A government-backed business whose technology can turn waste into jet fuel has been rescued in a deal in which it will be delisted from London’s Aim.
Velocys had been fearing for its future when a funding round fell apart late last year, but a consortium of investors has saved it with $40 million of capital.
Henrik Wareborn, its chief executive, told that the funding would be enough to take the company to “sustainable cashflow” and that it hoped to break even by 2026. He said the company now had a “massive export opportunity for the UK”.
Velocys says its patented technology allows the production of sustainable aviation fuel that can be made “safely and effectively on a commercial scale” and used in existing engines without the need for alterations. This makes it a so-called drop-in fuel alternative as opposed to those that require alterations to aircraft and engines in order to be viable.
The consortium includes Carbon Direct Capital and GenZero, which are green investors, Lightrock, a private equity firm, and Kibo Investments, a venture capital firm.
Wareborn, 60, will remain as chief executive. He said there had been no alternative to leaving the Aim because taking the company private opened up more sources of capital.
“Fund managers are in a difficult position. In a high-interest environment they are finding it difficult to support growth companies. The risk is it ends in a bad way before you have reached positive cashflow,” he said.
Velocys originated from a University of Oxford technology spin-out company called Oxford Catalysts, which floated in 2006. It provides reactor and catalyst technology that allows fuel producers to turn waste into fuel.
The fuel can be made from a variety of waste materials, typically solid municipal waste and woody biomass. Wareborn said: “We can turn things that would otherwise go into landfill or be incinerated into fuel.”
In December 2022, Velocys received £29.5 million in grants from the government, primarily to help it develop a waste-to-fuel plant at Immingham, Lincolnshire, in collaboration with British Airways. At the time, Mark Harper, the transport secretary, said the investment could “help us make guilt-free flying a reality”.
However, Wareborn said: “All aviation travel will have a negative climate impact for the foreseeable future and we need to deploy as much sustainable aviation fuel conversion as possible to reduce that negative impact to avoid having to potentially restrict air travel.”
Velocys expects demand for sustainable aviation fuel to grow in light of regulations.
European Union rules will require suppliers to ensure that 2 per cent of fuel made available at EU airports is sustainable aviation fuel in 2025, gradually growing to 70 per cent by 2050.
Wareborn said the Immingham plant would be able to process 600,000 tonnes of waste a year. A final decision on the plant could be made next year, allowing construction to start in 2026.
It has a facility in Columbus, Ohio, that produces reactors. The relatively small size of the reactor means that fuel plants can be close to the available feedstock, such as where waste is processed.
In 2021, the British Airways owner IAG and Southwest Airlines, the US airline, agreed to buy hundreds of millions of gallons of fuel made using Velocys technology.
Although the manufacturing method reduces carbon emissions, the in-flight emissions are the same as conventional fuel.
Wareborn said that despite this, “sustainable aviation fuel [SAF] is the viable solution in the next two to three decades” because alternatives such as electrification were “not on the radar” of the industry.
He said the financing “secures the future” of the business just as he believed the sustainable fuel industry was reaching an “inflection point”. He added: “If we do well, we can have five SAF plants in the UK. Globally, we need hundreds. I want to supply the core technology to many of those.”