Ottawa, ON Canada, July 26, 2001 — Thermal Energy International Inc. announced that the National Research Council of Canada (NRC) has agreed to contribute, through its Industrial Research Assistance Program (IRAP), up to $179,000 for partial funding of the Company's planned Phase I research and development (R&D) in conjunction with the pilot plant which will integrate OPTINOx™ and patented THERMALONOx™ with the original FLU-ACE® condensing reactive scrubbing technology.

This advanced R&D phase will enable the Company to develop and establish the Nitrogen Oxide (NOx) air pollution control performance capabilities and flexibility of both the OPTINOx™ and THERMALONOx™ technologies for a competitive advantage with broader Utility and Industrial markets. This news release is complementary to the Company's June 5, 2001 release, which announced the filing of the OPTINOx™ technology patent.

After the Phase I OPTINOx™ and THERMALONOx™ R&D is complete, the pilot plant will remain of value as it may be utilized by Thermal Energy to run specific OPTINOx™ and THERMALONOx™ performance tests matching the exact flue gas characteristics of prospective Utility and Industrial customers. Thermal Energy and its customers may then utilize the combined OPTINOx™, THERMALONOx™, and FLU-ACE® pilot plant to optimize the desired NOx, SOx, and multi-pollutant air pollution control solutions to better engineer a solution to the client's specific needs.

The experimental OPTINOx™ and THERMALONOx™ pilot plant is to be constructed at one of Thermal Energy's existing and operating FLU-ACE® installations. Thermal Energy and the selected FLU-ACE® site owner are presently establishing the definitive agreement between the parties, and will announce details at a future date.

IRAP is delivered by the National Research Council of Canada. The prime purpose of IRAP is to assist small and medium enterprises in the expansion of their technical expertise.

Thermal Energy has had a long-standing track record of R&D success. In 1998, Thermal Energy undertook experiments on a unique sludge heating and de-watering system in tandem with an existing FLU-ACE® system, operating at the Gatineau Sewage Treatment Plant. In 1988/89, Thermal Energy successfully completed Phase I R&D of the FLU-ACE® as a multi-pollutant air pollution control process. For both these projects, IRAP's advice and assistance proved very valuable.

"We are delighted that Thermal Energy has been awarded this IRAP contribution", said Thomas V. Hinke, President and CEO of Thermal Energy. "IRAP's involvement is making a significant contribution towards helping Thermal Energy in accelerating the development and advancement of our OPTINOx™ and THERMALONOx™ product line, in order to meet the growing market demand for cost-effective NOx air pollution control technologies".

Thermal Energy International Inc. is a global leader in hi-tech air pollution control and energy recovery solutions, headquartered in Ottawa, Canada. Thermal Energy provides innovative engineering, patented process licenses and specialized equipment to our power generation and industrial clients. More on Thermal Energy can be found at www.thermalenergy.com. FLU-ACE®, THERMALONOx™, OPTINOx™ and Opportunity NOx™ are trademarks of Thermal Energy. Common shares of Thermal Energy are traded on the Canadian Venture Exchange (CDNx) under the symbol TMG.