Tees Valley Lithium has received an offer in principle of up to £18.3m from the UK government to support the first phase of a proposed lithium refinery at Billingham.

The funding would come through the Automotive Transformation Fund, part of the government's DRIVE35 programme, and would support a project with a stated Phase 1 development cost of £185m.

The offer remains subject to final government approval, due diligence and other conditions. It is not yet a grant payment.

If approved in full, the funding would cover roughly 10 per cent of the Phase 1 cost.

Tees Valley Lithium is owned by London-listed Alkemy Capital Investments. The proposed refinery would convert lithium feedstock from domestic and international sources into battery-grade lithium hydroxide for use in electric vehicle batteries and energy storage.

Phase 1 is designed to produce 25,000 tonnes a year. The company says that would be enough to support more than 550,000 electric vehicles annually. Future expansion could take total capacity above 100,000 tonnes a year.

Tees Valley Lithium and the Advanced Propulsion Centre say the first phase could represent nearly half of the UK's ambition to produce 50,000 tonnes of lithium or lithium carbonate equivalent domestically by 2035.

"This grant is a statement of confidence in Teesside, and it is a confidence we share with partners around the world," Tees Valley Lithium chief executive Vikki Jeckell said.

Minister for Reindustrialisation Blair McDougall said the offer showed "the vast potential for refining and using critical minerals here in Britain to back our zero emission vehicle manufacturing for the future".

The project has already secured a five-year binding offtake agreement with a Glencore subsidiary. The agreement covers up to 10,000 tonnes a year, subject to scheduling and availability, with deliveries aligned to the planned start of production in early 2028.

Veolia is providing the process technology and the company has identified Wogen Resources as a feedstock partner.

The offer follows the completion of a Front-End Engineering Design study and the selection of a new site at New Road, Billingham.

The project previously had planning permission for a refinery at Wilton International, granted in 2022. Alkemy said in February that it had selected the Billingham site because it could purchase the land rather than lease the Wilton plot.

The company's latest updates say that financing, contractor engagement and remaining regulatory and permitting work are continuing, with the objective of reaching a final investment decision.

That decision was previously targeted for the first quarter of 2026. No announcement confirming that it has been reached has been published.

Alkemy's annual report for the year to January 2026 also disclosed a material uncertainty over going concern. The company said it was considering further project-level debt, strategic equity, share placings and loan facilities to fund its work before project finance and a final investment decision.

The government offer therefore marks progress on the project's funding position, but does not yet establish that construction can begin.

The next steps are final approval of the grant, completion of the wider financing package and a final investment decision. Tees Valley Lithium continues to target first production in early 2028.