Announcement PDF Making green hydrogen accessible through the simplicity and efficiency of compression PROVARIS ENERGY Annual Report 2023 Contents Corporate Directory 2 Chairman and Managing Director’s Letter 4 Operations Report For 2023 6 Directors’ Report 18 Corporate Governance Statement 48 Consolidated Statement of Profit or Loss and Other Comprehensive Income 50 Consolidated Statement of Financial Position 51 Consolidated Statement of Cash Flows 52 Consolidated Statement of Changes in Equity 54 Notes to the Financial Statements 56 Directors’ Declaration 92 Auditor’s Independence Declaration 93 Auditor's Report 94 Additional Information as at 15 September 2023 100 Corporate Directory Directors Greg Martin (Independent, Non-Executive Chairman) Martin Carolan (Managing Director and Chief Executive Officer) Garry Triglavcanin (Executive Director and Chief Development Officer) Andrew Pickering (Independent, Non-Executive Director) David Palmer (Independent, Non-Executive Director) Company Secretary Norman Marshall ABN 53 109 213 470 ASX Code PV1 Website www.provaris.energy Registered Office Unit 19, 40 St Quentin Avenue Claremont, Western Australia 6010 Tel Auditors +61 (8) 9322 6955 Ernst & Young 11 Mounts Bay Road, Perth, Western Australia 6000 Tel Fax Share Registry +61 (8) 9429 2222 +61 (8) 9429 2436 Computershare Investor Services Pty Ltd Level 17 221 St Georges Terrace Perth, Western Australia 6000 Tel Fax 2 +61 1300 787 272 +61 (8) 9323 203 Connecting the future of energy Annual Report 2023 3 Chairman and Managing Director’s Letter Dear Shareholders As we reflect on our accomplishments and look ahead to the future, we are excited by the significant developments and achievements that have shaped FY23. 4 This year has been marked by remarkable progress in advancing Provaris towards establishing a firstmover advantage in the delivery of green hydrogen in a compressed gaseous form required by the demand hubs in South-East Asia and Europe, ensuring these key industrial hubs have an economic, safe and efficient supply of green hydrogen to kick-start their decarbonisation goals pre 2030 and beyond. hydrogen by sea. This year we obtained the world's first 'Design Approval' for the H2Neo compressed hydrogen carrier from the American Bureau of Shipping (ABS). In addition to the two carriers under development, Provaris has leveraged this IP, design and approvals to launch the H2Leo storage solution with a capacity range of 300 to 600 tonnes of hydrogen. The floating storage solution further enhances the versatility and optimisation of our compressed hydrogen supply chain projects in Asia and Europe, and it will also be suitable for all hydrogen production projects at scale which have the requirement for buffer storage. Globally, many governments continue to double-down on their ambitions to achieve net-zero targets which is increasing the need for energy efficient solutions and advance the energy transition away from fossil fuels towards low carbon renewable energy. Net-zero targets are underpinning the requirement for the development of green hydrogen, which continues to be a key element in the switch to renewables with hydrogen expected to account for approximately 15 – 30% of future global energy needs. We have remained focused on our purpose to become an integrated hydrogen development company and our commitment to innovation and collaboration has enabled us to make positive strides towards a more sustainable future. Europe is now a vital region for the Company, after opening European headquarters in Norway last year. It is pleasing to observe continued success in the region for the business with strategic collaborations with Norwegian Hydrogen AS and Gen2 Energy AS. Together, we are working on unique projects that can be first to market. As the demand for hydrogen increases specifically across Europe, where the policy support for end-markets and supporting infrastructure are more advanced, our unique compressed hydrogen business model is gaining further traction. Our 2023 Hydrogen Marine Transport Comparison Report, underscores compression as the most compelling option for regional transport distances, aligning perfectly with the requirements of REPowerEU's ambitious targets for the import of 10 million tonnes per annum of green hydrogen by 2030. The report further highlights the cost-effectiveness and efficiency of compressed hydrogen compared to other energy vectors, such as liquefaction and ammonia. We would like to extend our appreciation to our dedicated team and valued shareholders for their continued support. Together, we are making strides towards a greener and more sustainable future. A summary of operations and outcomes for financial year 2023 are presented in the Operations Report that follows. We look forward to updating you on the progress we make over the coming year. We continue to develop a safe, flexible, efficient and economical way to produce, load, store and transport Greg Martin Chairman Martin Carolan Managing Director Annual Report 2023 5 Operations Report For 2023 Developing a global portfolio of integrated compressed hydrogen projects Provaris’ business model includes the development and investment in profitable projects across the hydrogen value chain to commercialise the Company’s proprietary and innovative compressed gaseous supply chain, which includes our unique hydrogen carrier and storage solutions (H2Neo and H2Leo). Provaris is advancing a portfolio of hydrogen development projects towards detailed feasibility studies, including: 6 • in Norway, the establishment of Provaris Norway AS and location of key management has resulted in two collaboration agreements being announced for the development of green hydrogen supply chains to deliver hydrogen in gaseous form to the high demand markets of continental Europe. Prefeasibility level studies are now underway; • in Australia, the Tiwi H2 project, located on the Tiwi Islands, has completed a Design Concept Study and detail design of the solar farm and transmission line to the proposed hydrogen production precinct; and • discussions remain ongoing for collaboration with renewable hydrogen project developers in Europe and Asia to move hydrogen to regional demand locations which are highly suitable and commercial for the application of our compressed hydrogen storage and shipping solutions. Operations Report For 2023 Collaboration on hydrogen export supply chains in Norway to fast-track supply to high demand European markets During the reporting period, Provaris announced two collaboration agreements to undertake prefeasibility studies on the development of export hydrogen projects in Norway, utilizing Provaris’ proprietary compressed hydrogen storage and transport solutions. FjordH2 Project with Norwegian Hydrogen AS Completion of the first phase of a cooperative prefeasibility study with Norwegian Hydrogen AS resulted in the execution of a Collaboration Agreement to jointly progress the development of the 270 MW FjordH2 hydrogen export project in Norway. The focus of development is now on advancing pre-FEED activities, permitting, power purchase agreement, and offtake. Provaris and Norwegian Hydrogen are now working to define and agree the key terms of a definitive Joint Development Agreement for the FjordH2 project. A detailed timetable for the development of the project through to FID is being progressed, with the first export of green hydrogen targeted in 2027. Located in the Alesund municipality of Norway, the project will access renewable power from the Ørskog substation, with a targeted hydrogen production capacity of 270MW when fully developed and an export capacity of 40,000 tonnes of green hydrogen annually. A power reservation capacity of 20MW has been granted and an application for a further 250MW reservation capacity has been submitted. Regional benefits will be significant, with the project to create more than 50 new jobs in Ørskog and, together with the indirect economic ripple effects, it will also lead to many more employment opportunities for the region. During the production of hydrogen, through electrolysis using renewable energy, related business opportunities will also be created utilizing the project’s large volumes of surplus heat for district heating and clean oxygen generation for the local aquaculture industry. Figure 1 Illustration of the hydrogen production plant at Ørskog in Ålesund municipality Figure 2 Compression plant located at adjacent site to a dedicated jetty for bulk export using Provaris H2Leo storage barge and H2Neo carrier Annual Report 2023 7 Afjord Project with Gen2 Energy AS In June 2023, a collaboration agreement was signed to undertake a comprehensive prefeasibility study which will include hydrogen production and compression facilities, export and import terminals for loading and unloading of Provaris’ H2Neo carriers, optimisation of storage utilising Provaris’ H2Leo, and prospective offtake parties; together with economic models and schedules for Gen2 Energy’s project site in Åfjord. Both parties have a shared belief that Åfjord, with its access to low-cost renewable energy and industrial infrastructure, is an ideal site for large scale production of green hydrogen and seaborn supply of hydrogen to key European ports. Both companies are committed to green hydrogen production and export projects, with Gen2 Energy focusing on domestic supply and export to European markets and Provaris offering innovative integrated bulk-scale storage and marine transportation solutions for green hydrogen (delivering the hydrogen in immediately usable gaseous form). Gen2 Energy and Provaris are progressing a joint project study, which is schedule for completion in early 2024. Figure 3 Åfjord project location in the Trøndelag region, Norway 8 Operations Report For 2023 Tiwi H2 Project, Tiwi Islands, Northern Territory Provaris acknowledges that its proposed Tiwi H2 Project is located on the traditional lands of the Munupi people. It is a privilege to have the support and such a close working relationship with the Munupi Clan and other key stakeholders. In August 2023 the Company was pleased to announce that it completed a Concept Design Study (Study) for its proposed Tiwi H2 Project, a 100% owned green hydrogen export project located on the Tiwi Islands, Northern Territory. Tiwi H2 is an integrated compressed hydrogen production and export project, targeting South-East Asian markets. The Study established a clear pathway for Provaris to progress the project forward to Pre-FEED and FEED level technical, commercial, and economic studies and consideration of potential financing options. The Study also reinforced the original key reasons for the selection of the Tiwi Islands for the development of a compressed H2 export project being their proximity to regional markets, high solar intensity, land availability cleared of native vegetation, and existing port infrastructure. Figure 4 Location of Melville Island and the Tiwi H2 Project Annual Report 2023 9 The support of the Munupi Clan and Tiwi Land Council has been welcomed, with the Tiwi H2 project representing a significant and sustainable development to deliver meaningful employment and economic benefits for the local community and broader Tiwi Islanders and Northern Territory. As identified in the Study, the Tiwi H2 project consists of five key precincts: 1. Solar Precinct: for the development of the solar farm, battery storage, and LV reticulation – all located on existing plantation land; 2. HV Transmission Line: 30 km, 275kV transmission line, adjacent to an existing road, to deliver electricity from the Solar Precinct to the existing H2 Production Precinct, adjacent to Port Melville; 3. H2 Production Precinct: comprising of step-down substation, electrolyser facility and balance of plant; 4. H2 Export Precinct: comprising of desalination plant (supply of demineralised water to the electrolyser facility) and compression and hydrogen loading facilities to facilitate loading of Provaris’ H2Neo carriers; and 5. H2 Shipping – transport of gaseous compressed hydrogen to the nearby South-East Asian energy markets via a fleet of Provaris’ proprietary H2Neo carriers each with a capacity of 26,000m3. Figure 5 Outline of the proposed Tiwi H2 Project 10 Operations Report For 2023 During 2022, the Northern Territory Government awarded the project Major Project Status for recognition as having significant strategic impact and potential benefits to the Northern Territory. The benefits of Major Project Status include whole of government support, coordination and facilitation, assistance in identifying and mapping regulatory approvals, a dedicated project case manager, and facilitation of engagement with the Australian Government. The Northern Territory Environment Protection Authority (NT EPA) has advised the Company that the environmental assessment process for the Tiwi H2 project will require an Environmental Impact Statement (EIS), given the scale and location of the project. Following such assessment, the Company commenced an early works program, which involved: • appointment of Darwin-based Lindsay Whiting as Tiwi H2’s Facilitation Manager. Lindsay has a long family relationship with the Munupi Clan and local Pirlangimpi community. Lindsay has previously worked as Manager of the Port Melville facility on the Tiwi Islands; • CE Partners commencement of an early-works program for ground survey and geotechnical activities and, as the appointed Owner’s Engineer, advancement of the Solar Precinct to a 30% design level basis; • Darwin-based EcOz’ ongoing engagement as the lead Environmental Consultant for the preparation and submission of the EIS; and • Appointment of Darwin-based legal counsel, Ward Keller, for drafting and negotiating of various land agreements required for the Tiwi H2 project. The Company remains confident that it can demonstrate that the Tiwi H2 project will have a low environmental impact, given the availability of existing deep-water port infrastructure, existing plantation land that is substantially cleared of native vegetation, and the advantages of compressed hydrogen which eliminates the requirement for complex and energy intensive facilities. In early 2023, the Company continued to commission and undertake relevant value-add engineering activities for the project, including a detailed aerial elevation survey of the solar / transmission precincts, a wind loading report determining a suitable solar mounting system for the site, and, most significantly, completion of the Design Feasibility Report by the Company’s Owners Engineer. This report represented a 30% level of concept design for the solar farm and transmission system. Annual Report 2023 11 12 Operations Report For 2023 The key outcomes of the Design Feasibility Report are: • the Solar Precinct area supports 2,600 MWp of solar capacity; • the preferred solar mounting system is a single axis tracking system (as per Figure 1 below); • annual generation is expected to be over 5,000 GWh, delivered to the HV transmission system; • a four circuit, 275kV transmission line is proposed from the Solar Precinct to the Hydrogen Production and Export precincts, a distance of some 30km; and • the expected export volume being adjusted to 90,000 tonnes per annum of green hydrogen. The Company is now in discussions with the Tiwi Land Council in relation to its draft project and land agreements. The purpose of such negotiations is, amongst other things, to specify the value and definition of the annual multi-million dollar community benefits package that the Tiwi H2 project could deliver to the Munupi Clan and broader Tiwi Islands community. Provaris is presently the sole developer of the project, however the project will require development partners as we de-risk and advance the project definition and development activities. The Company has received preliminary interest and will undertake a detailed partner process to seek interested groups in the areas of investment, offtake, construction, and operational support to jointly develop the project; in particular the upstream components that include solar generation, transmission, and electrolysis. HyEnergy Export Project In January 2022, Provaris announced the completion and release by the Western Australian Government of the Compressed Hydrogen Export Feasibility Study Public Sharing Report (the Study). First announced in September 2021, the Study received funding from the Renewable Hydrogen Fund as part of the Western Australian Government’s Renewable Hydrogen Strategy. Completion of the Study workstreams was achieved during 2022 and indicate that a compressed hydrogen export supply chain is a technically and commercially feasible method for exporting green hydrogen from projects such as the HyEnergy project (HyEnergy®) in Western Australia’s Gascoyne Region to nominated Asia Pacific markets. HyEnergy® is a proposed green hydrogen production project being developed by Province Resources Ltd (ASX:PRL). The Study scope analysed the compression and export of 200,000 tonnes per annum of green hydrogen from the proposed HyEnergy® hydrogen production facility to Singapore. Provaris is awaiting the completion of the HyEnergy project prefeasibility study before further collaboration is confirmed. Annual Report 2023 13 Unlocking regional hydrogen transport with the development of our proprietary GH2 Carriers – H2Neo for transport and H2Leo for storage Compression provides a proven, simple and energy efficient supply chain for green hydrogen. To facilitate marine storage and transportation of compressed hydrogen at scale, Provaris is developing two capacity Gaseous Hydrogen (GH2) Carriers with a proprietary cargo containment system that allows for hydrogen to be safely managed at 250 bar pressure and ambient temperatures (H2Neo at 26,000m3 and the H2Max at 120,000m3). The focus has been on the H2Neo (26,000m3 capacity containing 430 tonnes of hydrogen) with the engineering, safety studies and class approval program culminating in the milestone achievement of Design Approval at the end of 2022 from the American Bureau of Shipping (ABS). This achievement was made on time and within budget. In parallel with the Design Approval of the H2Neo, a two-phase testing program has been underway to confirm the selection of materials and detailed welding procedures to be used to construct the cargo containment tanks. Finalisation of the program is expected in the second half of 2023, including testing in a specialized hydrogen environmental laboratory in the second phase. The next milestone of final Class Approval for construction will involve the fabrication of a prototype scale tank and a fatigue testing program. The Company has appointed Prodtex AS in Norway to design, construct, and test the prototype tank, which program includes Norway’s leading technical and research institution SINTEF for the testing. A second marine classification society, Det Norske Veritas (DNV), has been appointed for certification and final Class Approval. The addition of a second classification society will increase the credibility of our final program and de-risk the commercial discussions ongoing with shipyards, shipowners, offtake groups, and lenders. The prototype tank will encompass a comprehensive program that includes detailed (production) design, fatigue tests of multilayered welded steel plates, and construction and rigorous testing of the prototype tank. Throughout the contract SINTEF will be engaged for completion of testing in Q1 2024, and DNV and ABS will then assess the result for provision of Final Class approvals. It is anticipated that the first H2Neo ships will be available for operation in 2027, subject to taking a Financial Investment Decision in conjunction with a hydrogen project. Provaris was also successful in the launch and receipt of an Approval in Principle (AIP) for a compressed hydrogen storage design, the H2Leo. The AIP was granted in early 2023 with a design capacity of 300 to 600 tonnes of compressed hydrogen at 250 barg, with further design engineering undertaken to take the capacity up to 2,000 tonnes. The design of the storage tanks and integration with a hull have been leveraged from the H2Neo approved design. The H2Leo provides the hydrogen industry with a much needed energy efficient and cost-effective storage solution that has industry wide applications, as well as optimising our own development of hydrogen supply chain projects. 14 Operations Report For 2023 Utilising compression to manage the loading, discharging, and distribution of gaseous hydrogen, will limit the need for large-scale port facilities at either end of the hydrogen supply chain, thus enabling greenfield hydrogen projects to be developed at a scale that corresponds with market demand. The many benefits of the compression supply chain to provide a first-mover advantage towards commercialising the green hydrogen export industry include: • low environmental and emissions impacts; • minimal technology risk, noting compression of hydrogen has taken place for more than 100 years; • load following of the renewable power generation profile; and • a modular approach to balancing supply and demand hubs as they develop. These benefits continue to be recognised as a low CAPEX solution that can fast track the development of hydrogen demand and supply hubs and allow for scaled delivery of gaseous green hydrogen in 2027. Green hydrogen is largely what end-users require for the decarbonisation of power, heat, steel, and mobility/transport applications. Provaris currently has no peers in the development of integrated supply chains based on a bulk-scale gaseous marine transport of green hydrogen. Alternatives are being developed for liquid or chemical carriers that require an increase in capital and energy intensive processes to convert and reconvert for regional transport.. Figure 6 Illustration of Provaris’ H2Neo carrier and H2Leo storage providing simultaneous operations for loading and unloading of compressed hydrogen at 250 barg MOAP Annual Report 2023 15 Outlook Governments across the globe continue to outline aggressive ambitions on net-zero targets and decarbonisation goals, which includes an increasing role for hydrogen as a pillar to achieve such ambitions. Government policy continues to outline new policy incentives and funding mechanisms to kick-start the hydrogen economy for both supply and downstream applications. Funding related to new innovation for the supply and transport of renewable (green) hydrogen to Europe is now a key focus for the EU regulators, providing Provaris with opportunities for capital and operating subsidy support for the project it is now involved. Key examples of government policy, seeking to accelerate the energy transition, includes the US Inflation Reduction Act (IRA). This landmark climate law has had a significant impact on the transition to renewable energy, the growth of clean manufacturing, and the affordability of climate-friendly purchases. The IRA has accelerated investments in battery and electric vehicle (EV) manufacturing, with nearly 80 major clean energy manufacturing facilities announced in less than a year. The IRA is directing nearly $400 billion in federal funding to clean energy, with the goal of substantially lowering the nation’s carbon emissions by the end of this decade. The funds will be delivered through a mix of tax incentives, grants, and loan guarantees. Examples includes the headline USD 3/kg subsidy for low-carbon hydrogen. In Europe, the Green Deal Industrial Plan is a response to the IRA, in an attempt to avoid clean- energy companies prioritising the US over the EU. The plan builds predominantly on relaxing member State aid rules further, thus allowing more national support, including tax benefits. It has also outlined the REPowerEU Plan proposed by the European Commission which aims at rapidly decreasing the EU's dependency on Russian fossil fuels, by increasing the use of renewables in the energy mix to 45%. One key outcome is the forecast demand case for hydrogen, which is set at 20 million tonnes by 2030, with 10 million tonnes through import. Provaris anticipates further targeting of hydrogen subsidies in 2023 which will see our ambitions and plans for Norway export projects become a beneficiary as each project matures. In Australia, the Federal Government has committed to a review of its 2019 National Hydrogen Strategy to ensure Australia remains internationally competitive in the market for clean energy fuel, with industry submissions expected to shape the nation’s strategy to 2030. Provaris has made a submission and looks forward to continued consultation with Government to ensure the considerations for the Tiwi H2 project are understood. More recently, the Federal Government announced the establishment of Hydrogen Headstart, a A$2 billion revenue program to support large scale renewable hydrogen. The details are still to be confirmed post a consultation period, however we would like to see the Tiwi H2 project qualify for future rounds given the timeframe of production by 2028 and scale of the project. Major buyers of Australian LNG such as South Korea and Japan have set ambitious hydrogen targets. South Korea wants to grow domestic annual consumption from 130,000 tons in 2018 to almost 5.3 million tons by 2040. Japan earlier this year said it wants to import 12 million tonnes. by 2040 – a significant increase on its previous target of 3 million tonnes. 16 Operations Report For 2023 Building upon the Government and macro events to establish the hydrogen economy, Provaris is proud to be an early mover in the hydrogen sector and in specifically meeting the objectives of policy across multiple jurisdictions. As such, Provaris continues to be highly focused on the hydrogen production and export value chain through its participation in export project developments and advancing the Class Approval processes for its H2Neo carrier and H2Leo floating storage. Compression continues to demonstrate it is a simple and efficient alternative to transport hydrogen, which is now demonstrated through the addition of two collaborations for hydrogen export projects in Norway. The Company has made excellent progress on the development of its proprietary H2Neo compressed hydrogen carrier and has recently confirmed final milestones for a protype tank test, leading to final class approvals. The establishment of our European office in Oslo, Norway, to be closer to commercial opportunities under review in Europe, has proven a success with two collaborations for project developments and further opportunities continuing to be reviewed. The technical services available in Norway has also resulted in our plans for testing and final approvals in Norway. The introduction of DNV and support of the Norwegian authorities will provide additional credibility to our development program. We expect the year ahead to generate value for the Company with the final approvals of the H2Neo and H2Leo and, in parallel, progression of projects through prefeasibility and FEED level studies, leading to future investment decisions and new partnerships. Our confidence in the relevance, maturity, and increasing awareness of compressed hydrogen transport, as both commercially and technically viable transport solutions for Europe, continues to be demonstrated by hydrogen project supply chains being announced. Equally important, this adds confidence to the future development of Tiwi H2 and hydrogen production and export projects in other growth regions where compression is a compelling solution for simple, safe, and efficient production and delivery. Annual Report 2023 17 Directors’ Report The directors of Provaris Energy Ltd A.C.N. 109 213 470 (“Provaris” or “the Company”) present their report including the consolidated financial report of Provaris and its controlled entities (“Consolidated Entity” or “Group”) for the year ended 30 June 2023. Directors The directors of Provaris in office during the year and up to the date of this financial report are as follows. Directors were in office for the entire period unless otherwise stated. Greg Martin Independent, Non-Executive Chairman Martin Carolan Managing Director and Chief Executive Officer Garry Triglavcanin Executive Director and Chief Development Officer Andrew Pickering Independent, Non-Executive Director David Palmer Independent, Non-Executive Director Principal Activities The principal activities of Provaris during the year focussed on the ongoing progression of (i) Provaris’ direct involvement in the development of hydrogen production and export projects, including its 100% owned Tiwi Islands Hydrogen Export project in the Northern Territory, Australia, (ii) the development of a portfolio of export hydrogen projects in Europe, with a focus on local collaborations in Norway, and (iii) the approval and development processes for its proprietary H2Neo carrier and H2Leo Storage Barge for the marine storage and transportation of compressed hydrogen. 18 Directors’ Report Operating Results and Financial Position The operating loss for the Consolidated Entity, after income tax, amounted to $12,407,340 (2022: loss of $6,757,611). The operating loss for the year includes direct project development costs of $3,234,836 (2022: $2,381,135) and derecognition of intangible asset of $5,179,025 (2022: $nil), in addition to staff costs and operational overheads. At 30 June 2023, the Consolidated Entity had cash and cash equivalents of $5,069,836 (2022: $11,616,888) and no debt (2022: Nil). Review of Operations Refer to the Operations Report for further information. Corporate In August 2022, the Company established Provaris Norw