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Catalytica Energy Systems' Diesel Retrofit Solution Achieves Greater Than 50% NOx Reduction in FTP Transient and On-Vehicle Tests

On-Road Demonstration of XononD(TM) Fuel Processing System Planned for June in Denton, Texas

Catalytica Energy Systems, Inc. (NASDAQ: CESI) announced today that its XononD(TM) emissions control retrofit solution for mobile diesel engine applications has successfully achieved NOx reduction in excess of its 50% target during in-house FTP transient and on-vehicle testing. Based on the positive results achieved in recent test activities, the Company is on-track to commence a three-month, over-the-road demonstration of its XononD system next month in Denton, Texas.

In preparation for the Denton demonstration, Catalytica Energy Systems successfully completed transient testing of its proprietary XononD diesel fuel processing technology, operating in combination with a NOx adsorber catalyst system, on an engine dynamometer at the Company's diesel engine test facility. These test activities involved replication of the heavy-duty Federal Test Procedure (FTP) transient cycle -- the standard test procedure used in the U.S. for emissions testing of heavy-duty, on-road diesel engines. The FTP transient test cycle simulates a variety of engine operating conditions, including idling, acceleration and deceleration, and a wide range of different speeds and loads sequenced to replicate typical on-road vehicle operation. During FTP testing, the XononD-NOx adsorber catalyst system consistently achieved greater than 50% NOx reduction.

Catalytica Energy Systems also recently completed the assembly and implementation of on-vehicle control and fuel delivery systems associated with its diesel fuel processing technology, and achieved another XononD program milestone with the first installation and initiation of over-the-road testing on a diesel delivery truck with a 7.6 liter engine. In daily operation around the town of Gilbert and the greater Phoenix area, XononD is consistently demonstrating rapid, low-temperature regeneration and effective desulfation of the NOx adsorber catalyst and is achieving the same high levels of NOx reduction as demonstrated during FTP transient testing.

Ralph Dalla Betta, chief technology officer of Catalytica Energy Systems, noted, "The demonstration of XononD's ability to regenerate and desulfate the NOx adsorber and achieve low NOx emissions under the extreme transients of the FTP cycle and on-road operation is a significant achievement. The fuel processing technology and control system we have developed will allow engine operation to be essentially independent of the NOx adsorber cycles in this retrofit application. In new engine applications, we believe this same technology will allow the diesel OEM to optimize the engine for fuel efficiency and drivability. This is an important advantage of our NOx reduction approach."

Mike Murry, president and CEO of Catalytica Energy Systems, added, "We are extremely pleased with XononD's performance in its first tests under real-world operating conditions. We believe the successful results we've achieved in both our FTP transient and initial rounds of on-vehicle testing offer a good indication of how our system will perform in third-party, on-road field demonstrations scheduled for this summer. The Denton demonstration, which is scheduled to commence next month, supports our pursuit of product verification and our goal of realizing a commercial product launch by mid-2006 for the mobile diesel retrofit market. Importantly, since our XononD system uses the same diesel fuel processing technology that we are concurrently developing for new, over-the-road diesel engines, we are able to leverage our investment in this program to further optimize our NOx reduction approach for the impending global emissions mandates being imposed on the OEM market. Furthermore, because our OEM solution is more fully integrated with the engine than our bolt-on retrofit solution, we can achieve significantly higher levels of NOx reduction for new engine applications. Through our relationships with diesel engine OEMs and systems integrators, we are able to tailor our technology to the specifications of each engine platform. As a result, we have demonstrated greater than 90% NOx reduction in a variety of full-scale tests on medium and heavy-duty diesel engines."

Next month's field demonstration will evaluate the performance of the Company's XononD diesel fuel processing technology in combination with a NOx adsorber catalyst while operating on two medium-duty diesel refuse trucks supplied by the City of Denton, Texas. The goal of the Denton demonstration is to further validate the NOx reduction capabilities of the XononD system and its ability to offer a cost-effective, easily integrated emissions control solution for the mobile diesel retrofit market. The on-road demonstration will be partially funded by a $330,000 grant awarded to Catalytica Energy Systems last year by the Texas Commission on Environmental Quality (TCEQ) under its New Technology Research and Development (NTRD) Program. The NTRD Program was formed by TCEQ to promote the development and commercialization of technologies that reduce air pollution in Texas and that will ultimately support retrofit projects that may be funded under the Texas Emissions Reduction Program (TERP). TERP is currently the largest state funded program for diesel retrofit projects. In August of last year, TERP announced NOx reduction grants totaling in excess of $80 million for 2004.

In addition to its XononD retrofit solution for mobile diesels, Catalytica Energy Systems is separately pursuing two other applications of its Xonon® Diesel Fuel Processing technology to address the growing diesel emissions control market -- an OEM solution for new, over-the-road diesel engines, and a genset solution for stationary diesel engines used in power generation. The Company's OEM solution, XFP(TM), is being designed to facilitate a greater than 90% reduction in NOx with minimal fuel penalty as a means for diesel engine OEMs to meet the most stringent impending NOx emissions regulations for new, medium and heavy-duty diesel engine applications. The Company's genset solution, XEC90(TM), is being designed to offer a cost-effective, bolt-on solution that facilitates a greater than 90% reduction in NOx as a means for end-users to generate improved economics from stationary power sources while maintaining compliance with increasingly stringent emissions regulations.

A variety of test and demonstration programs are underway for all of Catalytica Energy Systems' diesel engine applications. Multiple leading companies in the diesel industry are currently evaluating the Company's NOx reduction approach, including diesel engine OEMs, Tier 1 suppliers, systems integrators and others.

"Our increased focus on development and commercialization efforts relating to emissions reduction solutions for diesel engines is in line with growing federal government support for clean diesel technologies," said Murry. "As part of new energy legislation and in an effort to boost sales of clean diesel vehicles, President Bush recently called for $2.5 billion in tax incentives over 10 years for fuel-efficient vehicles to include clean diesel vehicles. The proposed legislation also includes provisions for programs to advance the development and demonstration of diesel after-treatment technologies for both the power generation and transportation industries, along with grant programs encouraging both the production of advanced, low-emissions diesel engines and the retrofit of existing diesel-powered vehicles with emissions-control solutions."

Catalytica Energy Systems is a leading provider of innovative products and services to meet the rapidly growing demand for emissions control solutions in the power generation and transportation industries. Through its SCR-Tech subsidiary, the Company offers a variety of services for coal-fired power plants using selective catalytic reduction (SCR) systems to reduce nitrogen oxides (NOx) emissions. These services include SCR catalyst cleaning and regeneration, as well as SCR system management and consulting services to optimize efficiency and reduce overall operating and maintenance costs. Catalytica Energy Systems' other business activities include the design, development and manufacture of advanced products based on its proprietary catalyst and fuel processing technologies to offer cost-effective solutions for reducing NOx emissions from diesel engines and natural gas-fired turbines. The Company's Xonon® Diesel Fuel Processing technology is designed to facilitate significant NOx reduction from mobile, stationary, and off-road diesel engines by improving the performance of NOx adsorber catalyst systems. Catalytica Energy Systems' commercially available Xonon Cool Combustion® system offers a breakthrough pollution prevention approach for gas turbines to achieve ultra-low emissions power generation through a proprietary catalytic combustion process. The Company's other current activities include the development of fuel processing systems for fuel cell applications in stationary, auxiliary, and back-up power applications.

This news release contains forward-looking statements regarding the NOx reduction and fuel efficiency performance of Catalytica Energy Systems' emissions reduction solutions for diesel engine applications; the ability of its XononD system to achieve rapid, low-temperature regeneration and effective desulfation of a NOx adsorber and to achieve low NOx emissions under transient conditions during on-road operation; the ability of Catalytica Energy Systems' diesel fuel processing technology to enable optimization of the engine for fuel efficiency and drivability in new engine applications; the timing and prospects associated with the Company's plans for on-road field demonstration of XononD in Denton, Texas; Catalytica Energy Systems' ability to advance the development of XononD to product verification and realize a commercial product launch by mid-2006; Catalytica Energy Systems' ability to leverage its investment in XononD to optimize its other emissions reduction solutions for diesel engines, including for new OEM applications; the ability of Catalytica Energy OEM solution to facilitate a greater than 90% reduction in NOx and a total fuel system usage of less than 3% in new, mobile diesel engine applications for the OEM market; the commercial prospects for the Company's XononD system and its ability to offer a cost-effective, easily integrated emissions control solution for mobile retrofit applications; arrangements with the City of Denton relating to their supply of two medium-duty diesel refuse trucks in support of the Company's planned on-road demonstration; and receipt of funding from the TCEQ. These statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those expressed in the forward-looking statements. These risks and uncertainties include, among others: that there may be unanticipated technical, commercial or other setbacks related to the application of Catalytica Energy Systems' diesel fuel processing solutions for diesel engine applications; the risk that a market may not develop or be maintained for Catalytica Energy Systems' products; changes in the environmental requirements relating to NOx emissions; that marketing, project development and installation timelines and regulatory review outcomes are uncertain; that changes may occur in the relationships between Catalytica Energy Systems and partners relating to funding, testing or other arrangements associated with its products; that Catalytica Energy Systems may be unable to develop or maintain strategic partner relationships associated with its products; and the other risks set forth in Catalytica Energy Systems' most recently filed Annual Report on Form 10-K filed with the Securities and Exchange Commission. Catalytica Energy Systems undertakes no obligation to update any forward-looking statements to reflect new information, events, or circumstances occurring after the date of this release.

Editor's Note: XononD, XFP, XEC90, Xonon and Xonon Cool Combustion are trademarks or registered trademarks of Catalytica Energy Systems, Inc., Gilbert, AZ, USA

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