The board of directors of Oxford, UK-based Velocys has given its backing to an offer from a consortium of US, UK and Singapore climate-focused investment houses to acquire the company. Without an immediate injection of funds, Velocys is in danger of running out of cash next month and going into insolvency, warned the company. A spin-out from the University of Oxford, Velocys has been developing technology to enable production of drop-in sustainable aviation fuels from a variety of waste materials and is involved in two projects in the UK and US to build commercial-scale SAF production plants. Listed on the London Stock Exchange, Velocys shares have fallen from a high of £5.80 a share during the past year to 0.23 pence, valuing the company at just under £4 million. The consortium, which is offering 0.25 pence per share in cash and, if the bid is successful, a secured bridging loan of £3.5 million and growth capital of up to $40 million (£31.5m), said Velocys was well-positioned to capitalise on “a compelling market opportunity” for the production of SAF.

The consortium, which has set up a company, Madison Bidco, for the purposes of the acquisition, is made up of London-headquartered global private equity firm Lightrock; New-York based global growth investment firm Carbon Direct Capital; GenZero, an investment platform founded last year by Temasek, the global investment company owned by the Singapore government; and Kibo Investments, a Singapore-based private investment office focused on climate technology. Carbon Direct Capital had previously been expected to make a $15 million investment in Velocys but withdrew when the latter failed to secure further investment from other backers by the end of October.

In a market announcement, Philip Holland, the Chair of Velocys, commented: “The Velocys Board and management have spent a great deal of time and effort trying to secure significant long-term funding to grow the business and accelerate the delivery of its technology to clients. However, reflecting Velocys’ material funding requirements, business model and limited revenue together with the continued challenging public market environment, it has not been possible to raise sufficient funds. This has put the business in an extremely challenging position, with a very real prospect of not being able to continue as a going concern when we reach the end of our cash runway in early January.

“Bidco is offering the business a secure platform for future growth, alongside an injection of up to $40 million of growth capital, which is expected to ensure that Velocys has the capital resources needed to deliver against its medium-term strategic plans, including to scale up and grow and work towards its long-stated goal of supporting the decarbonisation of the global aviation sector. Whilst it is very disappointing for the business to need to leave the public markets, Bidco’s offer will enable Velocys to continue operating as a going concern.”

The consortium’s confidence in SAF production is based on what the market announcement describes as a “confluence of regulatory support, demand pull by airlines and increased technology readiness,“ adding “Velocys is well positioned to capitalise on these sector tailwinds, given its patented integrated Fischer-Tropsch reactor and catalysis solution and its pipeline of commercial licensing opportunities.”

Velocys said it has a number of third-party clients to whom it supplies its technology, along with its two biorefinery reference projects, the Bayou Fuels Project in Mississippi that would utilise woody waste to produce sustainable fuels and the Altalto Project in Immingham, north-east England, that would process municipal and commercial solid waste into sustainable fuels.

According to the Velocys website, Bayou Fuels is expected to produce 36 million gallons per year of negative-emission transportation fuels using a combination of biogenic feedstock, biomass power and carbon capture and sequestration. Long-term SAF offtake agreements have been signed with Southwest Airlines (15 years) and IAG/British Airways (10 years). In October 2022, the company announced that when the project entered production, then forecast for 2026, the facility would use renewable energy derived from sustainable biomass power instead of solar power that would double the carbon savings for its aviation customers and the enhanced negative carbon intensity would also increase the credits generated under the US Inflation Reduction Act and the California Low Carbon Fuel Standard, improving the revenue and economic profile of the project.

A year ago, the Altalto project, a collaboration with British Airways to produce 20 million gallons of sustainable fuels annually with net negative carbon emissions, was awarded up to £27 million ($34m) in grant funding, with an initial tranche of £7 million from the UK Department for Transport, along with matched private funding, towards completing the Front-End Engineering Design stage. “Following completion of FEED and a successful final investment decision, construction will commence in 2025 with full commercial operation expected in 2028,” the company announced in May. The UK government has set a target of five SAF production facilities to be under construction in the UK by 2025.

Image (Velocys): Visualisation of the proposed Altalto MSW-to-SAF facility in north-east England

Christopher Surgenor

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British Airways has become a new investor in a round of additional funding raised by ZeroAvia towards a development programme for a 2MW hydrogen-electric powertrain for full-size regional aircraft. A total of £17.6 million ($24.3m) has been raised in a round led by Horizons Ventures, with other participation from Breakthrough Energy Ventures, Ecosystem Integrity Fund, Shell Ventures, Summa Equity and Systemiq. This brings the total private funding to over £38 million ($53m) and total funding raised by ZeroAvia since inception to £53.7 million ($74m), including a grant awarded by the UK government. The company’s initial programme aims to bring a 19-seat hydrogen-electric powered aircraft into commercial service in 2024 and a 50+ seat version by 2026. British Airways said its investment supported the airline’s net-zero emissions by 2050 commitment and to reach true zero emissions on short-haul routes by the same year. Meanwhile, sustainable fuels technology company Velocys has reached an agreement to extend the current option with British Airways for the UK waste-to-jet fuel Altalto project to March 2022. Exercise of the option would give both parties equal equity ownership of Altalto.

British Airways said its investment in ZeroAvia would help accelerate the development of a 50+ seater commercial aircraft capable of running on zero emissions hydrogen-electric power, which ZeroAvia expects to have in operation in five years’ time.

The investment follows a recent partnership between ZeroAvia and the Hangar 51 accelerator programme of BA’s parent company International Airlines Group, which identified economic, network and consumer appeal advantages of hydrogen-powered aircraft, as well as clear environmental benefits.

“Innovative zero emissions technology is advancing fast and we support the development of hydrogen as an alternative fuel source because we believe it has the potential to enable us to reach true zero emissions on short-haul routes by 2050,” said British Airways CEO Sean Doyle. “There is a huge amount of energy and excitement building around the possibilities of a zero emissions future for aviation and while there is no single solution to this challenge, we acknowledge the need for urgent action to tackle the impact flying currently has on our planet and are making progress on our journey to net zero.”

In September last year, ZeroAvia achieved the world’s first hydrogen-electric flight of a commercial-grade aircraft and has just completed a ground simulation of the complete power profile for an upcoming first cross-country flight (see video below). The ground test demonstrated a full battery shutdown in flight using the company’s fuel cell powertrain configuration, allowing for complete removal of the battery system in the next configuration of the powertrain.

ZeroAvia intends addressing various markets, initially targeting a 500-mile range, 10-20 seat aircraft by 2024 for use in commercial passenger transport, package delivery, agriculture and other modes, with the new capital infusion allowing the company to enter the 50+ seat commercial segment by 2026 and onwards to a 100-seat aircraft by 2030.

“This new funding, in conjunction with our other recent milestones, will significantly accelerate our path to zero-emission solutions for larger regional aircraft at a commercial scale,” said Val Miftakhov, CEO and founder of ZeroAvia. “With many airlines lining up and ready to make the shift to zero emissions, we expect to see wide-scale adoption of this technology. We are extremely grateful for our investors who are helping to speed up our progress and ultimately the aviation industry’s adoption of zero-emission flight.”

The company has also appointed new members to its senior team, including Christine Ourmières-Widener, who joins the board of directors with previous experience of senior leadership roles at Air France-KLM, CityJet, FlyBe and American Express Global Business Travel. Other appointments include Mike Friend, a retired Boeing Senior Technology Director and consultant for Mitsubishi Aircraft who joins the technical advisory board, and Mark Blair, a retired FedEx VP of air operations and also at Cessna Aircraft Company, with experience of package delivery applications of various sizes of aircraft.

Velocys announced in May 2020 that under a joint development agreement (JDA), British Airways and Shell would put up £1 million funding for the Altalto SAF project in north-east England and each was granted an option to take a one-third share in the equity capital of Altalto Limited. However, Shell has since pulled out of the JDA, leaving British Airways with the option of equal equity ownership of the project with Velocys.

The two partners, through subsidiary Altalto Immingham, say they intend applying for a grant under the new UK government £15 million ($20m) ‘Green Fuels, Green Skies’ funding competition to support SAF development announced last month. The results of the competition are expected to be announced by the Department for Transport (DfT) at the end of July.

“Whilst there is no guarantee the Altalto project’s application will be successful, we are delighted to see this new government initiative to support the production of SAF,” commented Velocys CEO Henrik Wareborn.

The DfT has also opened a consultation into amending the government’s Renewable Transport Fuel Obligation (RTFO) with the intention of increasing the carbon savings it achieves and expanding the scheme to include recycled carbon fuels that would “transform the commercial viability” of waste-to-fuel technology and support pioneering UK projects looking to develop SAF from household waste. Velocys said it welcomed the consultation and would be responding.

“Policy support remains critical to the establishment of UK SAF facilities but with the right support, we can enable a clean future for aviation,” said Wareborn.

Added British Airways’ Sean Doyle: “Progressing the development and commercial deployment of SAF is crucial to decarbonising the aviation industry and to meet our commitment to carbon net zero by 2050. The UK has the experience and resources needed to become a global leader in the deployment of such SAF production facilities, and we need government support to drive decarbonisation and accelerate the realisation of this vision.”

Velocys said it expected the project would be in a position to launch its front-end engineering design (FEED) phase later this year, subject to confirmed UK government policy support and the addition of new investors in the project.

Neville Hargreaves, the company’s VP Waste to Fuels, told a webinar this week that he expected SAF production at Altalto could start in 2026.

Top image: ZeroAvia’s vision of a larger hydrogen-electric powered regional aircraft