated 12 million tons per annum by 2030. We're currently constructing our first refueling station in Madrid, which is with Exolum. This is a pioneering project and a first of its kind application in Iberia. As we continue to pioneer this market in Iberia, we've built a pipeline that represents over 20 projects totaling EUR 140 million in capital costs, EUR 65 million grants that have been submitted for the net capital exposure of EUR 75 million. These projects are a combination of tech sales and Fusion-owned projects. Fusion's technology provides decentralized and low cost hydrogen, which are attractive features in industrial applications.

Also, our low carbon intensity, as I noted before, provides not only emissions reductions, which is important, but also, just as important, it provides customers with the ability to reduce their carbon tax and tariffs. Industrial applications is made up of power generation, midstream assets with natural gas blending, refining heavy industrial applications such as steel and cement manufacturing and the oil and gas markets. The total addressable market by 2030 is an estimated 110 million tons per annum of hydrogen potential worldwide. Building off our early successes with Évora GreenGas, which most of you all are aware of, we've advanced our pipeline to seven projects with a total of EUR 43 million in capital costs, with EUR 14 million grants submitted for or have been awarded for a net capital exposure of EUR 29 million.

As we continue to build out our presence in both North America and Australia, we believe our advantages for industrial applications will continue to gain traction for further build-out of our pipeline. Lastly, is green ammonia. Green ammonia is the most efficient way to transport hydrogen today. Green ammonia market is estimated to be approximately 40 million tons of hydrogen by 2030. Our technology is perfectly suited to provide low cost hydrogen in markets with strong solar radiance and with suitable amounts of land. Morocco is an ideal first location for Fusion to develop a green ammonia export project. Fusion's role in these projects is to provide the green hydrogen in partnership with other technologies and companies to build the ammonia facility and related export infrastructure.

The project is approximately 32,000 metric tons per annum of hydrogen and totals over 180,000 tons per annum of ammonia. I will now pass it off to Frederico to talk about production technology.

Frederico Figueira de Chaves (CFO and Co-Head)

Great. Thanks, Zach. I now have the pleasure of speaking to you all about the fruits of someone else's work, because this is all due to the R&D team that's done a great job. We're very excited to introduce to you our second generation HEVO that we plan to launch during the summer.

Through changes in the product design, we've been able to consolidate two of our first generation HEVOs into one HEVO for the second generation. This has not only reduced the raw materials used in the HEVO, but it also reduces the complexity and amount of hydrogen and water network required on the back of each HEVO-Solar, which is driving a lot of the cost reductions that you see there. We're also already designing the third generation model to further reduce costs, and we hope to be able to put this third generation into production in the first quarter of next year already. We are, as I mentioned last time, we're fast, we're nimble, and we very much wanted to stay at the forefront of innovation. We believe that this is.

will keep us relevant and will keep us also keep our projects to be very attractive in the green hydrogen market. This is phenomenal job from the R&D and production teams. On the production team, we've also got very exciting news to share with you from Benavente. We bought the property one year ago, and we spent most of last year extensively renovating the site to be able to house what will be one of the leading production facilities of electrolyzers in Europe. Next week, we will do our soft launch of the facility with the first production line for the HEVOs going live. This is an incredibly exciting milestone for the entire team, and it also marks the first large-scale manufacturing of electrolyzers in Portugal, possibly Iberia. It's a phenomenal step for the company.

Next year, we expect to produce around 100 to have around 100 megawatts of electrolyzer capacity and be able to ramp that up to 500 megawatts in 2025. One thing I will note about production output with production capacity, one of the things that we want to make sure we do is we tie as closely as possible the actual output with when we can put things into the field. The projects have their own timelines with regard to development, licensing, and permitting processes. What we want to avoid doing is having too much stock of previous generations. You saw in the slide before how quickly our technology is evolving. We wanna make sure that we are producing as much as we can the latest generation when we're putting installing things in the field.

The numbers I mentioned before is our production capacity. Our production output will we'll try and match that as closely as possible to the actual needs in the field. Now I want to touch upon a press release that several of you might have seen already between ourselves and Toshiba. This was an agreement with Toshiba to study procurement, manufacturing, and sales process and R&D partnerships together. This is a partnership between two companies with disruptive technology in the electrolyzer space. Toshiba has a new membrane production approach, which fits incredibly well with our HEVO and our miniaturized PEM concept. The potential that that partnership can do to further our costs and to take hydrogen production and cost-efficient hydrogen production to the next level is incredibly exciting.

This is a joint sort of R&D and production partnerships and agreement that we are studying together. In addition, there is also a commercial angle to this. There are from both the Fusion Fuel technology as well as the Toshiba technology, there are partnerships where both sides' relationships can benefit from a commercial collaboration representing each other's products. We're extremely excited about this partnership, this agreement, and over the coming months both the Toshiba team and the Fusion Fuel team will work closely together to put the final points on it. As I've mentioned before, want to touch upon the team. It's a team that has grown incredibly quickly.

Note at the end of the first quarter last year, we were a grand total of 18, having only a few months before spun off and become sort of independent body. Since then, we have substantially invested and dedicated substantial time as well to finding the right resources, talents, and experience to make our team robust and senior and put us in a position to actually execute on our aggressive growth plans. We have been able to attract phenomenal talent with a significant experience across a variety of areas, whether that's gas management, hydrogen infrastructure, electrolyzers, and all sorts of engineering specialists, and also a world-class production team.

This is keeping us at the forefront of innovation and positioning us in a place where we feel confident that we can execute an aggressive growth strategy. We will continue to hire, in particular towards the end of the year. We do expect to see still substantial growth in the teams and in particular in Benavente with the production line as those become live. Now lastly, before I pass on to Jeffrey, I wanna touch upon the key milestones that we communicated for 2022. For those of you who follow us for some time, we like to make sure that we're updating you on what we said we will look to accomplish.

On the first side, we have the go live with the Benavente facility and also securing grants and financing for Benavente. We will have the first, as mentioned, soft go live next week already for Benavente, and then we'll ramp up and continue to install other production lines in the second half of 2022. We have secured grants nearly to the tune of EUR 10 million for Benavente, which is phenomenal support also from the Portuguese government for this world-class facility. On HEVO sales and grants, as we noted before, we have an extremely large pipeline, larger than we could hope to tackle. Now as we're working hard to convert those into confirmed orders, as mentioned before, we have EUR 8 million of confirmed sort of income related to our pipeline.

As we noted, we have a potential of up to 28 just for 2022. The team is working hard on closing those as well as preparing ourselves for 2023. We have, as Zach noted, we've submitted for large orders of grants related to projects both of ourselves and third parties that are using our technology. We believe that that will also position us very well for 2023, even 2024. On the tech development, I mentioned now the launch in the summer of the gen two at our expectation to go into Gen 3 in Q1 of next year. One thing that's exciting is we are already working on a oxygen capture system.

This would allow us to actually be able to capture green oxygen, produced with no carbon footprint. This is something the engineering team is working on, and we hope to have a demonstrated pilot on that in the next 12-18 months. The R&D team continues on product innovation and also new product development. I will hopefully be able to share some of that with you towards the end of the year. Project development, this is now the delivery of, as mentioned, our Évora's, our Sines project, the HEVO-Sul, as well as the Exolum, and the kickoff of the other projects that we expect to put in place in 2022 and 2023. That is ongoing work there.

One point we will note is that safety with Zach and I, and the executive committee overall, are completely committed to making safety a core pillar of our firm's culture. This is something that we continue to push and install and implement robust safety protocols. We are happy to report that we have had zero serious safety incidents in the company so far, and we hope to be able to maintain that hopefully throughout the life of the company. This is something that we wanna make sure that is in the core DNA of the company. It's been a very exciting start of year. Also, for us personally as we enter into our partnership, and it's been great.

Things are now really starting to come together, and we are live where others are still thinking about how to get in. With that, I will stop here, but I will now pass to Jeffrey, our chairman, who will do some-

Jeffrey E. Schwarz (Chairman)

Good morning, good afternoon to everyone. I wanna add my thanks to everyone who has tuned in today for giving us the opportunity to update you on developments at Fusion Fuel. As anyone with even a passing interest in financial news has observed, it's been a challenging year for the stock market. However, as any sophisticated investor understands, the term stock market is a misnomer. A more apt description would be a market of stocks. That conveys the idea that every company is different. I find it frustrating when people say to me that Fusion Fuel has done well compared to other SPACs. The taint of being a de-SPAC company makes no sense to me, as we have nothing in common with the vast majority of companies that enter the public markets through the SPAC structure.

We were not the third company with a plan to develop a market for flying taxis, or the fifth company with a plan to mine the moon for rare elements, or the nineteenth electric vehicles company with plans to compete with Tesla, Audi, Volkswagen, Porsche, and the rest of the global auto giants. Unlike them, we did not have a valuation measured in the billions or tens of billions. No, we are a real company targeting a nascent but huge real market opportunity, using a differentiated technology that enables us to produce green hydrogen more cheaply than our competitors, and that shields the cost to produce that green hydrogen from the vagaries of the electricity and natural gas markets. We control our own destiny as we are about to begin producing that technology in our own factory. Don't take my word for it.

I encourage you, come conduct on-site due diligence in Portugal. Visit our initial hydrogen farm in Évora. If you come this summer, I fully expect you'll find it in commercial operation. Visit our state-of-the-art factory in Benavente. Our head of production would love to give you a tour. We'll take you to see the progress of the construction of the hydrogen plant we're building in Spain for Exolum. See it all for yourself. Make diligence inquiries of developers who are asking manufacturers about availability and price for centralized electrolyzers for delivery next year. Can they deliver, and at what price? Fusion Fuel may be a small company, but we are ready to take on all comers, not with promises of what we hope to be able to do sometime in the future, not in 2025 like some of our competitors are talking about, but today.

In my 40 years as a professional investor, I've learned that if a well-run business with a product or service that is differentiated from its competitors and that serves a growing market can be bought at an attractive valuation relative to the size of that market opportunity, then you have a very high likelihood of generating attractive risk-adjusted returns over time. Do your own diligence and see if you agree with me that indeed, Fusion Fuel is one of the rare companies that possess those attributes. With that, I'll turn it back over to Ben, and we'll open it up for Q&A.

Benjamin Schwarz (Head of Investor Relations)

Great. Thanks so much. As a reminder, for anyone who has questions, there already have been a handful submitted into the chat box in the webcast platform. You can submit questions there or via email to the IR mailbox at [email protected]. So we'll start with a handful of questions that came in through email. This is for Zach or Frederico. Can you provide a status update on what you expect in the second quarter from a grant perspective? I think you guys may be muted. Well, while they sort that out, I'll take a question myself. There was a question that came into the webcast platform around our supply chain potential impacts from lockdowns in China.

I was just chatting with our head of production who also manages procurement as well, and he confirmed no impact from lockdowns in China up to this point. The procurement team is securing buffer stocks, and also has backups for nearly every component in the case of a more extensive shutdown.

Jeffrey E. Schwarz (Chairman)

Ben, when I jump in, I had one thought while they're sorting technology.

Benjamin Schwarz (Head of Investor Relations)

Sure.

Jeffrey E. Schwarz (Chairman)

Portugal. Just to mention that some proposed legislation has been introduced in the EU that would require for hydrogen to be deemed green hydrogen, that it would have to be produced in conjunction with newly built electricity generation specifically tied to that production. This is something that will be just, I guess, as an example of our advantage versus the traditional centralized electrolyzers, who, if this legislation were to come into force, would not be able to use electricity from existing renewables, whether it's solar or wind projects, but would have to be built in conjunction with new solar or wind projects. That CapEx, that extra CapEx is something that we don't have because we generate our own electricity.

That will be a headwind for the sale of electrolyzers by the traditional centralized electrolyzer companies and plays directly to our strength. Any other questions? Looks like they're ready in Portugal to answer.

Benjamin Schwarz (Head of Investor Relations)

They may not be ready. Well, while we sort that out, another question around. Well, we can talk about the. Oh, I'm getting confirmation from Frederico that they are ready to go. Wanna try again, Frederico, on that grants question?

Jeffrey E. Schwarz (Chairman)

Nope, that's not working.

Benjamin Schwarz (Head of Investor Relations)

Oh, okay. Well, for you, a question came through around roles and responsibilities given the new leadership structure between Frederico and Zach. Do you have a perspective on how those co-head roles expected to be split and how they'll work best together?

Jeffrey E. Schwarz (Chairman)

Yeah. We, as a board, and we have a very actively engaged board, but we've been monitoring the progress of the co-head relationship and have been very pleased. I think what's happened is that Zach has taken on certain areas of responsibility, such as the commercial business development and execution, and Frederico is focused on the R&D tech and production in addition to his roles as CFO. They jointly oversee the executive committee, which is comprised of, I think 7, maybe 7 members. Frederico and Zach are in touch, you know, every single day, keeping one another abreast of what's doing and kind of in others kind of in the other's portfolio.

We as a board, the non-execs are very pleased with how the co-head management structure has been working so far.

Frederico Figueira de Chaves (CFO and Co-Head)

We're happy to hear that. Can you hear us now?

Jeffrey E. Schwarz (Chairman)

We can.

Frederico Figueira de Chaves (CFO and Co-Head)

Great. With that perfect timing to jump into the grants question.

Zachary Steele (Co-Head)

I'll answer the grants now. Apologies for the technical difficulties. What we're expecting on grants is approximately EUR 55 million of grants have been applied for that I'll go through the programs now. C-14 is a program in Portugal that's just under EUR 10 million in grants we submitted for. We've been confirmed we're eligible for the grant, and we expect to hear if we're awarded the grant in the June-July timeframe. Another program is called C-5 in Portugal, which is a total of EUR 45 million of grants we submitted for. We expect that one to be about a month or two behind C-14, so between July-September timeframe to hear if we're awarded that grant as well.

The company's done a great job on filing for grants and has a good track record of securing them. We hope to update you in the Q2 about some new announcements on the grant awards.

Frederico Figueira de Chaves (CFO and Co-Head)

I'll just add for anyone working on the model. The way the grants work is that you're reimbursed against invoices. There are some grants that we have already requested the first reimbursements. We probably expect to be booking the first grant income, be it in Q2 or Q3. We don't control that timeline of reimbursement, but somewhere between Q2 and Q3, we expect to be doing the first bookings of that income.

Benjamin Schwarz (Head of Investor Relations)

Great. Zach, you referred to the Solar Investment Tax Credit in the States. Can you give a little bit more color on that and what it might mean for Fusion Fuel and its aspirations here in the US?

Zachary Steele (Co-Head)

Sure, Ben. That's a great question. The solar industry over the last decade plus really took off in the U.S., mainly supported by tax subsidies. The investment tax credit used to represent about 30% of the solar CapEx for solar projects, which was funded through tax equity structure, which is a very common structure. Right now it's 26% this year is the tax credit, and it's going down every year after that, starting next year. The HEVO Solar would qualify for about 50% of our capital costs are solar equipment related. We believe, yeah, somewhere between 10%-12% tax credit would qualify against our capital costs.

Jeffrey E. Schwarz (Chairman)

Zach.

Zachary Steele (Co-Head)

That would include bonus depreciation or additional benefits on depreciation.

Jeffrey E. Schwarz (Chairman)

Zach, aren't I right in saying that Congress is also considering potential subsidies for clean hydrogen production? You never know what comes out of Congress, but that's certainly something that's being discussed.

Zachary Steele (Co-Head)

Yeah. You're correct, Jeffrey. The Build Back Better plan, again, if it passed or a version of it passes this year, the Build Back Better plan had up to $3 per kilogram of production tax credits for hydrogen, and was based on your carbon intensity score. With us having a world-class carbon intensity score, we would qualify for the full $3, where blue hydrogen would qualify for much less. A point to note there is if we can attract market share now, just playing on because of the cost of our hydrogen, and then you add on top of it, you have Investment Tax Credit, you have loan guarantee programs.

You look at our, you know, levelized cost of hydrogen that Ben shared in the presentation, and you take $3 a kilogram of the tax credits out of our levelized cost of hydrogen. It becomes extremely competitive.

Benjamin Schwarz (Head of Investor Relations)

Thanks, Zach. Question here around the offtakers for some of the projects currently under development in Évora or in Sines.

Zachary Steele (Co-Head)

Where we are on offtake with Évora and Sines is generally we're right now in discussions with several offtakers around refueling station applications as well as selling into the power grid. Those conversations are ongoing. Our strategy is after we get through the licensing process on the projects. We will then be commencing, you know, negotiating offtake agreements. Because one thing I've learned from doing development is if you go and you secure offtake too soon before the projects are licensed and ready for construction, you usually pay a pretty big discount. We want to make sure that we maximize returns for the company and we plan to execute on offtake post-licensing.

Specifically to Évora, our plan is to sell into the grid right now because it's a hydrogen power project, and we're well along the way for doing that starting this summer.

Benjamin Schwarz (Head of Investor Relations)

Great. Thanks, Zach. Question around current utilization at Benavente. Is there a minimum level of activity needed, or can you ramp up or down production as sales come in? I have an answer, but I'll let Frederico chime in first.

Frederico Figueira de Chaves (CFO and Co-Head)

Sure. We do expect that for 2023, around about the sort of 100 megawatt level or let's call it between 70-100 megawatt level to be the production capacity we need to be targeting to be able to have it on a full utilization of the lines installed. That's where we're targeting to make sure that we're having those economies of scale, as much as possible. For this year, there is a gradual ramp up, of course, and we're doing it by a sort of a soft launch. We will add shifts, as needed, later in the year, when we see the production required. I think that's more of a 2023 question than a question for 2022 as Benavente continues to build out.

I would say it's between 70 and 100 megawatt level in 2023.

Benjamin Schwarz (Head of Investor Relations)

Yeah, sure. I think just adding to that, in terms of near term production at Benavente, Frederico mentioned the introduction of the installation and go live of the initial production activities and the HEVO line in particular. So at kind of they were like around a minimum of 120 HEVOs as opposed to HEVO-Solars, HEVO micro-electrolyzers per day at kind of running on. That's kind of at the minimum production throughput with the ability to ramp up as needed. There's a question around the project pipeline through 2026. The slide that Zach had presented. Are those figures per annum or the sum over the next four years? That's a pretty obvious one, but I'll.

Zach, you wanna take that?

Zachary Steele (Co-Head)

You can take it, Ben.

Benjamin Schwarz (Head of Investor Relations)

Sure. That is an aggregate over through 2026, not per annum. Although once those facilities are online, then you are talking about per annum production. Frederico, guidance for G&A costs following the ramp-up of hires. You alluded to this, that we expect to remain within the EUR 2.3 million-EUR 3 million range through the year-end. Any further color on that?

Frederico Figueira de Chaves (CFO and Co-Head)

It's around EUR 3 million of operating costs booked in Q1. Q1, as I mentioned, about EUR 1.6 million related to personnel. The personnel ramp-up that we'll see will obviously increase that EUR 1.6 million, but not as substantially as people might expect. We still expect to be in that EUR 2.3 million-EUR 3 million range. In Q1, we did have a number of operating expenses that were booked that are not sort of recurring throughout the year.

Benjamin Schwarz (Head of Investor Relations)

Thanks. Question on the mobility platform. The CapEx. What does that CapEx represent? Will those be own projects or tech sales? I think Zach, you mentioned a combination of the two. Any additional commentary?

Zachary Steele (Co-Head)

It's roughly 50/50 split between Fusion Fuel loans and tech sales. The CapEx is very similar. I mean, we're building our HEVO Solar and the balance of plant equipment for those refueling stations. Those projects are different applications or different, I would say, aspects to every project, but generally it's our HEVO Solar equipment and balance of plant equipment.

Jeffrey E. Schwarz (Chairman)

Ben, I just wanna sort of jump in for a moment when you mentioned mobility. One of the things that Zach mentioned in his presentation was the advantage that our modular approach to producing green hydrogen has over the centralized electrolyzer approach. This is particularly relevant in an area like mobility, where I think, as we all know, the demand for green hydrogen is going to be growing sharply over time. Today it is fairly modest. Lots of folks want to stick their toe in the water, so to speak, to prepare for that future growth. They don't necessarily want to make the type of very large capital investment that's required to install a centralized electrolyzer at size that enables the centralized electrolyzer manufacturer to drive the cost down.

We're able to install at fairly modest sizes, enabling users to grow as demand grows. We're able to be cost competitive even at modest sites. We have the benefit of this modularity and, as you said, we're able to, for facilities where the hydrogen production can be co-located with the refueling, avoid the need for those logistics and distribution costs. Mobility is really an area that we are extremely well-positioned to serve this market both today and as it grows over time.

Zachary Steele (Co-Head)

One more point on top of that, Jeffrey. I thought that was all great. I go back to my comment I made in the presentation around you know, really centralized electrolyzers struggle to be as competitive as below 5 megawatts of capacity. You know, for example, the largest refueling station project in our pipeline is roughly 180 HEVO-Solars. You gotta break that math out. The largest one is roughly just over 4 megawatts of capacity. For us to kind of go from projects the size of 1 megawatt to four in this space, we're very cost competitive where our competition can't. The other thing we're seeing is that they don't have production available today, and we're able to kind of fill in on projects that are permitted and ready to execute.

Benjamin Schwarz (Head of Investor Relations)

Thanks, Zach. A follow-up on the mobility question. Do you have a sense as to the pipeline for any of those mobility projects? I'm sorry, the timeline, not pipeline. Apologies.

Zachary Steele (Co-Head)

That timeline represents projects that we're working to execute over the next two years. It's not part of the five-year plan. It's our kind of short to what we call medium-term projects internally.

Benjamin Schwarz (Head of Investor Relations)

A related question as well, more broadly around time to market for projects. Assuming no commissioning or permitting issues after the initial project, is that timeline measured in months or years? The related question is, are there any updates regarding the delays in the licensing process?

Zachary Steele (Co-Head)

Yeah, it's a great question. I'm gonna focus on Portugal as where a lot of our initial projects have been. We had some great news about a month ago, which was there's an exemption that was passed by the Portuguese government that cut our permitting timeline by 50%, which would put us from start of a project to finish under 12 months. It's definitely now measured more in months than years for the projects.

Frederico Figueira de Chaves (CFO and Co-Head)

I would say that the, especially Évora two, we expect to benefit from that. As Jeffrey mentioned, if you come in the summer, we fully expect to have Évora one commissioned, but on the Évora two and HEVO-Sul and so on, those projects that we expect to benefit from this accelerated process.

Benjamin Schwarz (Head of Investor Relations)

Great. Just a question here around how much hydrogen is being produced at the pilot project in Évora?

Frederico Figueira de Chaves (CFO and Co-Head)

The pilot project until it's commissioned and live, we can't go live with all 15 of the HEVO-Solars. We currently continue to have the 2 HEVO-Solars producing hydrogen and releasing it into the air, all for testing purposes, measuring purposes and so on. As soon as it's commissioned, we'll go live with the 15. Then when we go live with the 15, we're talking about roughly around 15 tons per year of production. Unfortunately, the first green hydrogen being produced in Évora was in August of last year. We have been continuously on and off testing of that facility while the financing process closes until now. We've had to release it to the air. We're not allowed to store or capture it.

Benjamin Schwarz (Head of Investor Relations)

Thanks, Frederico. A question here via email around capital position and whether management is thinking about raising additional capital at any point in the near future.

Frederico Figueira de Chaves (CFO and Co-Head)

As I mentioned, we have that cash position. We do have a significant amount of stock. We do expect to continue to invest both in our projects and in some raw material for production which will impact our capital. We expect that as we mentioned, the inflows from both the tax sales and the grants to provide us with some support. Until now we've been mainly operating on a cash outflow basis. We're now moving into hopefully booking some inflows as well. Now what we've said in the past and what we've discussed is that we want to be sure that we have optionality on our capital. We see that there is a lot of opportunity in the market.

We see there's a lot of opportunity in making sure that our projects can proceed and that are not hindered through delays or concerns on the capital side. What we did do is we have filed a shelf that is public and can be seen in our filings for up to $75 billion. This is us being just prepared. If needed and if required, then we can look to tap into that through various different means. We always want to have optionality and do whatever is possible to not sacrifice the phenomenal growth opportunity that the market is presenting to us right now. Jeffrey, on the capital position, maybe you want to say a few words as well?

Jeffrey E. Schwarz (Chairman)

Yes. As Zach described, the grants that are available to encourage the development of the clean hydrogen industry can enable a low-cost producer like ourselves to be generating attractive returns on projects that we might take on. If we are to wind up winning some of these grants, that will enable us to move forward with some of these very high return projects. We have to think about how do we fund the company's share of those projects, sort of the complement to the grants that are received. One choice is to fund it with 100% of the project owned by the company. In a scenario like that, we would need to be raising capital.

Another choice would be to go out and find a partner who would be interested in putting in some or all of the equity, in, you know, to complement the grants. We will see what generates the best returns for our shareholders on these. If we do win some of these grants, these will be very profitable projects, and we'll take a look at what options generate the greatest accretion to value for the shareholders, whether that's raising capital to enable the company to take those projects on themselves, or whether it's the company using some sort of SPV project company structure that, in which we use third-party equity for those projects. Like we have said in the past, we have multiple levers that we can pull to facilitate our growth.

Certainly raising capital is one of them.

Benjamin Schwarz (Head of Investor Relations)

Great. Nearing the top of the hour here, just squeeze in one or two more questions. A question around how many HEVO-Solar units we expect to produce this year. As Frederico mentioned, we will do our best to try to align that with what we expect to be able to deploy in the field. In each department.

Yeah, Frederico, go ahead.

Frederico Figueira de Chaves (CFO and Co-Head)

Sure. We're currently producing for 350 units. As soon as we hear, hopefully, as Zach mentioned in June, July on the C-5 and C-14 answers, we'll ramp that up to 600, between 600 and 650. As the projects get confirmed, are in a position to start receiving units, our production will ramp up. We're optimistic that those grants will come through. I would say that we'll be looking at around the 600, 650 mark. If further projects come along, we will see what we need to do in terms of production.

Benjamin Schwarz (Head of Investor Relations)

Okay. Thanks, Frederico. We're now at the top of the hour here. If anybody's question did not get answered, feel free to reach out to the IR mailbox and we'll do our best to get in touch with you. Otherwise, that will do it for our first quarter webcast. Thank you to everyone who joined, and we look forward to our next update.

Frederico Figueira de Chaves (CFO and Co-Head)

Thank you. Thank you, everyone. Have a good day.

Benjamin Schwarz (Head of Investor Relations)

Bye.