Fusion Fuel Green PLC Q4 FY2021 Earnings Call

Hello everyone! And welcome to Fusion Fuel Green’s Fourth Quarter Investor Update. My name is Ben Schwarz. I’m Head of Investor Relations at Fusion Fuel. I would like to first remind everyone that 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 be proved 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. So, thank you all for joining us today. I’ll briefly run through our agenda for the next hour. So we will begin the presentation with some remarks from Fusion’s Chairman, Jeffrey Schwarz. Then, the management team will share some fourth quarter highlights, financial results and provide a business update. We will then open up the floor for a half hour of facilitated Q&A. As in our previous quarterly calls, all questions must be submitted in the chat box in the webcast platform. For those of you who have dialed in and have questions for management, please direct your questions to the Investor Relations mailbox.

Thanks Ben. Good afternoon or good morning as the case might be. I'm Jeffrey Schwarz Chairman of Fusion Fuel Green. We're about to begin an investor presentation where we will walk you through a summary of our financial results for the company's first full year of operation and then update you on business developments as we pursue our plan to build Fusion Fuel into a global player in the developing green hydrogen business. In that regard, this may seem like business as usual. Make no mistake, it is anything but. Our thoughts are with the Ukrainian people. Russia's unprovoked invasion of Ukraine is an appalling violation of international law, resulting in a tragic loss of life and even if there were to be a best-case outcome, will trigger a humanitarian crisis. As a medieval Iberian poet and philosopher wrote, 'I am at the edge of the west, but my heart is in the east.' Before I turn it over to Frederico Figueira de Chaves, Fusion CFO, I'd like to offer a couple of observations on the company's first full year of operations. As I’ve said in past calls, my experience based on more than 40 years as an investor in public and private companies is that if you are serving the right market with the right people and the right product to technology, you have a recipe for great success. Well, 2021 confirmed for me that Fusion possesses those three attributes. While green hydrogen is still a nascent market, interest in it accelerated throughout the year as evidenced by the pace of incoming inquiries from potential purchasers of technology to produce green hydrogen or alternatively to purchase the green hydrogen itself. We were and continue to be successful at building out our team of talented and experienced individuals. In so doing, we are strengthening our R&D, production and business development functions, while also establishing a presence in Australia and North America, both being among the most attractive potential markets for our HEVO-SOLAR technology. Test results at our first hydrogen firm in Evora, Portugal confirmed levels of production, modestly in excess of what we had expected. Our R&D team continues to innovate with the goal of constantly bringing down costs and increasing performance of the HEVO. The volatility in energy markets which resulted in spikes in both natural gas and electricity prices in Europe demonstrated the unique value proposition of our off-grid solution for producing green hydrogen. Well, one could be forgiven for wondering, given all that, why the disappointing share price performance. I'll simply quote Ben Graham, the Father of value Investing. 'In the short run, the market is a voting machine, but in the long run it is a weighing machine.' Our goal at Fusion Fuel is to capitalize on our early mover advantage to build a heavyweight in the green hydrogen business. With that, take it away Frederico.

Great! Thank you very much, Jeffrey, and thank you all for joining us today. I look forward to updating you on our progress. As always, before we get into the meat of the presentation, I want to recap for any new joiners on what Fusion Fuel is all about. In a nutshell, we aim to deliver cost-effective clean hydrogen solutions. We do this through our proprietary miniaturized electrolyzer combined with our concentrated photovoltaic panel. This allows us to offer a fully integrated, off-grid hydrogen solution, as it delivers market-leading costs of green hydrogen production. Before going into the details of the company update, I would like to touch upon the hydrogen market overall. As Jeffrey mentioned, the tragic events in Ukraine have a direct impact on both the energy and hydrogen market. The continued increase in the cost of natural gas has a direct impact on the cost of gray hydrogen, now reaching values of around €4 per kilo, without including the carbon charges. Due to the ongoing uncertainty in the markets, this is a commodity that may continue to experience significant volatility and high prices. This is generating interest in green hydrogen sales in industries that were previously reluctant to make the shift from gray to green. However, with energy prices also hovering at very high rates, any solution that requires energy from the electrical grid is not commercially viable. Fusion Fuel’s off-grid integrated solution is perfectly suited for the current market conditions, and we have been seeing continued increased interest in HEVO-SOLAR. On the hydrogen market overall, we've also been seeing increased interest in the mobility sector in hydrogen, which is very exciting as this market seems to be taking shape even faster than we initially expected. João Wahnon will update you on some of the company's financials, the main events that happened in Q4, as well as more of our recent developments that we've also been announcing. As we will dive into some of these items here later in the presentation, I’ll briefly focus on the items that are not outlined later on. Firstly, we continue to add significant talent to our team, and most notably at a very senior level, we added Terry Jester to our Board, bringing with her a wealth of experience in product development, production management, and renewable energy. We also brought on three new executive committee members with David in Australia, and Zach and Jason in the U.S., all three bringing substantial knowledge and experience to our executive team and highlighting our ambition for significant growth in those markets. Both the U.S. and Australian regions present enormous opportunities for our technology. David, Zach, and Jason have the experience to not only open up these markets for us but also to help us across several strategic projects we have in the company more broadly. On the financials, we will provide more granular detail when we submit our audited financials as part of 20-F in April. So we continue to now do the sort of financial flash. In the fourth quarter, we recorded negative operating costs, i.e., a positive P&L impact of €11.1 million. This was significantly driven by a release of previously recorded share-based payments. This is a non-cash expense or in this case a non-cash release. The release is due to the forfeiture of the contingent capital consideration by three of the four parties involved in the 2020 business combination agreement. This was driven by a desire to remove a conflict of interest of the structure created between executives and shareholders. So this is overall beneficial for the company. This resulted in a reversal of €19.6 million, which were netted with Q4 share-based payment charges. It leaves us with a net negative share-based payment charge of €14.7 million as outlined on the slide. In terms of actual cash expenses in the fourth quarter, we saw an increase of €1.7 million quarter-on-quarter. This increase was driven by large expenses during the year that were booked in Q4. These include about €0.5 million related to various auditing, accounting, and grant advisory services; higher recruiting costs related to several senior and specialist function hires; and the booking of several large yearly administration costs, which include transportation, rent, travel, and business expenses, which fell in the fourth quarter. Going forward, we will be amortizing that throughout the year, and so that one-off impact will not be seen in 2022. In addition, in Q4 we also welcomed 15 new hires in the quarter, including some senior managers, which also increased our personnel costs. For guidance for future quarters, we expect our operating cost quarterly run rate to vary and to develop from around €2.3 million to €3 million per quarter as the year progresses and as we continue to grow the team. In Q4, we recorded a pre-tax profit of €24 million, and as much as I'd like to take credit for that, this was also driven by another very large positive non-cash impact, and it's mainly driven by accounting practices and standards. As mentioned in previous quarters, we need to recognize fair value movements on outstanding warrants. With the negative market developments at year-end, we needed to book a loss of €30 million in the fair market value of these instruments. In terms of cash, we closed the fourth quarter with around €35 million in cash rather than liquidity instruments, and the main drivers of the €7 million cash drawdown in Q4 is comprised of the €3.65 million operating cost I mentioned earlier and another roughly €3.5 million in raw materials and CapEx investments.

Thank you, Frederico. We are very happy to announce that our HEVO-SOLAR project with an equivalent electrolyzer capacity of 3.5 megawatts has contracted non-recourse funding from positive funding programs. The project is located in the South of Portugal, more precisely in the Sines area and consists of the installation of 178 HEVO-SOLAR units, which after commissioning will produce around 418 tons of green hydrogen per year, considering day and night production. A portion of which will be used to produce green ammonia and the remaining will be mixed into the natural gas grid and bottled for industrial users as well as mobility. The global capital investment will be around €8 million and the project will receive €4.3 million from the positive funding during the construction period. Currently, the project is under the licensing process with the local authorities and national environmental agency, and we are waiting for the final licenses to start construction. This project will have a strong worldwide visibility and will have an important role in demonstrating the economic use of our green hydrogen in several different options such as green ammonia production, blending in natural gas with monetization of the certificates of origin and supply hydrogen refueling stations. We also entered into an agreement with KEME Energy to install their green hydrogen plant in the same region of Sines, designed as Sines Green H2 Solar 1, which has also contracted non-recourse funding from a huge funding program. The project consists of the installation of 62 Evora Solar Units totaling a global capacity of 1.2 megawatts, which will produce 77 tons of green hydrogen per year, also considering day and night production. That will be bottled for industrial uses in the Sines community and also for mobility. The global capital investment will be around €2.54 million. The project is in the licensing process with local authorities and the National Environmental Agency and KEME is waiting for the final licenses to start construction. This project is expected to be a net contributor to the aggressive decarbonization targets laid out by the Portuguese government for the industrial and heavy transportation sectors.

And as we did in Q3, we want to provide an update on our activities regarding funding programs for projects in Portugal. So as mentioned several times and just now, we are involved in three possible projects that were approved. But also during Q4, we were also involved in the submission of two projects to the C14 component of the PRR program, with a total of 10 megawatts of localized capacity for those projects, and we will continue to develop and submit projects to these programs as they open up. We are incredibly active in this space, and so far we've been quite successful in securing the grants for our projects.

As mentioned before, we signed a contract with Exolum, a leader in European fuel logistics and strategy provider, to develop a solar-to-hydrogen plant to supply green hydrogen near Madrid. It was the first third-party sale of HEVO-SOLAR technology, which will produce and supply green hydrogen to one of Spain’s first 100% green hydrogen refueling stations. The Exolum project in Madrid consists of the installation of 21 HEVO-SOLAR units to produce more than 40 tons of green hydrogen per year, with 20 tons produced during daytime by direct conversion of solar radiation into green hydrogen and an additional 20 tons during nighttime using electricity from the grid. The project is under the licensing process, but we already see authorization to start site preparation and clearing. We are already manufacturing the HEVO-SOLAR units and if everything goes according to the plan, we will start construction in May with the aim to fully commission the plant by the end of Quarter three this year. This project is very important to demonstrate the enormous advantages of our HEVO-SOLAR technology and concentrate our strategy in Spain, which includes the development of more than one gigawatt of electrolyzer capacity in the next five years. We entered into a very important collaboration agreement with AESA, a leading Spanish industrial engineering service company and a pioneer in the decarbonization of industrial energy. This agreement will focus on the substitution of more than 500,000 tons of gray hydrogen consumed annually by industry today in Spain, and promotes the transition to hydrogen-fueled vehicles for logistics and fleet operations as well as the decarbonization of power generation and industrial heating. Working with the buyers, we are actively developing the decarbonization projects with major industrial clients, positioning ourselves to benefit from the recently announced CapEx subsidy programs aimed at incentivizing the innovative use of green hydrogen technology across the industry value chain. By jointly going to market, Fusion Fuel and AESA aim to be the leading provider of turnkey low-cost, green hydrogen solutions for decarbonizing industrial processes, thermal energy, and heavy commercial vehicles. We also entered into a strategic framework with HIVE Energy, a British renewable energy developer who has a portfolio of around 3 gigawatts of projects for green hydrogen and green ammonia production currently under development to supply the growing demand markets. Under this agreement, we will supply our HEVO-SOLAR technology to HIVE Energy, who will develop and build a green hydrogen production plant in an exclusive technology supply deal. The project has a target annual production capacity of around 7,500 tons of green hydrogen per year and is currently in its permitting process.

So, as for Portugal, we’re already very active in engaging with the various strong programs in Spain, and the Fusion Fuel Spain team has been unstoppable in pursuing these opportunities. In the MOUs programs, five projects totaling more than 15 megawatts have been submitted using Fusion Fuel's technology, and other projects are already being developed for when the next programs open. Now coming to some of the new markets for Fusion Fuel. As we mentioned before, we have our partnership with Ampol, Australia’s Transport Fuel leader. We will look to create a pilot project in Brisbane to supply a hydrogen refueling station. The project and site development and licensing have kicked off. We’ve had our Ampol counterparts visit us in Portugal recently, and we’re all extremely excited about the partnership between these two companies. In the U.S., even though the team has only just started, we have hit the ground running. The U.S. is obviously another key future market for us, and it's one that's starting to take shape quickly. We started to take our first steps into this market with a project at the University of California, Irvine, for a solar-to-hydrogen facility. We submitted an ROI to one of the DOE's programs for this project and we're already actively looking into potential submissions for larger DOE programs that are part of the infrastructure investments and jobs act. So this is an exciting early phase for Fusion Fuel in the U.S.

It's been a while since we shared an overview of our pipeline. We hope this provides a good idea of where we stand now. We haven't included all markets we’re in discussions with. So if you will recall from the year ago, we had things like in Chile and discussions there and in other markets that continue to be ongoing, but we've only included the projects that have a bit more shape to them at this stage. So we currently have over 3,000 hectares reserved for our projects and the pipeline for prospective hydrogen price agreements and tech sales stands at 36 different projects, 10 of which are already in the licensing phase. We've included on the right the respective megawatts electrolyzer capacity to be more easily compared to other players in the industry. We always think about it in terms of hydrogen. You'll see every announcement in the industry comes with megawatts, so we decided to clarify what our pipeline actually includes, and you will have noticed maybe back in these different project slides we’ve been as much as possible including the megawatts electrolyzer capacity for clarity as well. Although these 2.4 gigawatts of potential projects include non-committed projects, we're extremely excited about the level of interest and engagement in our solution. As the Australian and U.S. operations take shape, we expect this to grow further.

Now, before we go into Q&A, I’d like to recap on the core milestones, as this is a little bit stubborn of us. We show this slide twice every time. So as a reminder, production facility is one of our key priorities, moving the existing pipeline to close contracts, continuing tech evolution, new product developments, project construction and licensing, and a robust safety culture across the firm. We truly are pioneering the green hydrogen market in Iberia and we’ll keep being at the forefront of this emerging megatrend industry. Jeffrey opened today’s updates with a quote from Benjamin Graham and highlighted how we aim to build a heavyweight in the green hydrogen business. In my closing, I'd like to reference a quote from the heavyweight champion that captures how we will make this happen, and it's from Muhammad Ali: 'Fly like a butterfly and sting like a bee.' We’re small, we’re nimble, we’re agile, we’re innovative, and we’re creative. We develop our own projects and we control their destiny, and we intend to fully disrupt this industry. So with that, I thank you and we’ll open up with Q&A.

Great! Thanks Frederico. So we’ll start with some questions we received over email. This is a question for João regarding the KEME project. Is there any expectation that the hydrogen produced from the 1.2-megawatt KEME project would be exported?

No, today the equipment required to transform and export the hydrogen is very complex. So at KEME, green hydrogen will be used in the community of Sines, and at the same time, part of it will be used for hydrogen refilling stations. But the concept is always for the community of Sines city.

Thanks João. And as we continue to look ahead towards a more robust hydrogen export market, do you have a perspective on what forms of hydrogen look most economically promising? Whether that’s liquefied or green ammonia or something else entirely?

Yes, in fact today the numbers, the studies that have been published clearly noted that the cheapest way to transport hydrogen for export is by converting the hydrogen to ammonia and then cracking this ammonia to get back the green hydrogen for use. The cost of liquid hydrogen is today very expensive. There’s only one vessel from a Japanese company, Kawasaki, for the transportation of liquefied hydrogen, and the costs today are still very high. There’s also one additional possibility which is in the early stages, let's say, which is a liquid organic carrier, but today it’s still doing its first steps, so we cannot assume it as a reality.

Thanks. This is a question for anybody. So we received a question about the maturity of the HEVO-SOLAR product and whether there are any future improvements of the product that are expected. Can you talk about that?

So, I’ll take that one. As I mentioned in our priorities, there is certainly an evolution of the HEVO-SOLAR generations, so we consider the products mature in terms of what we can place into the ground. This is why we are going to be delivering it to Exolum in a few months. But that said, we do have a significant pipeline of generations to come for the product. We will look to increase the performance of the product and decrease the costs of the unit. That doesn't mean that the units we have today are not mature. So this is just different generations we will be deploying.

Thanks, we’ll pass it back to João. The next question is about the process of commissioning of plants. How long does that process typically take and what are the possible roadblocks?

For the commissioning of a plant, we have to differentiate between the construction processes and the technical commissioning of the plant. Commissioning, meaning starting to produce green hydrogen, is a process that, depending on the dimension of the plant, can take from two weeks to one month. I think the question is related to permitting, and so the permitting or licensing process of a plant can take from very fast to longer durations. If it's agricultural land, it can be completed within six to nine months; but for bigger plants, it may take one year to one and a half years. Knowing that this process takes a long time, we started permitting some of our projects one year ago. Today, we can say that we have some projects already in an advanced stage of permitting, but they will most probably take six to nine months for installation of technology.

Thanks. And finally, for the large projects that Fusion Fuel is looking to develop, how does that rollout work? Is the addition of new HEVO-SOLAR to existing installations expected to run smoothly?

For bigger plants we will install additional quantities of HEVO-SOLAR. So, the small plant or a big plant depends on the number of HEVO-SOLAR units that we will install. Of course, these plants will all need different equipment depending on the required output of green hydrogen production. They will need various equipment for compression, purification, and storage of the produced green hydrogen.

Next, we’ll pass it to Frederico now. So in the context of the 2.4 gigawatts of project backlog or pipeline, can you attempt to quantify what those figures mean in terms of potential revenue or EBITDA margin?

So, I’ll try to be very cautious here in my answer. But effectively I want to note that hydrogen purchase agreements and tech sales will certainly look to achieve the sort of maximum returns to shareholders. So this could be projects that have a net present value for those we own for high gross margins. So it's hard to quantify it exactly. Plus, as a rule of thumb, that’s a piece, sort of wholesale. The 100,000 HEVO-SOLAR’s and you’re selling at €30,000, that's a €300 billion pipeline from a very back-of-the-envelope calculation. The EBITDA margin does change significantly, especially in the short term if you’re doing HPAs or if you were doing tech sales or the proportion of those. So I’m going to elegantly side-step that question, but that puts into perspective the pipeline. That does not mean that we can do a pipeline this size and execute on it, but this is just the size of the pipeline with all the caveats we essentially have on that one.

Thanks on the subject of the pipeline. Obviously, the go-live for the Benavente facility is critical to achieving it. How confident are you on the mid-2022 date for the factory to be up and running?

So, initially, we said that we would have the factory up and running during Q3. We actually expect the first activities to already take place in the next quarter, in Q2, with a further roll out of different lines in Q3 and then some of the longer lead lines during Q4. We do expect to have activity in Benavente in the coming months.

Great! How are you thinking about production capacity at Benavente this year?

Sure. The production capacity and the guidance we gave last year was targeted around 2,000 to 2,500 HEVO-SOLAR units. So that continues to be our potential targets for production capacity. That said, I want to note one point here, which is we will produce what we need for the projects that we can deploy to. Producing solely for the purpose of keeping stock has two issues. The first is that it does require significant amounts of capital; and the second is that, as we’ve had evolutions of the HEVO-SOLAR technology, we don't want to keep stock of previous generations of HEVO-SOLAR. So that is the production capacity, the 2,000 to 2,500. That's what we hope to be able to deliver this year. The production volume will depend on the licensing of projects and what we can deploy into the field.

Great! So we received a question about the oxygen capture system. While it's still early, is there any additional detail you can provide on key milestones or projections?

Yes, I’d love to share this with you. That is a key target for this year. It would be too early to put out the figures on that piece. I just want to note that of course, whatever we produce in hydrogen, the rough calculation is that we produce eight times more oxygen than hydrogen. So that gives an indicator of the potential volume of oxygen that we are talking about. If the HEVO-SOLAR is producing one ton of hydrogen, we’re talking about around eight tons of oxygen potentially being treated as well. So that’s probably where I'll stop on the guidance.

Thanks. There are questions on the HEVO-SOLAR. If possible can you provide some additional information on performance.

As I mentioned before, we had in August, we showed the initial performance of the HEVO-SOLAR was around a little bit north of 10% better than we had initially expected. So if we think that it was a one-time HEVO-SOLAR, we are talking about 1.1 or 1.12 tons for HEVO-SOLAR. Of course, we saw such strong performance during the summer months with high solar radiation. Now that we’ve seen different months, we’re actually closing in on somewhere between a 5% to 10% increase in performance. So as I said, from one ton to 1.08 tons, 1.07 tons or thereabout in terms of production.

Great! In light of some of the increases in raw material costs over the course of 2021, we received a question on expected manufacturing costs for HEVO-SOLAR this year.

So the HEVO-SOLAR manufacturing cost for this year and future generations—since we have several generations coming through, we are not disclosing at this stage the exact cost of production, also given that we are in contract negotiations. I do want to note that what we communicated about the target production cost of hydrogen is for 2023, we still hope to be delivering at those cost levels, probably in the latter half of 2023. Parts of the increased production costs and raw material costs have been offset by grants that we have secured and that we’ve mentioned before in this presentation, allowing us to still maintain that target.

Thank you. You alluded to the cost of hydrogen production; are you able to share what the cost of production is currently on a dollar per ton or dollar per kilogram basis for Europe?

Currently at Evora, we’d probably be around €40 per kilogram. As we said, as I mentioned before, our commitment, which we stated previously, was to get down to the €2 cost of production, especially in the second half of 2023. However, the final cost of hydrogen will depend on the specific use case; whether it’s for mixing with natural gas, if it’s for cars, buses, or trucks. The costs will also change depending on the compression and purification charges. But from a purely cost of production standpoint, given the grants that can offset some of the price increases, we continue to maintain that target.

Excellent! I’ll pass it back to João for a moment. Are there any issues with the Evora plant and if not, why is it taking so long to receive full commissioning?

Yes. In fact, what happens is with the Evora project; with the permitting process it’s that we were the first in Portugal to develop green hydrogen projects. We suddenly encountered regulations that didn’t exist. So our projects were considered our production of green hydrogen was classified similarly to gray hydrogen production and was subjected to additional complexities. For instance, emissions studies, etc., which all of us know do not apply to the electrolysis of water to produce green hydrogen. This is why the Evora project permitting process is taking longer than expected. All the local authorities and the environmental agencies are working together to simplify the process as they acknowledge the complexity of green hydrogen. So we truly believe that in the coming months this will be resolved, and we will get the licenses to finish the permitting of the Evora project and open a new, faster way for the permitting of the future projects.

I would like to add just two points there. As mentioned before, this is part of the cost of being pioneers in the green hydrogen market. We are really opening up the green hydrogen market, right, and this is why we are facing these challenges. The second one, just to address a specific point, none of the delays on commissioning are due to issues with our system. The issues with our system are not causing these delays. This is a permitting issue.

Great! Thanks. Given the size of Fusion’s own production capacity versus the pipeline, how are you thinking about production going forward? Are you considering opening additional production capacity or potentially pursuing an outsourcing strategy?

The simple answer is yes, and I think in addition to that we are also looking at potential strategic partnerships where they will make sense. One of the things André and his team are looking into is the ease of production of the product. The ease of outsourcing production and potentially moving to assembly, all the way to the full outsource option. These are all things that are now strategic discussions and activities that we count on, and this is one where I mentioned at the beginning. I’m very happy to have Terry, Zach, and Jason onboard to help us with that in the strategic assessments of our way forward.

Ben, actually one moment. Frederico, you mentioned the production capacity for 2022, but as the various production lines will only be coming into operations during the course of ’22, perhaps you could also offer what the production capacity of the Benavente facility would be in ‘23 without any additional capacity expansion.

Sure, absolutely. For 2023, we expect the production capacity to be between 120 to 200 megawatts, which translates to about 5,000 to 8,000 HEVO-SOLAR units. We will determine the exact number for that additional capacity in a few months. Regarding the current targets for Benavente, the production capacity will be referenced, and in 2024 we anticipate an increase to between 200 to 400 megawatts, ultimately reaching 500 megawatts in 2025. It is important to note that the figures for 2023 and 2024 will be based on the projects we plan to install during those years, rather than on design considerations.

Thanks. Stick with me, Frederico. What is the current cash burn and how is the company thinking about its cash position and potential sources of additional capital?

Sure. On the cash plan, as I mentioned for the guidance being given on the operating cost of between €2.3 million per quarter all the way to sort of €3 million per quarter as we develop throughout the year, with all the caveats that come with such guidance as things can change throughout the year. In addition to that normal operating cost, we do have significant investments that we expect to make in Benavente and some hydrogen plants. The cash required there will depend on the ability to secure some of the financing debt solutions for those CapEx investments. We are in advanced discussions on that front, and we will provide a hopefully more detailed analysis on that cash spend, specifically on the CapEx side likely in the next quarter. Now, to answer some of the questions regarding our potential capital raising in the future, this is something that we discussed on the board regarding what the possibilities are. Will we do a strategic capital raise? Will we do an opportunistic capital raise? Do we do one at all? These are still conversations on the Board. Of course, as we mentioned before, we want to ensure that we can deliver upon the growth potential that we see in the industry now. So that could take many shapes and forms, including strategic partnerships as well.

Yeah, I just wanted to offer that at a higher level we have lots of different levers to pull, and people should understand that among those levers would be a shift in the percentage of business that we do between tech sales and our own hydrogen farms. So, hydrogen farms require a capital investment over an extended period of time. We will do those to the extent that they provide attractive returns on capital, and those returns will be dependent on the amount of debt financing we can get and grants we can receive. We have been approached by numerous potential investors who have expressed interest in partnering with us on projects, firms that potentially have a lower cost of capital than we do. There are many ways to structure the capital investment required for hydrogen firms, where the return would come over time through hydrogen purchase agreements. There is project finance potentially available; there are ways of structuring mezzanine types of returns targeted toward infrastructure funds looking for safe and secure returns over time or we could bring in partners at the equity level.

Great! Thanks. Just a few more questions here as we get to the top of the hour. A couple of questions on commodity inflation. How are increases in prices for raw materials and key components impacting product profitability? Are you able to pass through some of those increases to potential customers?

So I’ll take that question. At the moment, as I mentioned, we are able to pass through some of those cost increases with the grants programs available. That's actually been probably the largest source of support for that cost increase. Of course, it helps that the market for gray hydrogen, but also the market for green and blue hydrogen, has suddenly become more expensive. This allows for a different commercial discussion on adjusting some of your pricing. I will note, though, that on the price of raw materials, there are some prices of raw materials that we do suffer from, as everyone does, aluminum being one of them. However, we have also seen huge decreases in some components as the markets mature. For instance, we secured a price that is a quarter of what we were paying a year ago for membranes. So even though we feel some raw material upward pressure in some components, just the ongoing development of the hydrogen market in general is providing relief in other components.

Ben, I just want to jump in here for a moment to make two points. The first is that the green hydrogen market is very young and still developing, and the sources of demand are developing. Some demand comes from traditional consumers of hydrogen who have consumed gray hydrogen and are looking for ways to reduce their carbon footprint. They have to think about how much more they are willing to pay for green hydrogen compared to gray hydrogen. Some portion of that amount is attributable to commitments they have made to shareholders about their decarbonization commitments. However, new markets for green hydrogen are developing, and I believe we mentioned in our presentation that the mobility market is one that is developing more quickly than we had expected. The mobility market pays a premium for green hydrogen. Regarding company profitability, we need to consider our cost of production and the price we can sell either green hydrogen or the technology to produce it. Can that be sold to subsectors of the market that are willing to pay a higher premium for green hydrogen, similar to mobility? And lastly, when thinking about cost of production and the therefore gross margins, at this early stage in the green hydrogen industry's development, government subsidies in the form of grants represent a significant portion of the all-in cost. While we and our fellow competitors have experienced price increases for raw materials and components, that's only one part of the picture. I encourage everyone to keep an eye on our ability to generate sales in higher-margin portions of this market, as the year progresses, to see where we can sign up for revenue generation. We are confident that with the insights we have in 2022 and 2023, we will develop capacity constraints for Fusion Fuel, and we will certainly look to take advantage of those high-margin opportunities to maximize the potential, either gross margin on tech sales or realized over time via HPAs.

Great! Thanks. So we've reached the top of the hour. This concludes our fourth quarter webcast. If you have additional questions, please feel free to contact us directly at our investor relations email or visit us at our website. Thank you all for your participation and engagement. As always, we look forward to our next quarterly update. Thanks.