Catalytica Energy Systems Receives Fuel Cell Energy Research Award From the U.S. Department of Energy

Business Wire, July 2, 2001

Business Editors/Energy Writers

MOUNTAIN VIEW, Calif.--(BUSINESS WIRE)--July 2, 2001

Catalytica Energy Systems, Inc. (Nasdaq: CESI) announced today that it has been selected by the U.S. Department of Energy (DOE) for an $11.2 million cost-shared contract to help fund research and development of fuel processing technology for use in automotive fuel cell applications.

The 36-month program will focus on developing a compact fuel-flexible fuel processor for use with PEM fuel cells in transportation applications. The intended outcome of the program is to design a 50 kW fuel processor capable of converting gasoline and other fuels into pure hydrogen needed to power the fuel cells. The current lack of viable, lightweight fuel processing technology remains an obstacle to wide-scale commercialization of fuel cells for vehicular use. Catalytica Energy Systems anticipates combining its proprietary Xonon(TM) Cool Combustion technology and its fuel reformer technology to construct a cost-effective fuel processing system that offers low volume and weight, high efficiencies, and rapid transient response, thus facilitating the commercial use of fuel cells in transportation applications.

In announcing the awards, DOE Secretary of Energy Spencer Abraham commented on the importance of overcoming technical barriers to introducing new fuel cell technologies to consumers. "One of the key recommendations of the National Energy Policy is to improve energy efficiency through the implementation of innovative technology," Secretary Abraham said. "Fuel cell research is very promising as a future power source for transportation and buildings but high component costs, start-up time, and size and weight remain barriers to introducing these new technologies to the public."

"Fuel cells, hydrogen technology and advanced combustion energy engines are among the most promising areas of the department's research and development work," Secretary Abraham further stated. "By working together with partners from industry and the academic community we can make the technological advances and scientific breakthroughs needed to fully realize the potential of these technologies."

Craig Kitchen, president and CEO of Catalytica Energy Systems, said, "We are gratified that the DOE has recognized the potential of our technology to deliver a fuel processing solution for expanded use of fuel cells. Receipt of this competitive award will enable us to build on three years of research and development of fuel reforming and processing technologies. We look forward to broadening the application of our Xonon technology to new markets and expanding our focus on exciting new product areas for the company."

Catalytica Energy Systems designs and develops advanced products for more effective energy production. Its proprietary technologies include the use of catalysts to create solutions to ease the environmental impact of power generation. The Company's first product, Xonon(TM) Cool Combustion, is a breakthrough combustion technology that achieves ultra-low emissions levels for gas turbine power production. Xonon prevents the formation of pollution, particularly nitrogen oxides (NOx), a primary contributor to smog, through a proprietary catalytic combustion process. Additional technology development efforts include work on fuel processing for fuel cells, as well as adaptation of Xonon technology to micro-turbines, hybrid gas turbine fuel cells, and diesel applications. Find Catalytica Energy Systems on the Worldwide Web at www.CatalyticaEnergy.com.

This news release contains forward-looking statements regarding the receipt of funding from the U.S. Department of Energy, the timing of receipt of such funding, the development of a fuel processing system for use with fuel cells, the timing for development of a fuel processing system, the ability of the fuel processing system to effectively convert fuels into hydrogen to power fuel cells, the ability of a fuel processing system developed by Catalytica Energy Systems' to operate with high efficiencies, low volume, low weight and to expand fuel cell use in transportation applications, and the expansion of Catalytica Energy Systems' business into new product areas. These statements involve risks and uncertainties, including without limitation, the fact that there may be unanticipated technical, commercial or other factors related to the development and application of a fuel processing system for use with fuel cells in transportation applications, and that results may differ from those stated and the other risks set forth in the Catalytica Energy Systems' Form 10-K for the year ending December 31, 2000, filed with the Securities and Exchange Commission. Catalytica Energy Systems undertakes no obligation to update publicly any forward-looking statements to reflect new information, events, or circumstances after the date of this release. Investors are encouraged to review Catalytica Energy Systems' Form 10-K for the year ending December 31, 2000, filed with the Securities and Exchange Commission, for additional factors that could affect Catalytica Energy Systems' future performance.