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Bloom Energy anticipates increase in waste-to-energy contracting

New developers are emerging in the waste-to-energy space, including many in agriculture and wastewater treatment that are looking for greater energy security.

Bloom Energy, the San Jose-based manufacturer of solid oxide fuel cells, anticipates a policy-driven increase in contracts from waste-to-energy developers this year and next year.

CEO KR Sridhar said during the company’s 3Q earnings call that between 200 MW and 300 MW of potential new waste-to-energy sales had come into the company’s pipeline, driven in part by passage of the Inflation Reduction Act.

While he declined to state a number, Sridhar said the company expects some of those to begin contracts this year and next.

New developers are emerging in the waste-to-energy space, he noted, including many in agriculture and wastewater treatment that are looking for greater energy security.

Bloom recorded record third quarter revenue of $292.3 million in 2022, an increase of 41.1% compared to $207.2 in the third quarter of 2021.

During the call Shridhar highlighted the company’s relationship with Taylor Farms and the effort to install a microgrid capable of taking one of their California food processing facilities completely off the traditional energy grid.

Additionally, the company is working with Westinghouse Electric Company to pursue clean hydrogen production in the commercial nuclear power market. Shridhar declined to give specifics but said the companies are actively pursuing several opportunities.

Bloom will double production capacity, with a focus on its Fremont facility, year-over year by the end of 4Q and plans to again double capacity next year, CFO Greg Cameron said on the call. Investment in the Fremont facility through 2023 will be about USD 200m and the company could consider new manufacturing facilities after that.

Bloom Energy also recently inaugurated a high volume commercial electrolyzer line at the company’s plant in Newark, Delaware.

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California electrolyzer tech company hires VP

The new hire will lead NewHydrogen’s business development efforts.

NewHydrogen, Inc., a developer of technology to produce low-cost green hydrogen, has hired Steven Hill as vice president and member of the company’s board of directors, effective immediately.

Hill is an accomplished sales executive with over 20 years of experience in the biopharmaceutical industry, the company said in a news release.

In this capacity, Hill will lead NewHydrogen’s business development efforts while representing the company’s mission and technologies to investors, media, public, and potential partners.

Hill has held senior management positions over the course of his career including Regional Account Manager for Relypsa Inc, a biopharmaceutical start-up in Redwood City, CA. He also served as a managing member of Hill Investments, LLC, a real estate investment and design group during which time Mr. Hill consulted on property development and managed real estate investments.

“We are excited to welcome Steve to NewHydrogen, and expect that he will immediately strengthen our management team,” said Dr. David Lee, CEO of NewHydrogen. “Steve’s vantage point coming from executive sales experience is one we believe will provide valuable insights as NewHydrogen progresses to meet its corporate objectives.”

NewHydrogen is currently funding a sponsored research program at the Department of Materials Science and Engineering at the University of California, Los Angeles (UCLA), aimed squarely at developing technologies to lower the cost of green hydrogen. The goal of NewHydrogen’s sponsored research at the UCLA is to lower the cost of green hydrogen by eliminating or drastically reducing the use of precious metals in electrolyzers. Electrolyzers currently rely on rare materials such as iridium and platinum. These materials often account for a substantial portion of the cost of electrolyzers.

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Strata Clean Energy launches P2X platform

Strata’s initial projects will produce ammonia derived from renewable energy, while future projects will focus on alternative e-fuels.

Strata Clean Energy, a renewable energy developer, is building a Power-to-X (P2X) development and technology platform to decarbonize segments of the modern economy where direct electrification is not viable, according to a news release.

The P2X platform leverages the firm’s state-of-the-art, hourly-matched, renewable energy supply solutions to produce low-carbon hydrogen derivatives (ammonia, e-methane, and SAF) critical to the hardest-to-abate industrial, agricultural, and ocean freight and aviation markets.

“Strata will transform non-dispatchable clean energy into carbon-free alternatives for the modern industrial economy. Our structured power products and merchant BESS development track record underpin our differentiated approach to serving large loads which require hourly matched renewable energy supply,” said Mike Grunow, EVP & general manager, P2X, Strata Clean Energy. “For the past 12 months, we have been actively siting projects in ideal locations for logistics, water rights, permitting, energy cost, and grid interconnection. Our team is quickly advancing site engineering with Tier 1 partners, and we are accelerating talks with long-term buyers of the low-carbon intensity commodities. We are going to make this a reality.”

Strata’s initial projects will produce ammonia derived from renewable energy, while future projects will focus on alternative e-fuels that can reduce greenhouse gas emissions where no other alternative exists. As a 1:1 replacement for natural-gas-derived ammonia, low-carbon-intensity ammonia can be the workhorse of the zero-carbon economy as it lowers the shipment cost of green hydrogen by a factor of 30.

“For the past 15 years, Strata has been instrumental in bringing over 270 utility-scale solar and storage projects online,” commented Markus Wilhelm, Strata’s CEO. “In the coming decade, regional grids will be loaded with unscheduled wind and solar. Converting a fraction of this generation into zero-carbon, alternative fuels is the next step in the global energy transition to a net-zero future.”

In the fourth quarter of 2022, Strata P2X began recruiting a dedicated team of experts from the petrochemical and utility sectors to play critical roles in advancing the company’s ambitious goals. Among the new hires is KJ Plank, Chief Innovation Officer, who is building out the technology, engineering, energy, and procurement teams within P2X at Strata.

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Macquarie invests in Dutch SAF developer SkyNRG

By 2030 SkyNRG aims to build its dedicated SAF facilities in Europe and the US under offtake arrangements with strategic partners.

Macquarie Asset Management will support the growth of sustainable aviation fuels (SAF) with an initial investment of up to €175m in SkyNRG via the Macquarie GIG Energy Transition Solutions (MGETS) Fund.

The investment will support SkyNRG’s next phase of growth and help achieve its goal to become a major SAF producer.

BofA Securities Europe S.A. acted as sole private placement agent to SkyNRG. Clifford Chance LLP acted as legal advisor to SkyNRG. RBC Capital Markets acted as sole financial advisor and Freshfields Bruckhaus Deringer LLP as legal counsel to Macquarie Asset Management.

Additional terms of the investment were not disclosed.

By 2030 SkyNRG aims to build its dedicated SAF facilities in Europe and the US, in cooperation with strategic offtake partners. To date, SkyNRG has secured partnerships with, amongst others, KLM Royal Dutch Airlines and Boeing with envisaged long term commitments of up to €4bn in SAF purchases.

SkyNRG has been at the forefront of the development of SAF since it was founded over 14 years ago by, amongst others, Theye Veen and Maarten Van Dijk. They initially focused on creating a market for SAF and supplied the world’s first commercial flight using SAF in 2011. Since then, SkyNRG has expanded and is active in R&D, advisory services and in selling SAF. Today, the company provides SAF to airlines and corporates around the world and is still one of the leading and most active participants on the SAF market.

The SAF industry is benefitting from significant tailwinds, including voluntary corporate offtake commitments aligned to net-zero targets and growing political and regulatory support. This includes the European blending mandate (ReFuelEU) that requires the use of SAF, and the Biden Administration’s SAF Grand Challenge and the Inflation Reduction Act in the US, which is encouraging the use of SAF via strong tax incentives. By 2050, SkyNRG estimates that such incentives will create demand for up to €650bn of investment in the sector and accelerate the aviation industry’s transition away from fossil jet fuels.

Philippe Lacamp, CEO of SkyNRG, commented: “It is critical that SAF production capacity is developed now to enable the aviation industry to meet its net-zero goals. We are very proud that Macquarie has made this strategic investment in our business and are confident that they, with the ongoing support of our existing shareholders, will provide us with the resources and expertise we need to accelerate our growth journey towards becoming a major player in the SAF industry.”

Mark Dooley, Global Head of MAM Green Investments, said: “We have a track record for backing businesses working at the forefront of the energy transition. This is an exciting milestone for us, as our first SAF investment. SkyNRG has been a pioneer in SAF, with an entrepreneurial spirit and a strong commercial focus. We look forward to collaborating with the SkyNRG team as they grow their business and advance solutions to decarbonize the aviation industry.”

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Of CfDs and RFNBOs: Untangling the global hydrogen policy web

US ammonia and hydrogen project developers are increasingly looking to Japan and South Korea as target markets under the belief that new rules for clean hydrogen and its derivatives in Europe are too onerous.

Much fuss has been made about the importance of pending guidance for the clean hydrogen industry from US regulators. Zoom out further and major demand centers like the European Union, Japan, and South Korea have similarly under-articulated or novel subsidy regimes, leaving US clean fuels project developers in a dizzying global tangle of red tape. 

But in the emerging global market for hydrogen and ammonia offtake, several themes are turning up. One is that US project developers are increasingly looking to South Korea and Japan as buyers, turning away from Europe following the implementation of rules that are viewed as too onerous for green hydrogen producers.

The other is that beneath the regulatory tangle lies a deep market, helping to answer one of the crucial outstanding questions that has been dogging the nascent ammonia and hydrogen industry: where is the offtake? 

Many projects are proceeding towards definitive offtake agreements and final investment decisions despite the risks embedded in potential changes in policy, according to multiple project finance lawyers. In most cases, reaching final agreements for offtake would not be prudent given the raft of un-issued guidance in these major markets, said the lawyers, who acknowledge a robust offtake market but may advise their clients against signing final contracts.

The European Union rules for green hydrogen and its derivatives became law in June, and included several provisions that are proving challenging for developers and their lawyers to structure around: prohibiting state-subsidized electricity in the production of green hydrogen, and the requirement that power for green hydrogen be purchased directly from a renewable energy supplier. 

Taken together, the policy developments have pushed many US project developers away from Europe and toward Japan and South Korea, where demand for low-carbon fuels is robust and regulations are viewed as less burdensome, if still undefined, experts say.

Developers are carefully choosing jurisdictions for their target offtake markets, “limiting their focus to North Asian rather than European buyers, with the expectation that certain standards and regulations will be less strict, at least in the near term,” said Allen & Overy Partners Hitomi Komachi and Henry Sohn, who are based in Japan and Korea, respectively.

Trade association Hydrogen Europe lambasted the new European rules last year while they were still in formation, saying they would cause a “mass exodus” of the continent’s green hydrogen industry to the US.

Make or break

US policymakers delivered a shock blow with last year’s approval of the Inflation Reduction Act – but its full benefits have yet to flow into the clean fuels sector due to outstanding guidance on additionality, regionality, and matching requirements. 

At the same time, the 45V tax credit for clean hydrogen has been called potentially the most complex tax credit the US market has ever seen, requiring a multi-layered analysis to ensure compliance. The US policy uncertainty is coated on top of an already-complex development landscape facing developers of first-of-kind hydrogen and ammonia projects using electrolyzer or carbon capture technologies. 

“Even though folks are moving forward with projects, the lack of guidance impacts parties’ willingness to sign definitive documents, because depending on the guidance, for some projects, it could break the economics,” said Marcia Hook, a partner at Kirkland & Ellis in Washington DC.

Now, US developers seeking access to international markets are contending with potential misalignment of local and international rules, with Europe’s recently enacted guidelines serving as a major example of poorly arrayed schemes. 

Some US developers have already decided it may be challenging to meet the EU’s more rigorous standards, according Hook, who added that, beyond the perceived regulatory flexibility, developers appear to be garnering more offtake interest from potential buyers in Asia.

Projects that depend on outstanding guidance in Asia are also moving ahead, a fact that, according to Alan Alexander, a Houston-based partner at Vinson & Elkins, “represents a little bit of the optimism and excitement around low-carbon hydrogen and ammonia,” particularly in Japan and Korea.

“Projects are going forward but with conditions that these schemes get worked out in a way that’s bankable for the project,” he added. “It’s not optimal, but you can build it in,” he said, referencing a Korean contract where conditions precedent require that a national clean hydrogen portfolio standard gets published and the offtaker is successful in one of the  Korean power auctions.

RED III tape

Unlike the US, the EU has focused on using regulation to create demand for hydrogen and derivative products through setting mandatory RFNBO quotas for the land transport, industry, shipping and aviation sectors, according to Frederick Lazell, a London-based lawyer at King & Spalding.

Lazell called the EU rules “the most fully-developed and broad market-creation interventions that policymakers have imposed anywhere in the world.” As a result, being able to sell RFNBO into Europe to meet these quotas is expected to fetch the highest prices – and therefore potentially the highest premiums to suppliers, he said.

The European guidelines enacted in June introduced several provisions that will make it challenging for US developers to structure projects that meet the EU’s classification for renewable fuels of non-biological origin (RFNBOs).

For one, the European Commission issued guidance that prohibits subsidies for renewable energy generation when it is transmitted via a power purchase agreement through the electrical grid to make RFNBO.

This provision potentially eliminates all green hydrogen-based projects in the US from qualifying as an RFNBO, a managing partner at a US-based investment firm said, given that green hydrogen projects will likely be tied to renewables that are earning tax credits.

“The EC’s decision to include this restriction on State aid makes the EU’s version of additionality more onerous than even the strictest requirements being considered in the US,” lawyers from King & Spalding wrote in a September note, adding that some people in the industry argue that the decision is inexplicable under the RED II framework that authorized the European Commission to define additionality. 

A second challenge of the EU regulations is the mandate that PPAs be contracted between the RFNBO producer and the renewable energy source. Such a requirement is impossible for electricity markets where state entities are mandated to purchase and supply power, a structure that is common in multiple jurisdictions. Moreover, the requirement would remove the possibility of using a utility or other intermediary to deliver power for green hydrogen production.

“These technical issues may be serious enough for some in the industry to consider challenges before the Court of Justice of the European Union,” the King & Spalding lawyers wrote. “However, it is not yet clear whether there is the appetite or ability to turn such suggestions into a formal claim.”

Go East

Although the subsidy regimes in Japan and South Korea are expected to be less stringent in comparison to the EU, the programs are still not completely defined, which leaves some uncertainty in dealmaking as projects move forward.

The traditional energy sector has always dealt with change-in-law risk, but the risk is heightened now since regulations can change more rapidly and, in some cases, impact ongoing negotiations, said Komachi and Sohn, of Allen & Overy, in a joint email response. 

“Certain regulations coming into force may be contingent or related to the funding plan of the project,” they said. As such, clean fuels offtake frameworks need to facilitate not only the tracking and counting of emissions, they added, but also leave sufficient flexibility as regulatory frameworks evolve.

Japan, through its Hydrogen Basic Strategy, set out targets to increase the supply of hydrogen and ammonia in the country while reducing costs, deploying Japanese electrolysis equipment, and increasing investment into its supply chain. Additionally, Japan is contemplating a contracts-for-difference-style regime to support the gap between the price of clean hydrogen or ammonia and corresponding fossil fuels for 15 years.

Still, standards for “clean hydrogen” have not been clarified, though most observers believe the country will follow a carbon emissions lifecycle analysis in line with IPHE criteria, which is proposed at 3.4 kilograms of carbon dioxide per kilogram of hydrogen. Similarly, rules around “stacking” subsidies in Japan with other jurisdictions such as the Inflation Reduction Act have not been defined.

Meanwhile, Korea is considering carbon emissions standards of up to 4 kilograms of CO2 per kilogram of hydrogen. It is pushing for greater use of hydrogen in part through its Amended Hydrogen Act, requiring electric utilities to buy electricity made from hydrogen in a bidding round starting in 2024. The requirement scales up from 1,300 GWh of general hydrogen in 2025 to 5,200 GWh for general hydrogen and 9,5000 GWh for clean hydrogen in 2028.

Both countries are working to incentivize the entire supply chain for hydrogen and ammonia to ensure the separate pieces of infrastructure will be available on investable and bankable terms, with the aim of creating a demand center when the export centers are developed, Komachi and Sohn added.

They also point out that the emerging clean fuels offtake market will operate in the near term in a more spotty fashion in comparison with the more liquid markets for oil and gas.

“Hydrocarbon markets have gradually moved towards portfolio players, trading and optimization,” said Goran Galic, an Australia-based partner at Allen & Overy. “Smaller market size, technological and regulatory considerations mean that clean fuels, at least initially, require more of a point-to-point approach and so building long-term working relationships between the developers and offtakers is a key aspect of offtake strategy.”

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Mitsubishi laying groundwork for additional equity raise

Mitsubishi Power Americas and its JV partners are preparing to raise additional equity for the ACES Delta project in Utah, as well as for other hydrogen developments in the Americas.

Mitsubishi Power Americas is conferring with its financial partners to raise equity from existing investors in the Advanced Clean Energy Storage (ACES) Delta green hydrogen project in Utah, Senior Vice President, Investment and Business Development Ricky Sakai said in an interview.

Haddington Ventures formed Haddington ESP I and raised $650m in June 2022 from institutional investors to fund projects developed by ACES Delta, which is a joint venture between Mitsubishi Power Americas and Haddington portfolio company Magnum Development.

The investors — AIMCo, GIC, Manulife Financial Corporation, and Ontario Teachers’ Pension Plan Board — have additional rights to increase their collective investment to $1.5bn, according to a press release announcing the deal.

The first phase of the project in Utah will be to produce 100 tons of hydrogen per day. Once that is complete, existing investors can scale up their investment, Sakai said.

ACES Delta rendering

Mitsubishi is involved in several regional hydrogen hubs applying for funding from the US Department of Energy.

Hydrogen capable

Depending on how that $7bn is ultimately allocated, Mitsubishi is interested in replicating the Utah project in other regions, a source familiar with the company said.

MPA and Magnum recently closed on a $504.4m loan guarantee from the DOE for ACES Delta, electrolyzers for which will be supplied by Norway-based HydrogenPro.

ACES Delta will support the Intermountain Power Agency’s IPP Renewed Project — upgrading to an 840 MW hydrogen-capable gas turbine combined cycle power plant using Mitsubishi’s M501JAC gas turbines. The plant will initially run on a blend of 30% green hydrogen and 70% natural gas starting in 2025 and incrementally expand to 100% green hydrogen by 2045.

Mitsubishi is also supplying the hydrogen-capable gas turbines to Entergy’s Orange County Advanced Power Station; to an Alberta coal plant owned by Capital Power; and to J-Power’s Jackson Generation Project in Illinois, which reached commercial operations last year.

Mitsubishi Power

Investing in startups

Mitsubishi is doubling down on a strategy of investing in startup producers and technology in renewable fuels, Sakai said.

Recent investments in the space include: C-Zero, a drop-in decarbonization tech startup in California; Cemvita Factory, a Houston-based synthetic biology firm focused on the decarbonization of heavy industries; Infinium, an electrofuels company innovator in California forming decarbonization solutions for industries in Japan; and Starfire Energy, a modular green ammonia solution provider in Denver.

Series A and Series B valuations for US companies are much higher now than they were a few years ago, Sakai said. Still, the US is the leading climate tech startup ecosystem in the world and provides rich opportunity for capital deployment, Sakai said. Biofuels, SAF and waste-to-energy are leading sectors for MHI investment moving forward.

“We have several hundred of these in the pipeline that we are looking at right now,” he said. “In the next few years, we will increase the number of these portfolio companies.”

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Brookfield-owned renewables developer planning hydrogen co-location

An IPP and developer of wind, solar and storage projects is in early discussions with potential partners to co-locate electrolysis with its operating assets and projects in development.

Scout Clean Energy, the Boulder, Colorado-based IPP and renewables developer, is laying the groundwork to co-locate electrolysis for green hydrogen with its wind and solar assets, CEO Michael Rucker said in an interview.

The company’s Power2X team is charged with looking for alternative strategies, Rucker said.

“We are actively trying to match project opportunities with the future hydrogen economy,” he said, noting that the company’s operating wind portfolio provides a crucial piece of that. “Wind is an especially good fit for hydrogen production just in terms of pricing.”

Scout, which is owned by Brookfield Renewable, sees itself as producing green electrons and doesn’t want to get into marketing and distribution of hydrogen, Rucker said.

Brookfield acquired Scout in 2022 for $1bn, with the potential to invest an additional $350m to support development activities.

Scout has its first solar project in development in ERCOT, a market where shipping of hydrogen would make for a promising project, Rucker said. The company has also looked at the Midwest, where a robust SAF production ecosystem is forming, as well as the Pacific Northwest.

The company is already working with one hydrogen developer to match production to one of its wind farms, Rucker said. An exact location has not been selected.

Pricing diligence has been promising, Rucker said. But the offtake market in the US remains slow to develop despite regulatory encouragement.

“The IRA has given us maybe the most subsidized hydrogen production market in the world but it’s really being production-driven not demand-driven, so we really need to see more of the economy using hydrogen,” Rucker said. “I trust that will come, it’s just going to take longer than we think.”

Scout is not ready to take anything to market related to hydrogen, but ultimately there will be a need for financial advisory, Rucker said.
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