Introduction

Having successfully met the Stage 1 Project development milestones, in 2015 VN-H Power Generation Ltd raised a further £290,000 of EIS funding to prove the scalability of the engineering design concept behind the Electro Hydrogen Generator technology (“EHG”). This part of the project has now been completed successfully, delivering an innovative scalable mechanical design that is proven after comprehensive testing thus adding value to the company by further de-risking the project.

The company is now holding a 3rd Round of Funding to prove further designs and by building and testing larger and more productive EHG test devices enable the delivery of fully comprehensive technical drawings and schematics of a scaled EHG commensurate with a GE PGT10b gas turbine. Delivery of this documentation will be the precursor of monetising the technology through licencing agreements with major Natural Gas Turbine Generator manufacturers and Power Station operators.

Manufacturers are under significant pressure from operators to produce a “clean” and more “fuel efficient” generating plant following the decision of governments around the world to reduce allowed CO₂ emissions and encourage increased fuel efficiency. Failure on these levels for the manufacturers would result at best in loss of market share, or worse, no sale of equipment. For the existing operators the choice is even simpler; reduce and clean up, or shut generation down, because after allowance fees and fines it will simply not be commercially viable. This is clearly evidenced by E.On’s move to ‘standby generation’ only of their €400m, 3-year old Gas-fired plant in Bavaria see http://www.eon.com/en/about-us/structure/asset-finder/irsching.html) and many others throughout Europe.

However, with the UK power generation industry currently in disarray over its long term strategy, (No clear replacement for coal fired power stations that are closing quicker than replacement power can come online, and the nuclear option now also in limbo.) compliant gas fired power stations will soon be the only short-to-medium term alternative to providing reliable, consistent and relatively cheap power generation in the UK.

24.6% of the worlds CO₂ pollution stems from Power & Heat Generation (see graph below) EHG technology has the potential to allow both manufacturers and operators to meet the 2012-2025 emission reduction and fuel efficiency increase targets as laid down by EU and Global legislation.

Greenhouse Gas Emissions (see http://www.wri.org/resources/charts-graphs/world-greenhouse-gas-emissions-2000

Penalties in Europe for CO2 emissions from Natural Gas Fired power stations are in the billions of pounds. The successful development of the VN-H Power Generation technology has the potential to reduce the CO2 emissions from these power stations, and therefore reduce the fines for operators that adopt the developed VN HPG solution. The adoption of this technology by operators and manufacturers through licencing agreements has the potential to generate profits at VN-H Power Generation worth hundreds of millions each year, which in turn has the potential to produce gains for subscribers in VN-H Power Generation worth a significant multiple of their original investment.

EHG technology in this application will deliver a device designed to produce Hydrogen from the power generator waste energy streams. The Hydrogen produced is then compressed and stored onsite, (for future use) or fed directly to the gas turbine component of the generation plant and co-fired with Natural Gas. The Hydrogen introduced increases the burn efficiency of the gas turbine and then replaces conventional fuel with a corresponding percentage (of Hydrogen). Thus by co-firing with a low-cost, onsite produced, ‘clean fuel’, purchasing less CO₂ allowances and less natural gas, plants that are not economical today, can continue to operate, and newer more efficient plants can operate profitably.

VN-H Power Generation Ltd negotiated a globally exclusive development Licence in December 2012 allowing it to utilise existing intellectual property and patents registered in 27 countries, to develop and monetise the technology within the Gas Turbine Power Generation market. (See Schedule 4 for Patent Coverage)

The EHG uses a unique combination of centrifugal force, magnetic force and conventional electrolysis, which when combined produces a more efficient level of Hydrogen generation. The technology’s capability was demonstrated under laboratory conditions whilst being developed in Russia by respected scientists. Dr Fulcieri Maltini on behalf of the UK Trade & Industry (UKTI) witnessed the experiments and hydrogen output.

The data was further validated by an International peer science review team in the UK prior to its recognition in April 2011 by the UKTI as a Technology of Exceptional Global Potential, being led by a Professional Management Team and thus its subsequent development in the UK. (Copy UKTI certification available upon request)

Following testing, the unit has a proven and witnessed efficiency in excess of 95%.

VN-H Power Generation Ltd believes it is positioned to leverage industry expertise at world-renowned companies together with specialist scientific teams. In November 2012 during discussions with Siemens AG Energy Sector – Fossil Power Generation Division and Energy Solutions, interest was expressed in them participating in the project as joint developer and test-bed provider if the Stage 1 tests delivered an energy equation indicating production efficiency ratios in excess of 70%. This interest is in line with the recently announced successful conclusion of tests carried out by the Svenskit Gastenknist Centre AB on “Co-firing with hydrogen in industrial gas turbines”. This study has led to Siemens and Infraserv Höchst rating the Siemens SGT- 700 & SGT 800 gas turbines suitable for 15% co-firing with hydrogen.

(See SGT http://www.sgc.se/ckfinder/userfiles/files/SGC256(1).pdf)

Key Information Summary

Stage 1: ‘FULLY SUBSCRIBED’ (New Founder Shareholder (“NFSH”) offer £150,000 via the issue of 150 shares)

The Company raised £150,000 via an SEIS New Founder Share Holder offer that closed ‘over subscribed’ on the 8th of February 2013. The project commenced on the 25th March 2013 with proceeds of the raise being used by the Company to secure the exclusive development Licence for EHG use within the Combined Gas Turbine Power Generation market and to commission a report from Newcastle University referencing upward scalability constraints together with predicted scalable output quantity metrics.

Based upon the EHG3 and new prototype EHG4-M, this report provides the “Energy Equation” i.e. a predicted cost of scaled production “energy in vs energy out” or efficiency as described in kWh terms.

As a benchmark, in April 2005 under laboratory conditions In Moscow, Dr Maltini recorded that the EHG 3 model produced 21.2 – 24.6 standard litres of hydrogen per hour when driven by an electric motor at speeds between 4,500 & 8,000rpm using a 30% concentration of sulphuric acid electrolyte. (Report available upon request)

The latest conventional alkali Proton Exchange Membrane (PEM) electrolyser in the industrial sector is approximately 69% efficient at scale, i.e. 500kw – 1MW. Dr.Maltini’s report, (based on the Russian science and data provided) suggests that the Russian EHG3 had an efficiency of approximately 91%. The main focus for Stage 1 was to provide supporting evidence and data for this efficiency claim.

The Stage 1 confirmation report author is Keith Scott – Professor of Electrochemical Engineering at the School of Chemical Engineering and Advanced Materials within Newcastle University.  Quoting from the report, (see Schedule 6) he states:

“The best performance was achieved with the sulphuric acid electrolyte based EHG tests. A peak hydrogen production rate at an equivalent current of 71 Amps and an energy consumption of 36 kWh/kg was obtained which is superior to that for water electrolysis. The average energy consumption for the short term tests is comparable with those for standard water electrolysis”. This means that the EHG is more efficient, and therefore potentially a more competitive technology than the existing alkali based electrolysers, i.e. it costs less to produce the same amount of hydrogen as existing technologies. (See page 4 of Schedule 6)

“Qualitatively increased rotation rate appears to improve hydrogen production rate as does an increase in temperature. At a rotation rate of 1000rpm the current enhancement above background current was some 8A, compared with an enhancement of some 37A at a rotation rate increase from 1000 to 2250 rpm. This indicates an exponential type of increase in production rate with increase in rpm, rather than a non-linear increase”. This indicates that the technology’s output and efficiency can be significantly improved when scaling it. (See page 12 of Schedule 6)

“Based on the thermoneutral potential of 1.41 V the minimum energy consumption is 37.5 kWh/kg. Thus an efficiency approaching 100% is indicated.” (See page 12 of Schedule 6)

The above is caveated withThis data should be used with caution due to the short term duration of the tests and the inherent assumptions in the calculations. There is clearly a need to perform more detailed tests under stable operating conditions to verify the performance observed so far.”

*This will be an ongoing process during Stage 3 development.

In early 2013, VN-HPG Directors held discussions with Siemens AG Energy Sector (Fossil Power Generation & Energy Solutions Division) and were verbally set the target of achieving a 70% + efficiency as a level at which Siemens would potentially enter the project. However, in July 2013, Siemens changed their Managing Board, certain business units were then dismantled or amalgamated with other divisions, including the unit VN-HPG were working with. The data obtained from the EHG4-M trials at Intertek Tickford and the conclusions contained within Professor Scott’s report were shared with VN-HPG’s previous contacts in Siemens and the report communicated to Siemens’ new Head of Power & Gas Division. This led to the signing of an NDA between VN-HPG and Siemens AG and following recent upper management and divisional changes communication has been reinstated.

http://www.siemens.com/press/en/pressrelease/press=/en/pressrelease/2013/corporate/axx20130746.htm &  http://www.siemens.com/press/en/pressrelease/index.php?sheet=2

Pre-approval from HMRC for inclusion in the Seed Enterprise Investment Scheme was granted on the 20th of February 2013, an SEIS 1 Compliance declaration was filed on the 25th of July 2013 and SEIS 3 certificates issued on the 30th of August 2013. 2nd Round EIS approval was granted on the 30th January 2014 and 3rd Round approval will (subject to the information provided to HMRC at time of original application not changing) be automatically accorded to the project.

An IP Development Licence in relation to the ‘Decomposition of Water’, patent family deriving from International patent application number PCT/RU03/000413 and registered in 27 countries, was negotiated (at an initial stage 1 cost of £50,000) with the beneficial owner Viridis Navitas IP Ltd to complete the development programme.

The ‘Stage 2’ development was planned in conjunction with the Siemen’s objectives, utilising: Pragma Energy, (PE) Professor Scott of Newcastle University (NU) and Fordfleet Limited (“Fordfleet”). All additional IP created during development will be jointly owned by VN-H Power Generation Ltd and VN-IP Ltd for their mutual benefit on a royalty-free basis. The programme was developed via a series of design, build and test iterations targeted at producing a characterised EHG8-M version that could be scaled up to operate with the target gas turbine mentioned in Stage 3/4. Each iteration to had a clear ‘Go – No Go’ break point linked to output performance.

*NOTE*

In July 2014 post publication of the Stage 1 success, VN-HPG Directors started discussions with various large manufacturers of heavy duty centrifuges interested in acquiring a manufacturing and licencing deal for the EHG technology. A comprehensive commercial and technical dialogue was entered into with Thomas Broadbent & Sons, one of the UK’s largest centrifuge manufacturers. Promotion of the funding round was temporarily suspended pending negotiations and possible beneficial commercial results, as the amount to fundraise would change significantly, and the Directors wanted to protect the investor’s, and their own, share dilution position. During this process, all major challenges involved with centrifuge design were examined and all possible alternatives for a design solution that would facilitate the EHG’s specific technical requirements explored. The process, of putting together the VN scientific, engineering, design, IP and commercial resources to create a solution from a ‘blank sheet of paper’ and understanding in detail what didn’t work from our Russian colleague’s results, resulted in the new EHG design, and completely negated the need for a manufacturing partner at this stage. It also helped to substantiate a project development plan that would not affect the shareholder value, nor impose any constraints on the commercial proposition or it’s flexibility of delivery to make money for shareholders.

In August 2015, as a result of the delays incurred, and to ensure that no opportunity to improve the projects prospects for success had been overlooked, the Directors reviewed every aspect of the project, re-investigating, re-evaluating and where required, adjusting the plan to benefit the following: Timeline, Cost Reduction, Manageability and Control, Security and Potential Supplier Risk.

Where appropriate previous supplier or partnership arrangements were amended or changed completely when beneficial in one or more of the aforementioned areas. This, and information gleaned from the scaling design work mentioned in the previous and following paragraphs, led to a significant reduction in the development capital estimated to be required for Stage 2, lowering the fundraise requirement from £1,150,000 to £600,000, therefore avoiding greater investor dilution.

As mentioned in the above paragraph, in parallel with the negotiations and to keep momentum in the project, the Directors decided to commission the design for a scalable larger version of the EHG. This was actioned in June 2015 and carried out in parallel utilising funds raised at that time.

This has to date delivered:

  1. A completely new series of EHG designs
  2. A prototype manufactured and assembled
  3. A series of technical workshops held to provide engineering adaptations and design updates
  4. Preliminary mechanical longevity testing
  5. Preliminary alkali electrolyte testing with initial on target results achieved.

A significant proportion of the initial raise remains, sufficient to build further scaled iterations of the EHG, for further testing and development.

As a result of these deliverables, additional reduction in project and technology risk and to ensure existing Investors derive maximum value from these activities so far, the Directors decided to close Stage 2 funding at £290,000 on the 19th May 2016.

Stage 3: will be financed by a 3rd round funding of £315,000 via the issue of a further 42 shares at £7,500 per share and will by building and testing further scaled EHG’s deliver:

  • 1 x Industry accepted independent test report showing optimal and increasing hydrogen output throughout the stages (Provided by Intertek Tickford & Professor Keith Scott of Newcastle University)
  • 1 x Set of draft design drawings for a fully characterised EHG used either singly or in a series, matched as a minimum to the 10% co-firing fuel requirements of an GE PGT10b gas turbine operating in a Combined Cycle Gas Turbine Generation plant being driven by an industry standard steam turbine, power take off drive, or electric motor
  • 1 x signed ‘Option to Purchase’ contract for the Elettra Produzione S.r.l owned 50MW CGT Power Plant in Piombino, Italy.

It is envisaged that the generator-manufacturing partner will make commercial research and development funding available; this however is not being taken into account within the Stage 3 budget. In the event that commercial R&D funding is made available before the raise closes, the Directors reserve the right to reduce the amount raised, thus reducing the dilution of all shareholders.

Stage 3: Financed by a fourth round raise of £6,400,000 via the issue of a further 640 shares at £10,000 or research and development funding if appropriate or available. (Budgetary figures only)

Delivering:

  • The purchase of the Piombino Power Plant together with operating finance for 24 months
  • 1 x Set of integration drawings for the EHG waste energy drive system
  • 1 x Pre-commercial EHG unit for trial and testing.
  • 1 x Set of negotiated supply contracts for 3 x subsequent EHG builds and installation of same, complete with timeframes and delivery service level agreements
  • 2 x EHG unit integrated drive systems installed for commercial operation at the Piombino Plant.

The design will be focused on the GE PGT10b gas turbine. Consisting of a waste heat / steam driven fully characterised Electro Hydrogen Generator, producing hydrogen and co‐firing it with conventional fuel. We will initially fit the EHG to one of the GE PGT10b 11.25MW multi-fuel industrial gas turbine which are capable of burning a mixture of natural gas and other gases at a 60/40 ratio, providing the plant with a targeted 10% fuel replacement capability and 10% plant reduction in CO₂ emissions, as proof of concept. Once the first EHG unit is deemed to be operating successfully a further unit will be commissioned and installed.

A Memorandum of Understanding and NDA has been signed with Elettra Produzione S.r.l. and negotiations are underway.

Piombino Power Plant was commissioned in April 2003 at a cost of €80M and was specifically built to utilise producer gases from the adjacent steel plant in conjunction with natural gas supplied from the national network.

The plant comprises two GE PGT10b gas turbines and one Ansaldo steam turbine producing a maximum of 58MW in combined cycle. The plant received a feed in tariff under the CIP6/92 law for a term of 15 years.

The plant was purchased from the Lucchini subsidiary, GLL, by Hutton Collins Mezzanine Partners in December 2004 and refinanced in 2006. Piombino is now owned by Elettra Produzione S.r.l., a special purpose vehicle established by Hutton Collins for the refinancing of the plant. In 2011 the Italian State passed legislation to curtail the CIP/6 incentive scheme and gave producers an option to be bought out.

Piombino applied for, and accepted the State buy out of the contract in 2013 and the plant was closed down in January 2014 as it was not able to compete in the free market using natural gas only as a fuel. Producer gas is no longer available in significant volumes due to the partial closure of the adjacent steel plant.

The plant has been on sale since early 2014, with a price tag of €8M.

VN-HPG are offering a figure nearer €4M, and if price negotiations are successful, the plant will act as a test, technology proofing & demonstration site for the EHG.

The Round 4 fund raise purchases the plant, funds the development and integration of an industrial-scale EHG into the existing infrastructure as a demonstration unit, and covers working capital requirements to operate the plant until revenues are generated by sales of electricity, Hydrogen and Oxygen. Thus potentially providing investors with a realisable balance sheet asset within their investment.