Fusion Fuel Green PLC (HTOO) 2022 Q3 法說會逐字稿

Hello, everyone. Welcome to Fusion Fuel Green's third-quarter 2022 investor update. My name is Benjamin Schwarz. I'm Head of Investor Relations at Fusion Fuel.

I would 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, 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.

So thank you all again for joining us today. I'll just quickly run through our agenda for the next hour. So we will kick things off with an overview of Fusion Fuel's value proposition and then the management team will share -- actually, yes, we'll share the third quarter highlights, financial results, the latest on our commercial strategy, pipeline, market expansion plans, and finally, a very exciting technology update.

We'll then revisit our 2022 milestones before ending the presentation portion of the webcast with some brief closing remarks from Fusion Fuel's Chairman. We'll then open up the floor for facilitating Q&A. I'd like to remind everyone, as in our previous quarterly calls, questions can be entered into the chat box in the webcast platform at any point in the next 57 minutes. Alternatively, you can also submit your questions to the Investor Relations mailbox, and which is ir@fusion-fuel.eu.

So let's begin with an overview of Fusion Fuel, what makes us unique, how we are creating value. Fusion Fuel was in the business of developing and delivering cost-effective cleaning hydrogen solutions to accelerate the global energy transition. At its core fusion fuel is an industrial technology company. We have developed and commercialized a proprietary, miniaturized PEM electrolyzer that unlocks cost-competitive green hydrogen through unprecedented functionality, flexibility, and scalability.

The modularity of our electrolyzer technology lends itself to a decentralized approach, and we've leaned into that as a source of unique differentiation where much of the market has gone down the path of ever larger scale electrolyzers to drive down their levelized cost, we've gone in the other direction, small-scale, mass-produced.

In doing so, we've been able to eliminate some of the cost and complexity of hydrogen production and distribution and deliver bespoke co-located solutions that few others can. So while others are talking about developing green hydrogen projects, we are doing it. Our unique approach and differentiated tech have enabled us to build a robust pipe -- commercial pipeline of tech sale and development projects.

We are producing green hydrogen today in our demonstration facility in Portugal with many more highly actionable projects in various stages of the development cycle, including what will be Spain's first solar-to-green hydrogen refueling station, which we're developing for Exolum in Madrid.

So with that primer, I'll now pass it over to Frederico Figueira de Chaves, Fusion Fuel's CFO, and Co-Head for an update on the third quarter and subsequent events.

Thanks, Ben. Appreciate that. And thank you, everyone, for joining once again. As mentioned last time, we have received approval of a EUR10 million grant from Component 14 of Portugal's Resilience and Recovery plan for a project in Sines. And also commenced work on our Exolum tech sale in project in Madrid during the third quarter. More recently, we've announced two tech sale of contracts totaling EUR7 million in Portugal and in Spain. In addition to the opening of the -- to opening the Italian market with a Duferco Energia agreement.

We continue to make progress on securing grants for the projects we're involved in. Now we'll dive into this a little further later on. Two significant notes from earlier today and last week that are important for us. We've now disclosed our first project in the US. This is a project that's been in the works for several months now. And with the passage of the Inflation Reduction Act, it's become a key strategic pillar for the company. Zach will dive deeper into this major milestone in a little while.

Last week, we also introduced the HEVO-Chain. This is the first centralized electrolyzer for the company and is the first that we know in the market that is based on a series of miniaturized units working together in strength. We're extremely excited by this product. It not only opens new markets to us, but we believe it will also be a true disruptor for the PEM electrolyzer market in the coming years.

During the third quarter, we booked an operating loss of EUR5.5 million, driven by EUR4.6 million of operating expenses. The increase in expenses from the second to the third quarter was largely driven by an increase in headcount, coinciding with the go-live of Benavente and then the related tax provisions required in Portugal for the holiday subsidies paid to employees.

In addition, we incurred EUR600,000 of one-off bookings related to Evora and Exolum expenses and various larger activities related to marketing costs as well as various consulting and specialist engineering validation works, the result of which we've disclosed in previous quarters. Going forward, we are adjusting our administration expenses guidance to around EUR4 million to EUR4.5 million per quarter for the fourth quarter and also for most of 2023.

Our pretax profit loss for the quarter was again significantly impacted by the non-cash item of the fair value movements of the outstanding warrants. This had a EUR3.8 million positive impact, bringing our pretax loss for the quarter of EUR1.6 million.

One item I would like to highlight is that we expect to book revenues and also part of the P&L impact of the Exolum project during the third -- the fourth quarter of this year. So that's something to look forward in the next quarterly update.

We've added this slide to -- for additional transparency for our shareholders and analysts. We've added a slide covering some elements of our balance sheet into this -- to the financial section of our results and we'll continue to provide this information going forward. As you can see, we have a total of EUR61 million of total assets and around EUR15.6 million of liabilities.

Our property, plant, and equipment is mainly composed of our Evora plants, our HEVO-Sul Sines project, and our Benavente facility. Regarding Benavente, several months ago, we initiated a process to do a sale leaseback of the property. We can now inform you that this is a transaction that we expect to close in December, which will also generate substantial cash proceeds for the company.

Important to note, we currently hold EUR12 million of inventory and around EUR3 million of advance payment to suppliers. This is as a result of measures taken late last year and at the beginning of 2022 to secure our supply chain. We've recently seen several cases where competitors were unable to deliver due to supply issues, and we have had the opportunity to step into projects in their place. Over the coming months, we will be working to transition this inventory into revenues and have a positive impact on our cash balance.

Our receivables also include EUR3.7 million of grant requests that we are awaiting payments of. In the third quarter, we continue to hold substantial VAT receivable balance of EUR6.5 million. However, I'll highlight that we have submitted reimbursement requests for part of this balance. These requests have been approved and those inflows will be reflected in the fourth quarter.

During Q3, we continued to pay for some materials order, not only for inventory and for our Evora and Exolum projects, as well as investments into our intellectual property and our EUR4.6 million of operational expenses. Our liquidity position is something that we, as a team, have been actively managing with the various tools that are available to us, including, as mentioned, the reinvestment of all our VAT and the grants receivables, the sale leaseback of Benavente, and as our projects progressed traditional revenues.

We are a company in an aggressive growth trajectory and the recent announcements and projects may require certain capital in the future. As we've noted before, we'll continue to consider all possible options for the company to ensure that we continue to execute along our growth plan.

Our outstanding shares and warrants balance is relatively unchanged at EUR13.4 million -- shares spent, as announced at our last earnings release. During Q3, we did tap into the ATM facility and sold around 300,000 shares at an average price of $7.35. During the fourth quarter, we also used the ATM facility and sold nearly 400,000 shares at an average price of $4. Year to date, we have raised around EUR3.7 million through the ATM facility at an average price of $6.03 per share.

With the sale leaseback of Benavente, the receivables mentioned in the previous slide and the other capital options being explored by the firm, in addition to normalizing of our project activity and revenues over time, we expect to have less use of the ATM facility going forward.

As highlighted previously, we have a strong track record of securing grants for our project portfolio. We have applied for nearly EUR80 million of grants, excluding our IPCEI safety mission. As of our last update, we had -- during the last update, we had EUR19 billion of grants approved and EUR3.5 billion of grants for investments already requested.

As of today, we can share that we have secured another EUR30 million of grants for another one of our projects. We expect to be able to disclose information regarding this award in the coming days. So for now, I will not go into the details of the project that it relates to, but please be on the lookout for the press release relating to that, hopefully, still this week.

As announced last week, we are technology providers for four projects in Spain that were preselected for grants. We expect to get those final results of the submissions early in 2023. This grant portfolio and the related projects are very significant asset for the company and established a very strong basis for our order book for the coming years.

Now to dive a little deeper into those, I will pass to Zach to share more information with you regarding our commercial activities.

Thank you, Frederico, and nice to see everyone, and everyone that is in the US, I hope you had a great Thanksgiving weekend.

Frederico, can you go to next page, please? A key focus going into next year for Fusion Fuels to turn the dreams of the hydrogen market into a reality. The market is being created, which requires projects to be permitted and attracting customers with providing attractive economics and confidence in our offering.

We're targeting over $40 million in gross revenue next year. We plan to achieve this target through technology to third party -- technology sales to third-party customers and sell most of our existing Fusion Fuel-owned projects to financial investors.

We've been focusing derisking our pipeline in 2023 and beyond by concentrating on a few key characteristics. First, does the project have the land secured? Secondly, does it have grants? Third, completing permitting? And finally, does it have a customer? These four characteristics, as simple as it may seem, allow us to rank opportunities that have a high likelihood of reaching final investment decision and lets us prioritize our resources appropriately.

Virtually, our pipe -- our entire pipeline has brands and land secured for 2023. This allows for our pipeline to commence permitting and have a higher probability of reaching FID due to the fact that we can subsidize our projects via grants to make them more attractive to third-party customers.

We received or started permitting on over 50% of our 2023 pipeline and the balance is planning to start. Permitting takes approximately six to nine months to receive the necessary permits to reach FID. Our team is focused on initiating permitting on the balance of our 2023 pipeline by the end of Q1 2023. Next year's pipeline is broken down by approximately one-third being already established third-party customer sales and the balance of them are Fusion Fuel-owned projects, which are all located in the Iberian Peninsula that we plan to sell to third parties.

Having our 2023 pipeline being focused on Portugal and Spain allows for a higher chance of success due to our company has most of our employees located on the Iberian Peninsula. As we are focused on 2023, we're also looking ahead into expanding our reach into other core markets. We're excited to announce that we are expanding into North America and the Italian markets. Both markets have strong incentives, especially the Inflation Reduction Act in the United States.

We have secured early-stage opportunities in California and southern Italy, a total over 75 megawatts of capacity for 2024 and 2025 production. These projects, combined with the balance of our portfolio in Portugal, is over 138 megawatts of HEVO-Solar and HEVO-Chain units for 2024 and 2025.

HEVO-Chain is a product that Frederico will go into next, but it's a new product that we have developed and will be in production in 2024. HEVO-Chain is our own centralized PEM electrolyzer that Fred will discuss shortly. To take advantage of the Inflation Reduction Act in the US, our team is actively evaluating if we can supply units for USA projects from Benavente or do we need to build an additional production capacity in the USA.

This could be a step change in our production capacity due to the early successes that we've had so far and the massive increase in the total adjustable market size via entering the United States and Canadian markets. We believe our product offering, along with our approach, will be attractive to third-party customers and financial investors to expand into these exciting markets.

In summary, we have a strong plan to utilize our 2023 production capacity, focusing on a region that we know very well, the Iberian Peninsula. And already we've established anchor projects in two core exciting and strategic markets to ensure the growth in the future for the company.

2023's technology sales, as I just noted, are focused on Iberian Peninsula. We have over 18 megawatts of capacity of projects that totaled 743 units with an estimated potential revenue of over $45 million to Fusion Fuel to have $50 million grants attached to those projects. We are concluding the construction, as Frederico just noted, of our first technology sale in Madrid with Exolum, have built a team to be able to execute our projects in this region, working closely with our third-party external partners.

These capabilities allow us to either do a tech sale or a turnkey project that includes engineering, procurement on the balance of plant equipment, construction of the facility, as well as the operations. This allows us to not only make returns on the tech sale, but also the overall project and potentially recurring revenue from operations if we operate the facility.

Our tech sales in Portugal are with the same company, KEME. Both projects have secured grants, have the land, and the first KEME project is already under environmental permitting, anticipate KEME 1 reaching FID in the first half of 2023. And as Frederico noted, we already have inventory available to execute this project.

The Spanish portfolio has been preselected for the PERTE program and finalizing their respective grants. These projects are going through a final evaluation to receive formal award of the grants, which is noted as a waiting grants in the table. We're focused on supporting these respective projects and receiving their grants so they can initiate permitting in the first quarter of next year.

Some of the projects do not require offtake because the company is the end-use customer or already has secured a customer. I cannot emphasize enough that helps de-risk these projects knowing that they already have a customer in hand.

[Alcala] is the most advanced project -- most advanced Spanish project and is finalizing permitting with anticipation of reaching FID in the first half of 2023. And again, we have inventory available for this project already executed.

Also, we have a backlog of projects for 2024, which include additional technology sales in Spain that have applied for other grant programs and the Duferco project in Italy and other projects we're currently in negotiations on throughout North America and Europe.

Our development projects continue to progress. We have two key themes as we touched on the last investor call. First, is that we are building a mobility backbone, not only in Portugal but now in the Iberian Peninsula. Second, is decarbonizing industrial applications to sell to customers throughout Iberia with our initial focus on the Sines region of Portugal.

We secured grants annually and for all the projects we plan to reach FID in 2023, which includes two mobility projects and three industrial focused projects. Our focus is to build out our footprint in the Sines region through three phases to reach a total capacity of 85 megawatts. Our first stage has already received its environmental permits and is finalizing feasibility phase to reach FID in the first half of 2023. And again, we have the inventory available to do these projects.

Our second phase has initiated environmental permitting and is planned to reach FID in the second half of 2023. We continue to decrease pre-feasibility work on the balance of our portfolio to be in position to commence permitting in the coming months and reach FIDs in the second half of 2023.

As noted on our last call, Portugal is the blueprint for the rest of the markets that we're currently focused on. This blueprint is already being utilized to build a pipeline of over 175 megawatts of development projects in California, Portugal, and Spain for '24 and 2025.

I cannot emphasize enough the hub expansion into North America is truly a game changer for Fusion Fuel. North America has significant momentum due to the IRA and infrastructure bill that create hundreds of billions of dollars in subsidies for hydrogen and other renewables and clean tech manufacturing. Most of you probably already know this, but I will emphasize anyways.

These subsidies include a $3 per kilogram production tax credit. it can last up to 10 years. A 30%, to possibly, 40% investment tax credit on the capital cost of the solar components of the project, billions in subsidies for clean tech manufacturing, and hydrogen -- and development of hydrogen hubs to further advance the growth of key areas of hydrogen production and demand in the United States. We're also -- we also have significant state level subsidies such as a low-carbon fuel standard credit in California, focused on the mobility industry.

Lastly, Canada has also recently announced a 40% investment tax credit for the upfront capital cost of hydrogen production, which makes Canada a very attractive market for Fusion Fuels HEVO-Chain product that plan to roll out in 2024. This legislation, combined with our expanded technology offering, creating a strategic shift in our focus to accelerate our plans to grow in North America for 2023.

Securing our first project in North America and Southern California was strategic due to our technology offering and maximizing incentives to have the highest likelihood of reaching a successful FID. Our first project is in partnership with Electus Energy, a developer of hydrogen projects with operations in California. We're excited to work with Electus, which brings commercial relationships and boots on the ground in California. Our first project is planned to be 75 megawatts of capacity of green hydrogen production located on 320 acres in Bakersfield, California off of the Interstate 5.

Bakersfield is a strategic first location due to its existing heavy industry and located to nearby distribution facilities that connect to areas such as Los Angeles. We've commenced pre-feasibility work with Black & Veatch as a lead contractor, and we'll update as we make progress on this exciting development project. Our target is to have an FID on this project in 2024 and have commercial operations in 2025.

We're actively building out our team in North America to be able to execute this opportunity as well as identify and secure additional opportunities in 2023. We believe the announcement of HEVO-Chain expands the market opportunity significantly for us in the US and Canada, specifically in markets such as Northeast and Pacific Northwest of the United States and British Columbia and Ontario provinces in Canada. These markets have existing or planned hydrogen incentives that make them attractive markets to apply the HEVO-Chain technology.

The size of the Bakersfield project alone justifies building a new manufacturing facility, in particular for the HEVO component. As this project matures to reach a final investment decision along with other projects in our pipeline, we'll need manufacturing capacity in the US to be able to obtain the benefits from IRA as the majority of the equipment that you produce has been made in the USA.

We're in early stages of identifying our needs and starting to look for possible locations of putting manufacturing facility or two in North America. This growth would be an increase of our existing business plan for Benavente. We're excited about the challenge to grow in such an important market as the United States and Canada.

We are also excited to have expanded to the Italian markets. We think that the Italian market is a natural expansion of our core and strategic markets in Europe due to its excellent solar irradiance, existing natural gas infrastructure and ambition to add hydrogen production in the coming years.

Italy also has an existing natural gas grid from Northern Africa to southern Italy, and is seeking to by 2030, have a significant increase in its hydrogen used for heavy industries and long-distance truck transport. This is ideal for Fusion's mobility and industrial decarbonization strategies we are already employing in the Iberian Peninsula.

Our partnership with Duferco Energia is exciting because Duferco's core business is energy trading, steel, manufacturing, and shipping businesses. A joint agreement has been established between the Duferco and Fusion Fuel with the following goals to develop a footprint in Italy and the MENA region for technology sales and project development. Fusion Fuel utilized the Duferco's existing operations and will be the boots on the ground for expansion in Italy and possibly Algeria and Tunisia.

The interesting aspect of Algeria and Tunisia is that there's existing pipeline that connects Northern Africa to the Italian markets. And the other interesting part is that Duferco has significant operations in both those regions. The perfect way to start any partnership is to focus on a project and execute it. We're doing this through the development of a pilot plant in Duferco's Giammoro site in Sicily. We plan to install 50 HEVO-Solar units for the green hydrogen will be used to feeding molten carbonate fuel cell system. That's a technology that Duferco was the test.

The project is planned to be installed during 2024 and allow us to showcase the HEVO-Solar potential in the strategic country and then a very hard to abate market sector to potentially replicate other markets. Following its successful -- following our successful strategy in Iberia, Fusion Fuel will now use the same blueprint, as I noted earlier, in mobility and the industrial segments. Our target is to have up to four mobility hydrogen refueling stations in Southern Italy by the end of 2024.

Separately, we've seen Northern Italy in areas such as Bologna, Brescia, Verona, and Rodina as key areas, similar to Sines to focus on decarbonizing the steel, glass, ceramic, and refinery industries as examples. These are ideal locations for our new HEVO-Chain technology that can scale with our customers, decentralized, or co-located, and more efficient than our peers. We'll work with Duferco to use this technology at the Brescia steel mill as one of the initial targets in this region.

I'll now pass it back to Frederico to go through our exciting new technology developments of the HEVO-Chain.

Great. Thanks, Zach. So innovation hasn't stopped at Fusion Fuel and obviously, Zach and the team and the whole commercial area is keeping us well on our toes with all these opportunities. So I'm happy to be able to share with you some of the great things the team has been working on today.

So for those of you who have followed our story for some time, you know that this all began with our first generation of our miniaturized and the electrolyzer, the HEVO. This 2020 model worked at one bar of pressure and required 664 HEVOs per HEVOs all the unit. We then consolidated three HEVOs into one in 2021, and this is the model that's been installed in Evora.

This year, we further consolidated our HEVOs so that we only require 144 for HEVO-Solar. This version, while still taking advantage of the cost benefits of the miniaturized system, can work with four bars of pressure and has an increased hydrogen output and a 50% cost reduction from the 2021 version.

We're already in testing of the 2023 version of the HEVO. This not only sees further consolidation, but still maintaining overall similar size, but it is able to work with two membranes per unit, permitting us to improve the performance further and also reduce unit cost by another 20%. This 2023 unit is not only highly competitive, it's also a game changer for Fusion Fuels.

We've recently step -- taken the step into the -- into a new market for us, the centralized PEM market. Using this 2023 HEVO, we've connected several units on an integrated string of miniaturized PEM electrolyzers. With this, we've created a modular system that is easy to install and operate and can work inside with limited available space. It's able to work with any energy source thereby broadening our addressable market substantially and no longer limiting us to markets with high solar radiation.

This system takes advantage of the attractive cost benefits of using a miniaturized system, which we've covered before. This allows us to bring -- to make even small systems cost effective rather than what could be seen in the market today, where electrolyzers need to be very large to be cost efficient. We are bringing affordable hydrogen solutions even for small scale uses.

As it is modular, it's also easily scalable, making us competitive already with our first generation for many different types of projects. All of this together gives us the HEVO-Chain, a truly revolutionary product in the hydrogen market.

Now, I will show you a short video on the technology.

(video playing)

Our HEVO-Chain solution is able to work with any energy source, making green hydrogen from any renewable energy. This is a stark new world's Fusion Fuel and a very exciting one of that. It is a solution that can be containerized. It's usable for small to large scale use cases. It's all based on our HEVO miniaturized PEM solution, all working in tandem on a string. The system is easy to install, highly modular, and highly efficient.

By using our HEVO, we can make the most of our cost efficient design to bring a highly competitive product to the market. We believe this will truly disrupt a loss of the existing small -- especially small and mid-sized projects in the market today.

What you're seeing here is the real-life version of the HEVO-Chain unit that's in our lab. We're running tests to be able to bring this to market in 2024. We need to first thoroughly test the system and then industrialize it for production. This solution will truly revolutionize the centralized electrolyzer market.

The HEVO-Chain hydrogen unit, which I have with me here today, you might be able to see it right now next to me to get a sense for the science, is made of 16 HEVOs, all integrated and linked, but operating independently. The system is designed to be modular and scalable, and we can include them in a rack to be able to service larger projects. It boasts one of the highest efficiency rates for PEM systems today.

Again, this is all based on what we learned in the creation of the HEVO-Solar. This new addition to our product portfolio puts us in a strong position to be competitive for a wide range of projects. Focusing the HEVO-Solar on projects with large scale grants, land availability and very high solar radiation. and the HEVO-Chain on markets with loan constraints in requiring a range of energy sources.

In 2022, we developed the first HEVO-Chain hydrogen unit, and right next to me here, allowing us to now begin planning projects using this technology. The first version uses the existing water and power systems from the HEVO-Solar and the HEVO-Night technologies. In 2023, while subject for hydrogen unit to further testing and also focus on making the water and power systems suitable for inclusion in the rack and container solutions.

In 2024, we expect to start industrial production of the HEVO-Chain and commercial operations, offering both rack and containerized solutions. In order to do this, we will start planning projects and kicking off the required licensing and permitting processes for these projects already in 2023.

I'd like to briefly update you also on our production status in our Benavente facility, where we continue to ramp up production of the HEVOs each month. We currently own EUR12 million of inventory, as I mentioned previously, together with another EUR3 million of prepaid orders to suppliers.

This puts us in a very strong position to be able to deliver product to our projects, as Zach mentioned earlier, and in several cases, you can step in where competitors have not been able to deliver. This significantly derisks our 2023 production and also project portfolio.

In the first half of 2023, we expect to install and sell activities on both our solar concentration and module production lines in Benavente to complement the existing HEVO production line. And we want to have Benavente with a 100-megawatt annual production capacity by year end.

In 2024, we expect to install and operate our HEVO-Chain production line and gradually increase our production capacity, so that by the end of 2025, we reached 500 megawatts of annual production capacity and going into 2026.

As always, we'll close covering our main milestones, but to note, we continue to make strong progress across all fronts of our major milestones for the year, all while significantly ramping up our team and ensuring the company operates smoothly as one unit.

Whereas we would have liked to have seen faster developments in licensing and permitting processes for some of our projects and some of our markets, we've been positively surprised that the large movements governments around the world are making in the hydrogen market, building up significant momentum for the industry.

For us, the IRA in the US, in particular, marks a strong game changer in the hydrogen market and we could not be more thrilled about the timing of our entry into this region with the Bakersfield project. The introduction of the HEVO-Chain is also another product that is likely to have profound positive impacts on the company both in terms of the markets -- markets available to us, as well as solving solutions that are in the past we simply had to pass up on. We're ramping up to first 2022 in a very strong position for the upcoming year.

So with that, I'll pass it to our Chairman for some closing remarks before moving on to Q&A. Thank you.

Thanks, Frederico. This investor presentation has been chock-full of important developments at Fusion Fuel. Therefore, I'm sure we're going to have lots of questions, so I'll not take up much of your time. Quarter after quarter in my remarks, I've emphasized that what has been my formula for success as an investor, finding companies with a strong management team, a differentiable and superior technology, and serving a growing market.

As I read Wall Street research discussing Europe's impending economic winter of discontent, the uncertain timing of any relaxation of China's COVID Zero Policy, and the likelihood that the Federal Reserve will need to bring on a recession in order to break the back of inflation in the US, I'm greatly comforted knowing that Fusion Fuel operates in a market that is it, and for the foreseeable future will be, the beneficiary of huge tailwinds. The financial incentives for green hydrogen, which will exist for years to come in both Europe and North America, give me the confidence to say that despite the highly uncertain global macroeconomic environment, which most businesses are facing, the market opportunity for Fusion Fuel has never been brighter.

With that, I'll turn it back to you for Q&A, Ben.

Great. Thanks so much. A lot of questions came through. So appreciate your engagement. We'll begin with a couple of questions from Chris Tsung from Webber Research.

So with respect to the breakdown of revenue between HEVO- Solar and HEVO-Chain looking out into the latter half of the decade, can you provide any guidance as to which product would likely be Fusion Fuel's main source of revenue by 2025 or by 2030?

Frederico, do you want to take that one?

Sure. Absolutely. So from our side I've seen that in the short run, HEVO-Solar will be taking the bulk of that, given that that's the production facility available. In the future, as we ramp up, most likely HEVO-Chain will likely overtake HEVO-Solar. The target addressable market is much larger for the HEVO-Chain opportunity. Again, it's not limited by solar radiation, nor by land requirements. We believe both offerings are incredibly competitive in that markets and in their niches. It's just that the available markets for the HEVO-Chain, it is just that much larger.

Yeah. Just a follow-on question, are there any plans to introduce other products across the hydrogen production chain?

So from our side, we're currently obviously playing still on the advantages of the HEVO with a miniaturized electrolyzer. We'll continue to look at solutions that could operate with that as its base. It's no accident. The one is called HEVO-Solar, the other one is called HEVO-Chain. HEVO is the base of both. We don't foresee it in the short-term any product that is not HEVO-centric, although, there may be variations of solutions that could combine the HEVO. But primarily, we see the HEVO-Solar and HEVO-Chain as our two major projects, at least for the midterm.

And certainly, Frederico, the potential to add the oxygen capture system is -- it would be incremental revenue.

Absolutely. Very good point, yes.

Switching gears to commercial for the H2 Pioneros program in Spain that was announced the other week, is it all or nothing for the four projects for which Fusion Fuel is involved as a technology supplier or can one project in selected while the other three are not?

It's the latter. So every project stands on its own. If the one project move forward and receive the grant, the other three did not, we would still move forward with the one project as a third-party technology sale.

Thanks, Zach. There's a subsequent question about breaking up the number of HEVO-Solar for each project. I suspect we will disclose that information.

That's correct.

Bakersfield likely be a mix of HEVO-Chain and HEVO-Solar.

Was that the question -- will it be a mix of -- the connection kind of broke up.

The question was whether we anticipate Bakersfield being a mix of HEVO-Chain and HEVO-Solar or one or the other.

So we've engaged Black & Veatch to do the initial conceptual study and pre-feasibility work. We are going to evaluate both options. Do we do HEVO-Solar projects, or do we do a centralized -- or centralized HEVO-Chain with traditional solar or combination thereof? So we'll update you on the progress of that as we get closer.

Thanks. There was a question about milestones in order to take FID on that project. But I suspect that your answer about Black & Veatch is -- kind of answered that as well.

But maybe I'll just touch on that for a second. I mean, we're -- so the -- as we've noted in previous calls, we put in concept, pre-FEED, FEED, and then FID final investment decision. So we're in the concept stage of this project in the coming months. We hope to make a decision to move into prefeasibility, which we would start -- we'd initiate permitting on the project. But we are -- and hopefully, we can make an update on that in our next quarterly call.

Thanks, Zach. Can you touch on the JV with Electus Energy? Is it a 50:50 JV? And then additionally, with respect to funding that project, given the hefty price tag, how do we plan on funding the expected capital investment? Will come from cash or other?

We are planning to have a 50:50 joint venture on the project. We have a current arrangement on funding the -- on funding the development cost of the project. And as we -- and we are already in active discussions with our own financial investors to kind of come in and partner with us on that projects. So the plan is as we get closer into reaching FID, we'll lock down and secure our financing for our position, which as I noted earlier, we'd sell the technology -- we'd sell our units to look like a third-party technology sale with equity upside. And then Electus has arranged their own financing for their position.

And I just want to just emphasize how attractive the economics of we expect this Bakersfield project to be. And so we think that the ability to get this financed will not be particularly challenging. The IRA and the California low carbon fuel standards really make this a very, very attractive project.

Thanks. Last question here from Webber Research. Touching on the partnership with Duferco. Is the agreement final for the 50s at HEVO-Solar pilot project in Sicily? Or is that not yet a committed order?

Was that Zach? You're on mute.

Good. That got me. We're working jointly with them to develop a -- to do the engineering work to submit for an upcoming grant program in Italy. The plan is that once after we submitted the grant, we will have entered into a third-party technology sale agreement with them. Right now, it's under a memorandum of understanding or letter of intent. But we plan to convert that into a binding agreement in the coming months.

Great. Thanks. A couple of questions here from Erwan Kerouredan from Royal Bank of Canada. With respect to the broader pipeline and timing of revenue recognition, should we be using commercial operation date as guidance for the revenue recognition timeline? Or will we be recognizing revenue prior to that date?

That's a great question. We should -- we'll put on the on the -- we put the presentation after the call on our website. We'll update that to show the final investment decision date instead of COD. I think final investment -- so our plan going forward is that we are going to carry all the working capital for all the projects. We are going to be getting installment payments as projects make FID.

We want to keep our working capital inventory close to a net zero. So we'll update that to show the FID date, which can be where you actually recognize the revenue. We're not going to hold the working capital for the projects until they reach commercial operation, so we'll update that.

Just to note also on the accounting procedure and how we operate also with Exolum. When it's a tech sales, we'll start recognizing the revenue as we deliver the units. So by the date that's there on the COD, we should have recognized pretty much all of the revenues, or if not, the vast majority of the revenues. But as I pointed out, the revenue recognition probably starts at FID onwards.

Thanks, Frederico. One more for Zach here. Was the IRA in the US a major driver for the partnership with Electus and the project in Bakersfield? Or were -- had the commercial discussions started prior to the announcement of that legislation?

We started talking with Electus back in the spring of the of 2022. So it was before -- it was before the IRA passed path. But obviously, when IRA passed, that solidified and crystallized the $3 production tax credit. We -- our system right now is roughly the HEVO-Solar component. HEVO-Solar is roughly 50% solar. So we also qualify for a solar investment tax credit upfront.

And then as Jeffrey noted, the low carbon fuel standard credits range anywhere between $3 to $5 a kilogram. So just the economics when you added in that production tax credit, which is so attractive that it accelerated discussions with Electus that have an anchor projects, we can start to rally develop a business in North America.

Thanks, Zach. Sticking with you here a couple of questions from Torkjel Jordbakke from Fearnley Securities. Can you provide a breakdown of the EUR40 million revenue estimate for 2023?

So because we have not secured the -- we're finalizing arrangements on the financial investors for the Fusion Fuel-owned projects. We took a 90% close rates of our third-party tech sales. But the -- so I would use the third-party sales pipeline as kind of the reference page as -- and the next quarterly update hopefully can talk more about financial investor participation on our own projects, and then we can update that projection and give more granularity.

Thanks, Zach. A question here for Frederico. Just a quick one. How much has been invested in the Benavente facility thus far? I believe is roughly EUR13 million, but I'll let Frederico chime in on that.

It's around -- I think we actually have in here, EUR10.1 million so far. It's actually in -- on the first footnote of slide 9 for anyone who wants to refer to it. We do expect to probably invest another EUR15 million or so million in -- during 2023 into that facility. That EUR10.1 million also includes part of the real estate investments, as I mentioned, we will be doing the sale leaseback, which we expect to close in December. So part of that EUR10.1 million will be converted to cash proceeds for the company during Q4 is our expectation.

Thanks, Frederico. Sticking with you and pivoting to capital strategy, capital planning. What's the most likely or optimal path and timeline to raising capital?

So for us the ideal way would also be to -- well, the two best choices we'd have is obviously converting bunch of our receivables into cash inflows. Those items that we're working on both with the VAT, the grants, as well as the, obviously, tech sales to Benavente - sorry, to Exolum. The other is, and as I've mentioned before, we have a substantial amount in inventory that we'd like to convert into cash and cash proceeds. That will significantly help our capital position.

However, as I've mentioned before, we have the sale leaseback as options and what we'd like to see is, as the market recognizes the position we're in, that we're able to potentially raise capital through whatever means available to us, which we'll consider whether it's debt, equity, or so on, to be sure to fund our growth plans of 2023 and onwards.

Okay. I just want to jump in for a moment. We're very focused on cost of capital. And so as an example, the Benavente sale leaseback would be effectively a very attractive equivalent of cost of debt. I apologize about the feedback. Additionally, when Zach mentions the potential financial investors for our Fusion-developed projects, we will look at -- we understand that our cost of capital right now is higher than that of -- well, higher than that of traditional infrastructure investors. And so that would be a very attractive source of financing for our Fusion projects.

At some point in time, once we have developed a little bit of a track record, we expect that that project financing -- debt-based project financing for those Fusion projects becomes a reality. So I want our shareholders just to understand that we are very focused on trying to identify the best way to fund the growth of the company for the benefit of Fusion shareholders. But we think there are multiple levers for us to be pulling and we imagine that we'll be using some from column A, some from column B, and some from column C.

Great. Thanks. Sticking with Frederico, if you could just quickly -- quick data point here, current production capacity for the company for this year and I guess expectations for '23?

So for 2023, we expect our production, I wouldn't say possibly available production to us for the full year would be closer to somewhere between the 40 to 50 megawatts of production. Now, we will not -- we will only produce what the projects can take. We'll avoid producing just for a stop. We have a significant amount of inventory right now. So we do realize that for example, right now, we are producing it less than we could produce if everything was licensed and pounded. So we are holding back some of the production capacity.

So the production capacity for next year, Benavente lines go fully live would only be in theory between sort of 40 to 50 megawatts. But how much of that we produce will depend on the products going forward. As Zach mentioned before, we have a very healthy project pipeline and a lot of inventory to service those. So we hope to be in a good position to be able to deliver on that. But there is -- I just want to highlight, it's also important for our capital, like what Jeffrey said on cost of capital, inventory is expensive for us, so we want to produce what is needed.

Thanks. A couple of questions on grants came in with respect to the EUR30 million estimate under -- listed under other grant applications. Is that referring to Component 5?

So I will answer that, mysteriously. I'll just say that, unfortunately, we cannot disclose what that is related to, as I noted in the slides, that is secured until the respective entity allows us to actually disclose the further details of what project it relates to. We will then communicate that to the public. We expect to be able to do that this week. That is our target to still do that within this week.

Thanks. And then sticking on that topic, the potential size of the IPCEI grant that was excluded from the table. I know it's something that we've been -- we've not commented on in some time, but it's still hanging on the background if you have any clarity on that.

So the IPCEI grant, the total IPCEI project was over 0.5 billion with the grants. I would not mistaken, it was put in this sort of 150 million range, I believe so, it's restored. We can significantly distort all of the numbers. We're in third tier of the IPCEI submissions. So we should be -- it's the next one to be communicated.

Unfortunately, we don't define that timeline and given that uncertainty and given the potential volatility and impact of that one single line item, we removed it from the list. That doesn't mean we're not pursuing it. I just want to clear, this is very much a project where we still pursue, and we still work on. It's just something that we don't want to create expectations with such a single line item that will be such a binary outcome.

Frederico, I just want to clarify, when you say third tier, what you really -- what you mean are, there are different tranches depending on what the funding is for?

Right. You're right. It's not third tier. It's third wave, my apologies.

So with the few minutes that we have remaining, I just want to pivot over to a couple of commercial questions for Zach. Based on the advantages of our HEVO-Solar technology in high DNI regions, are we seeing any increased demand or interest in our technology from the MENA region and are actively pursuing potential opportunities in those countries?

That's a very good question. We've not put that on the last two presentations, not because that we're not actively pursuing them or they're not still opportunities in the MENA region. But until we secure kind of necessary components that I noted, in the presentation around land subsidies if they exist, initiating permitting, those kind things we didn't want to disclose it because the number, the size that they can skew everything else we're working on. But they have to -- with all the caveats aside, still working on Morocco. So the cup opportunities we're looking at in Egypt. And as I noted, Duferco has -- they have some potential opportunities with existing partners in Tunisia and Algeria.

There's a question here about those pipelines, a trans-Mediterranean pipeline from Tunisia to Italy. Are those pipelines natural gas? Are they hydrogen? Do you have any understanding of what percentage of hydrogen those pipelines can transport.

Natural gas, and my understanding is we're looking at, under 5% to be blended as hydrogen. Capacity will be TBD, but because it's we've been focused more on the Italian aspect of it, but there's significant land available in those countries and those are more -- those are similar to the Morocco opportunities that as they kind of advance, we get land. We know more about the projects, and we can have more definition, we'll share it.

Thanks, Zach. Our last minute here, estimated revenue for 2022, Frederico?

So our estimated revenue will be likely under EUR2 million. We will be booking the Exolum revenue. The Exolum projects is a EUR2 million project. We'll be booking a portion of that. To note, as we go on into 2023, what we want to do is with many of our projects, which currently are born as HPAs, we want to pass them to a financial investor. I'd be financial partner.

And as Zach I've mentioned before in his section, so we can recognize all of those as revenues. So we expect in the future to be able to book revenues for both the slides that's actioned on tech sales and development projects. But for Q4, the only revenues will be -- likely booking will be related to the partial component of Exolum.

Perfect. Thank you, Frederico. Well, that will do it for our third quarter webcast. Thanks to everyone who joined, for your engagement. If you have any additional questions or if we did not get around to answering your questions, please feel free to reach out to me and the IR team at ir@fusion-fuel.eu. So we look forward to seeing you all again in our next update.

Thank you, everyone. Have a good day.