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Alberta grants CAD 57m for hydrogen projects

Projects cover the spectrum of hydrogen production, storage, transmission, distribution and usage.

The Government of Alberta, through Alberta Innovates and Emissions Reduction Alberta (ERA) is announcing $57m, worth $280m, in innovation funding for 28 projects to advance a hydrogen economy, reduce emissions, and create jobs in Alberta.

Alberta Innovates, in partnership with Natural Resources Canada, is committing $22.5m for 20 early-stage projects through the Hydrogen Centre of Excellence – Competition 2. ERA, with funding from the Technology Innovation and Emissions Reduction (TIER) program, is committing $34.5m for eight late-stage projects through its Accelerating Hydrogen Challenge.

Projects cover the spectrum of hydrogen production, storage, transmission, distribution and usage. They include building resilient pipelines capable of distributing hydrogen safely, creating furnaces and water heaters fueled by hydrogen, advancing retrofit kits of diesel engines, providing heat and power to a municipal recreation centre, and more. Successful applicants have 24 months for Alberta Innovates-funded projects, and 36 months for ERA-funded projects to complete their work.

Interest in both programs was strong with many applications submitted. 95 expressions of interest were received for the Hydrogen Centre of Excellence – Competition 2. That was narrowed down to 45 projects which submitted full proposals. 37 reviewers, both internal and external to Alberta Innovates, provided reviews on the projects and ultimately 20 successful applications were recommended to Alberta Innovates’ Board of Trustees for funding.

ERA projects were selected through a competitive review process. A team of experts in science, engineering, business development, commercialization, financing, and greenhouse gas quantification conducted an independent, rigorous, transparent review overseen by a Fairness Monitor. All ERA recipients will be required to report on project outcomes, achievements, and lessons learned including GHG reductions, job creation, and other environmental, economic, and social benefits.

EMISSIONS REDUCTION ALBERTA FUNDED PROJECTS
ERA is committing $34.5 million in funding for 8 projects, representing a total project value of approximately $162 million.

 

Organization Project Description Amount
Certarus Scale-up and deploy hydrogen storage, compression, and blending equipment at an existing compressed natural gas hub $1.200,000
City of Calgary Pilot the implementation and testing of hydrogen vehicles and equipment to determine suitability and incorporation $2,200,000
City of Edmonton Demonstrate a methanol-to-hydrogen fueling system while integrating two hydrogen vehicle technologies to test fueling and vehicle performance $6,900,000
Diesel Tech Industries Advancing retrofit kits for diesel engines, allowing for the co-combustion of both diesel fuel and hydrogen gas $2,000,000
Linde Canada Install hydrogen production, distribution, and refueling infrastructure in Edmonton and Fort Saskatchewan to supply hydrogen for Edmonton Transit $7,000,000
NuVista Energy Demonstrate a pulsed-methane pyrolysis (PMP) technology to produce low-carbon hydrogen and a solid carbon byproduct $7,000,000
Strathcona County Install a hydrogen-fueled combined heat and power (CHP) system to provide heat and power at the Millennium Place Recreation Centre $5,000,000
Thiozen Inc. Produce hydrogen from hydrogen sulfide waste streams derived from sour gas and test at NuVista’s Wembley Gas Plant $3,200,000
Total   $34,500,000

ALBERTA INNOVATES FUNDED PROJECTS
Alberta Innovates is committing $22.5 million in funding for 20 projects, representing a total project value of approximately $118.8 million.

 

Organization Project Description Amount
Ayrton Energy Liquid Organic Hydrogen Carrier for Safe, Efficient, and Easy H2 Storage and Transportation $1,700,000
ATCO Gas and Pipelines Numerical and Experimental Evaluation of Hydrogen Blended Gas Mitigation $500,000
City of Calgary Hydrogen Fueling and Pilot Fleet Feasibility Study $100,000
Edmonton Regional Airport Zero-Emission Flight in Alberta: Canada’s First multi-Modal Hydrogen Aviation at Edmonton International Airport Hub $1,700,000
Ekona Power Inc. Pulsed Methane Pyrolysis, PMP, Commercial Demonstration FEED Study $1,000,000
Gradient Thermal Gradient 100% H2 syncFURNACE $1,900,000
Luxfer Canada Ltd. Next-Generation Polymer Lined High-Pressure Hydrogen Storage Cylinder $2,000,000
Pembina Pipeline Low Carbon Hydrogen & Low Carbon Ammonia Study $2,000,000
Pipeline Research Council Full Scale Testing of Legacy Pipeline Materials for the Purpose of Retrofitting Existing Natural Gas Pipelines for Hydrogen Service $1,900,000
Total Containment Inc. Resilient Pipelines, Resilient Energy: Developing Robotically Applied Protective Coating Systems for Hydrogen Applications $400,000
TransCanada Energy Ltd. Development of Engineering Assessment Framework to Address the Impact of Hydrogen on Pipeline Girth Welds $400,000
TransCanada Energy Ltd. On-site Hydrogen Production VIA Methane Pyrolysis for Fuel Switching at Compressor Stations $300,000
University of Alberta Field trial of Hydrogen Storage in Canadian Domal and Bedded Salts $1,200,000
University of Alberta Advancing Anion Exchange Membrane Electrolyzer: 3D Porous De-alloyed Catalysts key to a High Power AEM Electrolyser $500,000
University of Alberta Microbubble-Enhanced Cold Plasma Nitrogen Fixation as Sustainable Hydrogen Carrier $400,000
University of Calgary Design and Development of Novel Hydrogen Powered Gas Burner Technologies for Residential and Commercial Buildings $600,000
University of Calgary Safe Hydrogen Agile Pipeline Engineering (SHAPE): Digital Transformation and Lead Detection through AI and Digital $600,000
Verne Inc. First-of-kind Cryo-Compressed Hydrogen Demonstration in Class 8 Trucking $2,000,000
Vessel Energy Systems Development and Certification of Novel Flat Hydrogen Storage Vessel $1,300,000
VulcanX Energy Corp Extended Front-End Engineering Design of Pre-Commercial Low-Emissions Hydrogen Production from Natural Gas Pyrolysis $2,000,000
Total   $22,500,000

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Canadian government unveils hydrogen tax credit proposal

In a bid to keep pace with the U.S. following passage of the IRA, Canada has unveiled a proposal for investment tax credits for clean hydrogen.

In a bid to keep pace with the United States following approval of the Inflation Reduction Act, policymakers in Canada have unveiled proposals to incentivize investments in clean energy including hydrogen.

In its 2022 Fall Economic Statement, the Canadian government is seeking establish an investment tax credit to support investments in clean hydrogen production.

The proposed investment tax credit will be refundable, according to the statement, and available for eligible investments made as of the day of Budget 2023. The credit will be phased out after 2030. The lowest carbon intensity tier that meets all eligibility requirements is proposed to receive an investment tax credit of at least 40%. If a company does not meet certain labour conditions, the maximum tax credit rate will be reduced by 10%, which will help incentivize companies to support and create good jobs for the workers our economy relies on.

In the coming weeks, the Department of Finance will launch a consultation on how best to implement an investment tax credit for clean hydrogen based on the lifecycle carbon intensity of hydrogen. The U.S. Inflation Reduction Act (IRA) introduced carbon intensity tiers to guide the level of support to clean hydrogen projects. As outlined in the IRA, support would begin to be provided when emissions from the production of clean hydrogen are 4.0kg of CO2e or less per kg of hydrogen, while the highest level of support would be provided where emissions are 0.45kg of CO2e or less per kg of hydrogen. The consultation will seek input on:

  • An appropriate carbon intensity-based system for the Canadian context; and,
  • The level of support needed for different production pathways in Canada.

Through this investment tax credit, the government will promote jobs and skills for a net-zero economy, such that the level of the credit will depend on whether certain labour protection requirements are met. The Department of Finance will consult with a broad group of stakeholders, but especially with unions, on how best to attach labour conditions to the investment tax credit for clean hydrogen to ensure that wages paid are at the prevailing level in the local labour market, and that apprenticeship training opportunities are being created.

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LSB Industries outlines blue ammonia project economics

US fertilizer producer LSB Industries gives a glimpse at the economics of two in-development blue ammonia projects.

LSB Industries estimates its Houston Ship Channel blue ammonia project will add approximately $150m of EBITDA annually, CEO Mark Behrman said today.

The facility, which would produce approximately 1.1 million metric tons of ammonia and capture and sequester 1.6 million metric tons of CO2 annually, is currently in the pre-FEED phase and planned for construction on the Vopak Exolum Houston Ship Shuttle Ammonia Terminal.

Behrman gave a back-of-the envelope estimate assuming the cost of the facility would come in at $800m, resulting in the added $150m of annual EBITDA .

“If you could tell me what the cost is, we’re only in pre-FEED now, but if we used an $800m cost, and I’m not suggesting that that’s the cost, I think we really need to go through our engineering, and we look at the types of returns that we would want, I would guess that for a very stable and steady stream of income, it’s probably somewhere in the neighborhood of $150 million annually,” Behrman said.

Oklahoma-based LSB will use a project finance model to fund the project, the company previously said, giving estimates of between $500m – $750 for the cost.

LSB expects initial offtakers based out of Japan and Korea, but Behrman said today that, more recently, “we have had conversations with potential European offtakers and are encouraged as we now believe Europe to be a viable target market as well.”

The company is developing the facility in partnership with INPEX, Japan’s largest E&P company, and plans to build and operate an ammonia synthesis loop using low-carbon hydrogen produced by Air Liquide, who will also handle the carbon capture and sequestration as well as the nitrogen supply.

El Dorado

Meanwhile, LSB expects to add up to $20m of EBITDA per year from the installation of a carbon capture unit at its ammonia facility in El Dorado, Arkansas.

LSB has partnered with Lapis Energy on the project, which will capture and sequester 450,000 metric tons of CO2 per year from El Dorado’s ammonia production. Lapis will receive 45Q tax credits of $85 per ton of CO2 sequestered and pay a fee to LSB for each ton.

In turn, LSB will produce 375,000 tons of low-carbon ammonia that can be sold at a premium, executives said on an investor call today.

“All combined, this should equate to an estimated 15 to $20 million in annual incremental EBITDA for LSB,” CEO Mark Behrman said.

“The main gating factor is the approval of our Class VI permit application from the EPA that will enable Lapis to begin construction and then capturing and permanently sequestering,” he said. Indications from the EPA are that they are on track to issue the permit during 2025, he added.

At the same time, LSB elected to delay the expansion of production capacity at the El Dorado facility citing commodity market conditions, planned turnarounds and other initiatives the company has underway.

The El Dorado expansion project has been selected to receive funding under the USDA Fertilzer Production Expansion Program, a financing element under which LSB expects to have five years to complete the project once approved for the grant.

LSB previously paused a green ammonia project planned for Pryor, Oklahoma, citing lower gas prices, higher power prices, and uncertainties around tax credit incentives under 45V that created conditions favoring blue ammonia projects.

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SLB acquires majority ownership in carbon capture firm

SLB will pay $380m to purchase 80% of Aker Carbon Capture Holding AS (ACCH), which holds the business of ACC, and will contribute the SLB carbon capture business to the combined entity.

NYSE-listed SLB has agreed to combine its carbon capture business with Aker Carbon Capture (ACC) to support accelerated industrial decarbonization at scale.

The combination will leverage ACC’s commercial carbon capture product offering and SLB’s new technology developments and industrialization capability, according to a news release. It will create a vehicle for accelerating the introduction of disruptive early-stage technology into the global market on a commercial, proven platform. Following the transaction, SLB will own 80% of the combined business and ACC will own 20%.

SLB will pay NOK 4.12 billion ($380m) to purchase 80% of Aker Carbon Capture Holding AS (ACCH), which holds the business of ACC, and will contribute the SLB carbon capture business to the combined entity. SLB may also make additional payments of up to NOK 1.36 billion over the next three years based on the performance of the business.

The transaction is subject to regulatory approvals and is expected to close by the end of the second quarter, 2024.

“For CCUS to have the expected impact on supporting global net-zero ambitions, it will need to scale up 100-200 times in less than three decades,” said Olivier Le Peuch, chief executive officer, SLB. “Crucial to this scale-up is the ability to lower capture costs, which often represent as much as 50-70% of the total spend of a CCUS project. We are excited to create this business with ACC to accelerate the deployment of carbon capture technologies that will shift the economics of carbon capture across high-emitting industrial sectors.”

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Renewable hydrogen developer to launch series A round next month

A Colorado-based renewable hydrogen developer has hired an advisor and will launch a series A funding round next month.

NovoHydrogen, the Colorado-based renewable hydrogen developer, will launch a series A capital raise in the middle of March to take on a new investor for project development and hiring, CEO Matt McMonagle said in an interview.

The company has hired GreenFront Energy Partners to run the process, McMonagle said.

NovoHydrogen builds its projects onsite with customers, as close to end use as possible, he said. The company serves transportation (heavy road transport, shipping and aviation), industrial (cement, glass, metal, steel, food, etc.) and power (peaking power and diesel generator replacement). Most of Novo’s customers are users of grey hydrogen looking to decarbonize. In the case of cement, they are looking to replace diesel for their trucks and coal and natural gas for their kilns.

“We first look to see if we can put our projects on our customer sites and make it there,” McMonagle said. “If we can’t do that, we’ll do offsite, but we still try to be as close to customers as possible to minimize that midstream component or distribution component.”

About 30 projects are in development in the US, ranging from a few megawatts to hundreds of megawatts, McMonagle said. NovoHydrogen’s most active markets are the West coast, Northeast, Appalachia, Texas and the Rocky Mountains, though the company is not geographically constrained.

The company aims to begin construction on its first projects by the end of this year, possibly early next year, McMonagle said. The first project could reach COD in 2024.

NovoHydrogen recently announced that it has closed its seed funding round and appointed four executives to its board of directors. Each of those executives represent an investor that participated in the seed round, McMonagle said.

The new board appointees are: Jeremy Avenier, an active investor at Ohmium International; Peyton Boswell, managing partner at Woodfield Renewable Partners; Bruno Franco, partner at Pacífico Energia and managing partner at PWR Capital; and Joseph Malchow, a managing partner at Hanover (a Silicon Valley VC), board member and investor in Enphase and board member and investor in Archaea.

More money

“We will certainly need more money as our projects mature,” McMonagle said. “I do not have the hundreds of millions of dollars on my balance sheet to build these projects.”

An ideal investor will bring accretive capabilities in hydrogen, in a field like value chain equipment or delivery, to the table, McMonagle said.

NovoHydrogen plans to be a long-term owner-operator of its projects, McMonagle said. That is an important point for customers: that the company is not going to sell the project and not care how the next owner operates.

“We want to earn future business from these customers,” McMonagle said, adding that most of them are transitioning piecemeal.

NovoHydrogen and TigerGenCo in November said they would advance development of green hydrogen capacity to reduce reliance on natural gas at the Bayonne Energy Center located in New Jersey. NovoHydrogen will develop and operate the hydrogen production facility to reduce Bayonne’s carbon emissions.

TigerGen owns the power plant and is the offtaker in that project. Ohmium International is providing the PEM electrolyzers in that project. McMonagle said the company may use other electrolyzer providers for future projects.

The company is also a partner in the Aliance for Clean Hydrogen Energy Systems (ARCHES) for the California DOE Hydrogen Hub submission.

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Aemetis capitalized for hydrogen and biofuel development plans

Aemetis CEO Eric McAfee said in an interview that the company has lined up financing to complete the $1.2bn in biogas and sustainable aviation fuel projects it has in development.

Aemetis is well capitalized to complete the $1.2bn in biogas and sustainable aviation fuel (SAF) projects it has in development, CEO Eric McAfee said in an interview.

Founded by McAfee in 2006 and listed on the NASDAQ in 2014, Aemetis plans to produce more than 60 million gallons per year of SAF and capture and sequester 125,000 mtpy of carbon in 2025. This is a diversification from existing ethanol, RNG and biodiesel operations in the US and India.

The company recently released an updated five-year plan including plans to generate $2bn of revenues, $496m of net income, and $682m of adjusted EBITDA by 2027.

McAfee, noting that Aemetis is well capitalized and has locked in financing for much of its plans, said, “The only thing we really need to do is just execute.”

For example, the company closed $25m of USDA loan guarantees in October at a 6.2% interest rate, McAfee said. The company has also signed a $125m USDA commitment letter for its Riverbank Biofuels Project in California, also called CarbonZero 1, which will produce SAF.

“We’ll be expanding that relationship with [the USDA],” McAfee said. “Everything else is financed.”

The Riverbank Biofuels Project has signed offtake agreements with major airlines, and the SAF segment is expected to be the biggest contributor to Aemetis’ revenues once the project is online in 2025, according to a presentation. Renewable diesel and SAF will add $348m of revenues in 2025 and $693.3m of revenues in 2026.

For its carbon sequestration projects, referring to upgrades at the existing Keyes ethanol plant in California and other operational assets, the company has an existing $100m line of credit provided by Third Eye Capital, $50m of which remains unused, McAfee said.

Projected revenues will allow the company to self-fund without new credit facilities, McAfee said. Revenues from Aemetis’ debt-free operations in India will also be available to fund new developments.

The Riverbank SAF plant will be fully engineered and permitted this year, McAfee said. Baker Hughes and ATSI are the company’s EPC partners on the new developments.

Aemetis has no plans to divest existing operational assets but could acquire California biogas assets, McAfee said. The company regularly talks to investment bankers.

McAfee is the largest single shareholder in Aemetis. JackBlock, the former US Secretary of Agriculture, sits on the company’s board. The largest institutional shareholder is BlackRock.

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Interview: Vinson & Elkins’ Alan Alexander on the emerging hydrogen project development landscape

Vinson & Elkins Partner Alan Alexander, whose clients include OCI and Lotus Infrastructure, has watched the hydrogen project development space evolve from a fledgling idea to one that is ready for actionable projects.

Vinson & Elkins Partner Alan Alexander, whose clients include OCI and Lotus Infrastructure, has watched the hydrogen project development space evolve from a fledgling idea to one that is ready for actionable projects.

In the meantime, a number of novel legal and commercial issues facing hydrogen project developers have come to the forefront, as outlined in a paper from the law firm this week, which serves as a guide for thinking through major development questions that can snag projects.

In an interview, Alexander, a Houston-based project development and finance lawyer, says that, although some of the issues are unique – like the potential for a clean fuels pricing premium, ownership of environmental attributes, or carbon leaking from a sequestration site – addressing them is built on decades of practice.

“The way I like to put it is, yes, there are new issues being addressed using traditional tools, but there’s not yet a consensus around what constitutes ‘market terms’ for a number of them, so we are having to figure that out as we go,” he says.

Green hydrogen projects, for example, are “quite possibly” the most complex project type he has seen, given that they sit at the nexus between renewable electricity and downstream fuels applications, subjecting them to the commercial and permitting issues inherent in both verticals.

But even given the challenges, Alexander believes the market has reached commercial take-off for certain types of projects.

“When the hydrogen rush started, first it was renewables developers who knew a lot about how to develop renewables but nothing about how to market and sell hydrogen,” he says. “Then you got the people who were very enthusiastic about developing hydrogen projects but didn’t know exactly what to do with it. And now we’re beginning to see end-use cases develop and actionable projects that are very exciting, in some cases where renewables developers and hydrogen developers have teamed up to focus on their core competencies.”

A pricing premium?

In the article, Vinson & Elkins lawyers note that commodities pricing indices are not yet distinguishing between low-carbon and traditional fuels, even though a clean fuel has more value due to its low-carbon attributes. The observation echoes the conclusion of a group of offtakers who viewed the prospect of paying a premium for clean fuels as unrealistic, as they would need to pass on the higher costs to customers.

Eventually, Alexander says, the offtake market should price in a premium for clean products, but that might depend in the near term on incentives for clean fuels demand, such as carbon offsets and levies, like the EU’s Carbon Border Adjustment Mechanism.

“Ultimately what we need is for the market to say, ‘I will pay more for low-carbon products,’” he says. “The mindset of being willing to pay more for low-carbon products is going to need to begin to permeate into other sectors. 30 or 40 years ago the notion of paying a premium for an organic food didn’t exist. But today there are whole grocery store chains built around the idea. When the consumer is willing to pay a premium for low-carbon food, that will incentivize a farmer to pay a premium for low carbon fertilizer and ammonia, which will ultimately incentivize the payment of a premium for low-carbon hydrogen. The same needs to repeat itself across other sectors, such as fuels and anything made from steel.”

The law firm writes that US projects seeking to export to Europe or Asia need to take into account the greenhouse gas emissions and other requirements of the destination market when designing projects.

In the agreements that V&E is working on, for example, clients were first focused on structuring to make sure they met requirements for IRA tax credits and other domestic incentives, Alexander says. Meanwhile, as those clean fuels made their way to export markets, customers were coming back with a long list of requirements, “so what we’re seeing is this very interesting influx” of sustainability considerations into the hydrogen space, many of which are driven by requirements of the end-use market, such as the EU or Japan.

The more stringent requirements have existed for products like biofuels for some time, he adds, “but we’re beginning to see it in hydrogen and non-biogenic fuels.”

Sharing risk

Hydrogen projects are encountering other novel commercial and legal issues for which a “market” has not yet been developed, the law firm says, especially given the entry of a raft of new players and the recent passage of the Inflation Reduction Act.

In the case of a blue hydrogen or ammonia project where carbon is captured and sequestered but eventually leaks from a geological formation, for example, no one knows what the risk truly is, and the market is waiting for an insurance product to provide protection, Alexander says. But until it does, project parties can implement a risk-sharing mechanism in the form of a cap on liabilities – a traditional project development tool.

“If you’re a sequestration party you say, ‘Yeah, I get it, there is a risk of recapture and you’re relying on me to make sure that it doesn’t happen. But if something catastrophic does happen and the government were to reclaim your tax credits, it would bankrupt me if I were to fully indemnify you. So I simply can’t take the full amount of that risk.’”

What ends up getting negotiated is a cap on the liability, Alexander says, or the limit up to which the sequestration party is willing to absorb the liability through an indemnity.

The market is also evolving to take into account project-on-project risk for hydrogen, where an electrolyzer facility depends on the availability of, for example, clean electricity from a newly built wind farm.

“For most of my career, having a project up and reaching commercial operations by a certain date is addressed through no-fault termination rights,” he says. “But given the number of players in the hydrogen space and the amount of dollars involved, you’re beginning to see delay liquidated damages – which are typically an EPC concept – creep into supply and offtake agreements.”

If a developer is building an electrolyzer facility, and the renewables partner doesn’t have the wind farm up and running on time, it’s not in the hydrogen developer’s interest to terminate through a no-fault clause, given that they would then have a stranded asset and need to start over with another renewable power provider. Instead, Alexander says, the renewables partner can offset the losses by paying liquidated damages.

Commercial watch list

In terms of interesting commercial models for hydrogen, Alexander says he is watching the onsite modular hydrogen development space as well as power-to-fuels (natural gas, diesel, SAF), ammonia and methanol, given the challenges of transporting hydrogen.

“If you’re going to produce hydrogen, you need to produce it close to the place where it’s going to be consumed, because transporting it is hard. Or you need to turn it into something else that we already know how to transport – natural gas, renewable diesel, naphtha, ammonia.”

Alexander believes power-to-fuels projects and developers that are focused on smaller, on-site modular low-carbon hydrogen production are some of the most interesting to watch right now. Emitters are starting to realize they can lower their overall carbon footprint, he says, with a relatively small amount of low-carbon fuels and inputs.

“The argument there is to not completely replace an industrial gas supplier but to displace a little bit of it.”

At the same time, the mobility market may take off with help from US government incentives for hydrogen production and the growing realization that EVs might not provide a silver-bullet solution for decarbonizing transport, Alexander adds. However, hydrogen project developers targeting the mobility market are still competing with the cost of diesel, the current “bogey” for the hydrogen heavy mobility space, Alexander says.

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