Fusion Fuel Green PLC Q2 FY2021 Earnings Call

Hello. Welcome, everyone. Just a brief disclaimer before we begin. I'd like to first 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 about sales, margins, competitive factors, energy 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 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. Okay. Great. So, welcome again to Fusion Fuel Green PLC's Second Quarter 2021 Update. Thank you for joining us today. My name is Benjamin Schwarz, and I'm Head of Investor Relations at Fusion Fuel. Just a quick rundown of the plan for the next hour. I will hand it off to the team for discussion of financial results and operational highlights for the quarter. Then we will open up the floor for a moderated Q&A session with the management team and Fusion Fuel's Chairman. A quick reminder to please submit your questions in the Q&A box, or alternatively, you can submit them via email to [email protected]. So, without further ado, I'll pass it over to Fusion Fuel CFO, Frederico Figueira de Chaves, to kick off our discussion of the second quarter.

Great. Thank you very much. And I am not sure if slides are up. There we go. Thank you. So good afternoon, everyone. Thank you for joining us today. We're looking forward to sharing with you the latest and greatest over here at Fusion Fuel. Before we get into the details of our business, I'll briefly recap what we're all about for any newcomers and provide some color also on recent market developments. So just to remind everyone we're a company dedicated to the creation of green hydrogen production solutions. Our flagship HEVO-SOLAR solution combines a concentrated photovoltaic solar panel with a proprietary miniaturized pen-based electrolyzer, which creates a fully integrated off-grid modular and scalable green hydrogen generator. That is highly cost-efficient. I’d like to discuss the recent developments in the hydrogen market, including grey, brown, and green hydrogen. The price of grey hydrogen is primarily influenced by the price of natural gas. Over the past 18 months, we have seen a significant rise in natural gas prices, particularly a 770% increase in the last year alone in Europe. This has affected the relationship between natural gas prices and grey hydrogen costs, leading to a temporary reduction in the price gap between grey and green hydrogen. However, we anticipate that this gap will continue to narrow in the future due to expected carbon emission charges that will not only persist in Europe but also rise in value. Green hydrogen is currently in a strong competitive position. On another note, electricity prices in the Iberian markets, particularly in Portugal and Spain, have surged approximately 350% in the past year, as illustrated by the volatility on the chart. This poses a significant challenge for centralized electrolyzers that rely on grid electricity, as they must contend with both price fluctuations and rising green hydrogen costs. This scenario highlights the benefits of having green hydrogen production solutions that are either off-grid with dedicated power sources or fully integrated systems like our HEVO-SOLAR solution. We find ourselves in a favorable market position as grid costs escalate, giving off-grid solutions a substantial competitive advantage. Now to a little recap of the second quarter highlights. I will just touch upon the ones that we don't mention in the slides later. And the only reason for those is that we've actually already mentioned them in the first quarter slides as part of subsequent events. We did announce a partnership or an agreement with Elecnor to develop green hydrogen projects in Spain. We also announced a partnership with CCC to develop green hydrogen projects in the Middle East, specifically looking at doing a demonstrator plant in three of the Middle Eastern markets. And we've also announced an agreement with Ampol to install a demonstrator plant in Australia at Lytton refinery. We'll provide more details on the other points during this presentation. And if anyone is curious to learn more about the three I just mentioned, as I mentioned, they are all in our first quarter results presentation that's on our website. On the financials, we have modest revenues and costs of sales in the second quarter relating to the provision of custom-made parts and components to our production partner. This is the same as the first quarter. You see that the numbers between revenues and costs of sales match exactly. This is just for us, the strategic provisioning of custom-made parts to our production partner. So this relationship will continue throughout 2021. For the total operating expenses, we split these into cash and non-cash expenses for transparency and to better monitor the actual activities of the business. The share-based expenses are related to last year's transaction. These charges relate to potential share and warrant obligations from the merger agreement. These are non-cash expenses, and they will continue into the tune of 2022. The operating cash-based expenses are driven by payroll, both internal and external staff, and then followed by insurance, office and land resources, and legal costs. We've had also some FX charges in there as well. Another cash impact, reflected in the last line, is the value of all warrants that we must revalue each quarter and recognize the difference in the profit and loss statement. In the first quarter, we experienced a significant positive impact from these on an accounting basis. In the second quarter, there was a modest negative impact again on an accounting basis. The last line indicates a substantial change in our cash, with a reduction of about €11.5 million. This decline is mainly due to two key factors. Firstly, we purchased the Benavente facility, our future production site, for approximately €5 million. We plan to secure a lending facility against that investment in the medium term, which should help recover some of the liquidity that has been affected. We are confident that this was not just a strategic decision but also a solid investment in terms of asset value. Additionally, around €4 million of the cash was allocated to acquiring components and raw materials for our production process. These are large orders, especially considering the longer lead times we have been experiencing in the market. We have made efforts to purchase significant quantities to secure our supply chain as much as possible. There has been no change in our shares and warrants outstanding since the first quarter, and we had no warrant conversion in the second quarter. Before we provide our business update, we want to share some photos of recent activities, including the development of our Evora plant and the launch of the Morocco project along with our new factory. The Evora project is Portugal's first solar-to-hydrogen initiative. During our rollout, we were visited by Portugal's Minister of the Environment and Energy Transition and the Secretary of State for Energy, emphasizing the strategic importance of this project. We also announced our Hevo ammonia project in Morocco with the Minister of Energy, Mines, and the Environment. This is the largest green hydrogen and ammonia project announced in Morocco to date. Lastly, we acquired the Benavente facility, which requires extensive renovations. We have already begun repairs and flooring work in this large space, with the flooring now complete. We are also progressing with establishing stations and cleaning bars. We begin with a review of the three key milestones we set for ourselves in 2021. I apologize for any repetition, but we will continue to present our progress against these milestones throughout the year. This is a recap of our goals. The first milestone is the go-live of our Evora plant, which will demonstrate the industrial-scale effectiveness of our technology and establish a track record for its capabilities. The second milestone involves signing strategic MOUs and confirming hydrogen purchase agreements or technology purchase orders to secure confirmed revenues and orders in the coming years. Lastly, we aimed to create our own production facility, specifically the Benavente facility, with the target of having it operational by year-end. So, we'll go through each of those during this presentation. So start with Evora. Evora is our utility-scale demonstrator, strategically important for us to show interested parties to come and validate our technology. For Phase 1, all of the solar trackers are installed. The water hydrant management systems are in place. The fuel cell from Ballard has been delivered. We can already produce green hydrogen for testing purposes. We have had issues with the delivery of membranes, which means that we are still rolling out HEVOs to the systems as the membranes arrive. We intend to pass for commissioning of the plants at some point next month. For Phase 2, civil construction is well underway. Structures are to be erected this and the next month. And HEVOs are to be rolled out as soon as the membrane deliveries allow. For Evora, we are excited to share some news that many of you have been waiting for. We engaged an independent laboratory to validate the performance of our solar-to-green hydrogen production. Our R&D team has installed the next generation of HEVOs at Evora. What I have here is the original HEVO solution. We haven't previously disclosed this, but the new HEVO, while not as visually appealing as the earlier model, is significantly more powerful. This latest HEVO has been implemented in Evora, and we are pleased to announce that the independent lab has validated that this new HEVO shows a 10% performance increase compared to the previous version. Additionally, it also reflects a 10% improvement from what we projected in our 2021 plan. We are very pleased with the advancements that our R&D team has achieved in this area. Now an update on our production facility. We have purchased the Benavente production facility, which is set to grow to an output of approximately 500 megawatts electrolyzer capacity by 2025. Renovation is well underway, and the next step is the installation of the cleanroom, followed by the first production lines. Recently, we received notifications of delays from the providers of some of the robotized lines, which means we have to extend the go-live date of the facility to the third quarter of next year. This development is disappointing, but given the global constraints with semiconductors and other components, it is not unexpected. In the meantime, we will continue utilizing our current outsourced production facility. We have also faced several disruptions in our supply chain, including higher raw material costs, limited delivery volumes, and occasional quality issues. We had to return components that exhibited a static sense error rate. As a result of these challenges and modifications needed for the latest HEVO amidst significant short-term supplier constraints, we are revising our 2021 production guidance to between 150 to 200 solar units this year, down from 600. These will be HEVO-SOLAR units featuring the new HEVO technology, but this is still a lower target than previously stated. We are collaborating with our suppliers to address the constraints encountered this year as we prepare for 2022. However, due to the delays in getting Benavente operational, we are also reducing our 2022 production targets to 2,000 to 2,500 units, down from approximately 4,700. These numbers reflect total production from our partner facility and partial year production at Benavente. There will be no changes for 2023 and beyond, as Benavente will then be fully operational. This situation has minimal impact on our announced business plan targets regarding net income, even for 2022. In 2022, we will also benefit from some grants and financial aid for the Benavente development. For the Benavente facility, we are eligible to apply for substantial financial aid covering up to 25% of the development costs.

Hi. I'd like to thank you for attending our company results presentation. In the past months, we're especially active in the pursuit of our strategic plan to develop the green hydrogen projects, which you find as a priority for negotiation of MOUs and HPAs with some of the world's leading companies involved in oil and gas and the ammonia business. As mentioned before, our initial strategy was to develop the hydrogen projects and solidify our presence in Southern Europe, mainly Portugal, Spain, and Greece, and in the North of Africa, more precisely in Morocco with increased interest from several other countries in the world. We could participate in our international growth and start developing business in different geographies. Our HEVO technology has tremendous advantages when compared to other alternatives since we produce green hydrogen directly from the compression of solar radiation, allowing from one site to reach the highest efficiency and lowest levelized cost, but also allowing developing projects in locations completely off-grid. Our technology is particularly effective in regions with high levels of direct solar radiation, which is where we have announced our projects. Currently, major green hydrogen projects are underway in Australia and the USA, where we have already established Fusion Fuel Australia and Fusion Fuel USA. We are also focusing on regions like India and Chile, where we are in talks for our initial demonstration projects. We are starting our business activities in Southern Europe, specifically in Portugal. We are progressing with our short-term demonstrator plants in the southern region, representing the installation of about 300 HEVOs, equating to 7.5 megawatts. Additionally, we are developing five green hydrogen projects in the Sines area, which will involve the installation of approximately 25,000 HEVO-SOLAR systems and 600 megawatts of capacity. The green hydrogen generated will primarily be injected into natural gas pipelines. Two weeks of natural gas will be utilized to create green ammonia, serving as a hydrogen carrier for export to Northern Europe, for sale in bottles to support the industry, and to supply hydrogen refueling stations in Portugal. For the Sines project, we are securing around 800 hectares of land and starting the permitting process for the initial projects scheduled for installation in 2022 and 2023. In Spain, the strategy is the same as the one we defined for Portugal. We are developing demonstration plants, which altogether represent the installation of 325 HEVO-SOLARs, which is the same as saying around 8.2 megawatts equally. We established a partnership for cooperation for the installation of several hydrogen refueling stations. We expect to announce the first project soon. We are also under negotiations with some of the most important oil and gas companies to develop a green hydrogen project, which represents the supply and installation of around 30,000 HEVO-SOLARs, which means around 750 megawatts in the next five years. For that purpose, we are also negotiating and securing land for more than 1,500 hectares to install the projects. We expect to announce the first EPC contract and HPA very soon. Again, the projects will be submitted to European funds programs available for decarbonization. In Greece, we are in talks with an oil and gas company to develop a green hydrogen project, and we expect to announce the selection of the first demonstration plant shortly. In Morocco, we are actively working on an impressive project to produce 31,000 tons of green hydrogen, which will contribute to the creation of 180,000 tons of green ammonia in partnership with two significant global companies. I will provide more details about this project in the upcoming slides. Australia is our priority market for Fusion Fuel, thanks to its favorable solar radiation conditions that enable the lowest levelized cost of hydrogen in the world today. We recently established Fusion Fuel Australia and are currently negotiating the development of our first demonstration project. In the USA, which presents a promising market for green hydrogen projects, we incorporated Fusion Fuel USA last quarter and have already submitted an expression of interest to the Department of Energy for a project in California, leveraging the high levels of solar radiation in central California to achieve a very low levelized cost of hydrogen for hydrogen refueling stations for fuel cell electric vehicles. Additionally, we are developing the business in other markets, such as MENA region countries, where we mentioned we have developed a cooperation with CCC, a global EPC contractor to develop green hydrogen projects in the region. We are in negotiations to install green hydrogen projects in several countries, such as the United Arab Emirates, Oman, and Qatar, and most recently in Egypt. In India, we developed cooperation with BGR Energy. Again, it's a global EPC contractor from India to develop green hydrogen in the country. Negotiations are undergoing to install a green hydrogen demonstration plant in the Gujarat state. In South America, we are negotiating with a strong developer to install a green hydrogen project in Atacama. Now, more detailed information. In Portugal, we submitted three hydrogen projects to pursue, which is Portugal's Operational Program for Sustainability and Efficient Use of Resources. The first project is being developed by Fusion Fuel, called HEVO-Sul, and consists of the installation of 178 HEVO-SOLARs to produce 480 tons of green hydrogen per year to be mixed and injected into natural gas and to produce green ammonia. The project has a global investment of around €8 million and very recently received the approval from Portugal for a grant of €4.3 million. To get grant approval, we have to demonstrate that the land install the project and off-take of the green hydrogen were already secured. With the second and third projects, we will act only as a technology supplier. The second project is being developed by PRIO Energy, a Portuguese company that distributes and commercializes liquid fuels. It consists of the installation and supply and installation of 62 HEVOs with a rough estimated value of €2.4 million. The third project is more or less the same, but it will be developed by KEME Energy. Again, it will be 62 HEVO-SOLARs and more or less the same investment as PRIO Energy. Additionally, our HEVO-Sines project, which consists of the installation of 25,000 HEVO-SOLAR units of around 600 megawatts, will be developed within the next five years. It was recognized by the Portuguese government as one of the top projects out of 74 applicants eligible as each site project, which means an important project of common European interests. We expect the final recognition of our projects by the European Commission as an EPC project until the end of this year.

Thank you, Joao. So, I'll just quickly recap on our 2021 milestones. This is again the repetitive slide for most of you. Evora plant go-live, as mentioned before, I would hope to have Phase 1 ready to be commissioned we hope in September, with Phase 2 construction well underway and surely as soon as the membranes allow also ask the commissioning of Phase 2. The Evora plant is already working with its intended purpose of facilitating the technology demonstration to clients, which is why we believe that we're also in a good position to start signing the HPAs and confined orders. We've already signed significant MoUs as we mentioned throughout this presentation with Ampol, Elecnor, CCC, Vito, and so on. So we have a very strong partner bench. And now we're moving into the HPAs, also with POSEUR projects, a major step forward already there with that project confirmed. And now with Evora, we hope to be able to share with you some very good news in the coming months. Production facility, obviously we're happy with the better product performance and better product will be coming out with the production facility, but disappointed that we have to delay the go-live into the sort of third quarter of 2022. We will obviously do whatever we can to speed that up. And we will, in the meantime, continue to count on our production partners to deliver for the projects in the meantime.

Right now, we can open up for the Q&A. With me is Joao, and I also have Andre who joined us as our Chief Production Officer a couple of weeks ago. The Benavente project will be fully his responsibility moving forward, so he'll be the one working to expedite that. On the phone, we also have Jaime, our CTO, and Jeffrey, our Chairman. I believe people can type in their questions, and we are ready to answer them whenever you are. Okay. Great. Thanks. I have a few questions. We'll go in order that they were asked. Just waiting to see if Jaime and Jeffrey are available. Great. The first question is for Jaime. What is the expected technical lifetime of the HEVO-SOLAR units?

Yes. Good afternoon to everyone. The HEVO-SOLAR units are designed for 25 years with air on the steel structure and models concentrated models and so on. So they are preparing to have an operation to the 25 years, considering that the most critical issues regarding the membranes are replaced every seven years. So, during the lifetime, the system will have two replacements of the back part of the HEVOs and their costs are included in the operation and maintenance costs for the lifetime when we calculate the hydrogen costs that vary to reach a specific location with a specific solar radiation.

Focusing on technology, could you elaborate on the design improvements? Have these enhancements led to increased efficiency, reduced production costs, and decreased raw material requirements? Please provide more information about the advancements from generation one to generation two.

The design, implementation, and testing have led to several optimizations, particularly in the water distribution and hydrogen collection networks. These improvements have enabled us to achieve enhancements in the system, even when considering the global market conditions for raw materials. The increase in efficiency is not just about operational efficiency but also about extending the hours during which the system can function effectively under radiation. Overall, this results in approximately a 10% increase. The third-party performance tests were straightforward, focusing on the amount of sand falling from the sky and the hydrogen produced at the output. These tests were conducted with calibrated equipment in a continuous timeframe and considered variations in radiation. Essentially, the tests measured the energy derived from the sand against the hydrogen produced, and the outcomes were slightly better than what we are projecting for the upcoming year.

Great. One more question for you before I share the love, a question about water needs, how is the deionized water sourced for the Evora project? And more broadly, how much will water availability and water scarcity factor into projects in other locations.

Exactly. We need water with a certain level of purity, which requires deionization and cleaning. The specific process we use is heavily dependent on the water source in each location. In Evora, we extract water from the ground, which is quite brown and contains a lot of iron. To treat this water, we use specialized materials and equipment that we've designed specifically for it. The cleaned water enters our system at 500 microsiemens and exits at 600 microsiemens. This meets and even exceeds the minimum requirements for HEVO-SOLAR. However, we take a customized approach on a project-by-project basis. The method depends on whether we can source water from the network, need to extract it from the ground, or if we need to desalinate sea water, which adds another purification step. Each solution is tailored to the specific characteristics of the local water, and Evora presented significant challenges due to the quality of its water.

Great. Thanks, Jaime. So I'm going to throw Andre into the fire here only two weeks after he's joined, but he can feel free to join in as well. So it's a question about the production capacity of the Benavente facility from 2023, until it's fully built out.

So, Ben, you said the production facility could evolve in 2023?

Correct.

So, well, I'll answer that to not throw Andre too early to the work. The production facility for 2023 is planned to have around about 9,700 units, HEVO-SOLAR units.

Great. Thanks. So with reference to the investments made in raw material purchases, inventory in response to those shortages, how many HEVO-SOLAR units can be manufactured with stock today?

The situation largely hinges on the arrival of the membranes. We currently have enough stock to produce significantly more HEVO-SOLAR units than previously announced, but we are missing a couple of critical components. The main issue is that we are experiencing a high number of defects in the membranes we receive, which has forced us to return many of them. Our manufacturing partner is working to ramp up production as quickly as possible, but the membranes remain a critical challenge. Additionally, lens production for the solar-concentrating element has also faced difficulties, including sporadic challenges in obtaining raw materials from some suppliers. Throughout the year, we have been actively stocking up by purchasing raw materials, and we have enough metal for over 600 HEVO-SOLAR units. Thus, we are strategically building our inventory, but even a few missing components can hinder the production of HEVO-SOLAR units.

Great. Thanks Frederico. We received a question on the expected economics of HPAs, both for Fusion as well as for the customer. How's that work, the purchase price?

I will discuss the Fusion Fuel initiatives. Joao will explain the economics from the client's perspective regarding the price of hydrogen and related details. As we have stated from the beginning for HPAs, our goal is to aim for an internal rate of return of approximately 22% for the HPAs, and we are targeting a rate between 9% and 10% based on other metrics.

When they see projects direct off-taker of the hydrogen, they don't look so much at an IRR for the hydrogen that produces. But that calculation is based on the levelized costs of hydrogen. So normally our clients, most of them, they use this contract of 5%. So it means that the levelized costs of hydrogen are calculated considering a discount rate of 5%, some other elements that are willing to sell projects to supply green hydrogen to the final off-take, they would want more or less the same type of IRRs that we are assuming internally in Fusion Fuel.

I will just also add for the clients, part of their levelized cost of hydrogen will be anywhere in the amount of technical difficulty. So that can be a substantial variation in the levelized cost of hydrogen at the end.

Great. Thanks. Sticking with material, given the recent approval in the Gulf region.

Sorry, Ben, we can't hear you.

He has a question about given the proof of concept, at Evora, are we seeing more interest coming from companies in the Gulf region?

Yes. The Evora project was crucial for us to showcase a real project that demonstrates performance. We will show degradation and then assess the system. Once we demonstrate this, all performance metrics are based on factors like solar radiation, temperature, and humidity. When we expand into different regions, we simply adjust our calculations to reflect the local solar radiation and temperature. Therefore, this is very important.

We have received increased interest not only from the MENA region but from many other regions as Jaime mentioned during the presentation. We have had policies interested in visits from a wide range of areas.

Great. A question here, either for Jaime or for Frederico, perhaps what is behind the 25% increase that you mentioned in raw material costs? Is it driven primarily by polysilicon costs or other components?

No. I provided two examples. The price of aluminum has increased by 51% since October of last year until yesterday, while steel has risen by about 40%. Several traditional raw materials used across many industries are currently experiencing a significant price surge for various reasons. In Europe, one cause is the import taxes imposed by the European Commission on aluminum imports from China, which has caused prices to spike. Additionally, these are just two materials prominently featured in our tracking system and models. There has also been a notable price increase in novel metals like gold, platinum, and iridium. The third issue pertains to electronics; while the cost of electronic components isn't necessarily rising, the main challenge lies in their availability. We are encountering significant difficulties negotiating with suppliers to maintain our market share, as some of them are only accepting short orders due to uncertainty about future conditions. This creates a struggle for our processing department to secure as much material as possible. There is no clear timeline for when this situation will resolve—whether in a year, two years, six months, or longer periods—it's certainly not sustainable. Many industries will encounter serious challenges if raw material prices continue to rise, and our purchasing department is actively working to secure as many products as possible to minimize shortages.

Thanks, Jaime. And the subject of supply chain issues, how critical do you see those issues? Might they endanger or delay upcoming projects and potentially scare customers?

This is affecting the entire value chain, not just us. Right now, as we predicted at the beginning of the year, our primary focus is to go to the market and buy as much as we can to secure our raw materials. We have been asked how many HEVOs we have in raw materials. While we can't provide an exact number, we can assure you that we still have a substantial quantity because we are securing what we fear may become scarce. Currently, we are also preparing our stocks for the plans for the next year, but it remains a continuous struggle.

When we talk about clients being concerned about delays, it's important to note that most hydrogen buyers are truly worried about rising natural gas prices, increasing electricity costs, and the escalated CO2 tax emissions. A year ago, many large hydrogen consumers were primarily focused on grey hydrogen. However, today, they are paying much more attention to green hydrogen because when they contract for hydrogen projects, they can stabilize prices for at least the next 15 to 25 years. As we've mentioned before, since we operate off-grid, the primary costs associated with our hydrogen come from the initial investments made in the projects. While they are indeed concerned about minor delays, they understand that the future will be far more challenging if they stick to grey hydrogen.

Thanks, Joao. I guess jumping off of that, especially in light of the report that came out recently about blue hydrogen, this is a pretty straightforward question. Do you have an estimation of CO2 equivalent emissions per kilogram of hydrogen for a HEVO-SOLAR module?

I believe that on an ongoing basis, we don't have a CO2 impact. However, we have not yet determined the CO2 footprint of producing the unit. Therefore, I'm unclear about the specific question regarding the actual production of the unit, but if we are only comparing green hydrogen to blue hydrogen, there are carbon emissions involved in our process as it currently stands.

On the other side, we are delivering a huge amount of oxygen to the air. I would say that when HEVO-SOLAR is able to deliver it to the air same oxygen, that's around 80 big trees in a period. So, we are not emitting CO2, and we are delivering oxygen back.

Great. Frederico, in light of the updated forecast, what is your view on liquidity going forward?

The updated forecast has actually improved our liquidity situation because most of the projects we planned for 2021 and much of 2022 were still in development, which requires a substantial capital investment from us. Reducing those deliverables decreases the actual cash outflow and investment we need to make in those years. For 2022, with the production reduction, we are directing more of our production towards our projects rather than relying on third-party purchases. We anticipate generating one-off revenues from the sale of the hydro generator in 2022, applying the lessons we've learned. We are likely to further reduce our investment in the rollout of HEVO-SOLAR as we plan to own and operate those projects ourselves. While we would have liked to do and produce more, this situation does put some pressure on our liquidity position.

Thanks Frederico. I have a couple of questions regarding hydrogen storage and hydrogen compression. How do you store hydrogen for electricity production at Evora, and what are your storage capacities in Evora?

In Evora, we have an inline system with two levels of compressors. The first level acts as a buffer for variations in solar radiation, while the second level stores gas in vessels at 300 bars. The full valve connects to these storage vessels and starts to release at night. Essentially, we capture solar radiation during the day and convert it to electricity at night. It operates on a concept similar to solar lithium batteries but uses a different energy vehicle. This practical inline system provides electricity a few hours after production. It doesn't have large storage capacity, holding enough for two to three days at most. However, we can only supply electricity when the sun goes down, allowing us to balance renewable energy usage between day and night. This is a prototype and demonstration project. The mechanism behind the compressor is the same as in other projects, with the hydrogen users in this case relying on electricity at night. It's a straightforward process.

Following up on that, what pressure is needed for blending in the natural gas network for HEVO-SOLAR Sines or the green gas Phase 2 of Evora?

We produce hydrogen and then extract it. Currently, we take the hydrogen gas and compress it for storage in vessels. The required compression varies based on the recipient. For example, when we inject hydrogen into a refinery, we need to provide it at a pressure of approximately 29 to 30 bars. For hydrogen refilling stations, the most cost-effective solution is to supply it at around 300 bars. In Sines, we have several options for injection pressure; for the initial project, we will inject at low pressure, around 10 bars, but we may also inject at high pressure, potentially up to 60 bars. This depends on the quantities and the pipeline used. To manage the compression, we need to install compression systems to store the hydrogen at the necessary pressure for consistent flow, as we cannot inject hydrogen based on the production levels throughout the day.

Thank you, Joao. So coming up here on the top of the hour. But a couple more questions to squeeze in here. There is a question on the ISQ tests, that there are three different tests. Part one is done and completed successfully. What do the subsequent tests two and three focus on?

No. The first one measures easier performance, making it the real test. The remaining two tests are designed to assess the quality of the hydrogen. We need to determine if we can produce hydrogen at 99.5 or 98.5. The third test requires a longer duration. We have agreed to conduct this over several days, producing hydrogen continuously while monitoring the system's wake-up and shut-down phases. In the morning, the system will activate when the sun rises, produce hydrogen throughout the day, and then shut down at day's end. This continuous operation is similar to the first test but spans a longer timeframe, including both start-up and shut-down periods.

Great. Thank you, Jaime. A couple more questions. One of the competitive landscape, who do you see as your biggest competitors, if any? I'll open it up to anybody who wants to answer.

I will address the competitive landscape. It’s quite apparent who the major electrolyzer providers are in the hydrogen sector, and they are significantly larger than us. However, one key advantage we have is that we design our own projects. As we develop these projects, we collaborate closely with our clients and off-takers, often designing them together. At this stage, we’re not primarily engaging in competitive bidding. This will likely develop as the market evolves. Given that this is a new market with considerable interest, I believe this situation is common among many players. We don’t feel the need for that at this moment, and I wouldn’t say we’re currently comparing one technology to another.

Thank you, Frederico. We're approaching the end of our hour, so I think we will conclude our Q2 update call here. If there are any questions we didn't address, please feel free to contact us at [email protected], and we will do our best to respond. Thank you for joining us, and we look forward to keeping you informed.