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EnCap’s Shawn Cumberland on the fund’s approach to clean fuels

Cumberland, a managing partner with EnCap Energy Transition, discusses how the clean fuels sector compares to the emergence of other new energy technologies, and outlines the firm’s wait-and-see approach to investment in hydrogen and other clean fuels.

EnCap Energy Transition, the energy transition-focused arm of EnCap Investments, is evaluating scores of opportunities in the hydrogen and clean fuels space but doesn’t feel the need to be an early mover if the risk economics don’t work, Managing Partner Shawn Cumberland said in an interview.

Houston-based EnCap prefers to invest in early stages and grow companies deploying proven technologies to the point that they’re ready to be passed onto another investor with much deeper pockets. There are hundreds of early-stage clean fuels companies looking for growth equity in the space, he said, but the firm believes it’s not necessary to deploy before the technology or market is ready.

Given the fund’s strategy of investing in the growth-equity stage, EnCap gains exposure to a niche set of businesses that are not yet subjected to the broader financial markets.

For example, when EnCap stood up Energy Transition Fund I, a $1.2bn growth capital vehicle, the manager piled heavily into storage, dedicating some $600m, more than half of the fund, to the sector.

“That was at a time when all we saw were some people putting some really dinky 10 MW and 20 MW projects online,” he said. “We absolutely wanted to be a first and fast mover and saw a compelling opportunity.”

The reasons for that were two converging macro factors. One was that the battery costs had come down 90% because of EV development. Meanwhile, the demand for batteries required storage to be built out rapidly at scale. So, that inflection point – in addition to the apparent dearth of investor interest in the space at the time – called for early action.

“We were sanctioning the build of these things with no IRA,” Cumberland said.

‘If it works’

To be sure, EnCap is not a technology venture capital firm and waits for technologies to be proven.

As such, the clean fuels sector could end up being a longer play for EnCap, Cumberland noted, but the fund continues to weigh whether there will be a penalty for waiting. In the meantime, regulatory issues like IRS guidance on “additionality” for green hydrogen and the impact of the EU’s rules for renewable fuels of non-biological origin should get resolved.

Still, market timing plays a role, and the EnCap portfolio includes a 2021 investment into Arbor Renewable Gas, which develops and owns facilities that convert woody biomass into low-carbon renewable gasoline and green hydrogen.

Cumberland also pointed to EnCap’s investment in wind developer Triple Oak Power, which is currently for sale via Marathon Capital. That investment was made when many industry players were moving toward solar and dropping attention to wind.

Now, clean fuels are trading at a premium because of investor interest and generous government incentives for the sector, he noted.

“Hydrogen, if it works, may be more like solar,” Cumberland said, describing the hockey-stick growth trajectory of the solar industry over 15 years. If the industry is cost-competitive without subsidies, there will be a flood of project development that requires massive funding and talented management teams

“We won’t be late to the party,” he said.

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Electric Hydrogen to build electrolyzer gigafactory in Massachusetts

The VC-backed company plans to build a 1.2 GW factory, where it will produce its “world’s most powerful” 100 MW electrolyzer offering.

Electric Hydrogen Co., a manufacturer of advanced, industrial-scale hydrogen electrolyzer technology, announced the location of its first factory in Devens, Massachusetts.

The company has leased a newly constructed 187,000 ft2 facility and is now hiring production team members. The Devens factory will have an annual manufacturing capacity of 1.2 GW with production of EH2’s 100 MW green hydrogen electrolyzers commencing in Q1 2024.

“Our company has a single purpose: to make molecules to decarbonize our world,” stated David Eaglesham, EH2’s CTO and co-founder. “Industrial sectors such as fertilizer and steel need new ways to reliably replace fossil resources at costs that work. The machines we will produce at our new factory in Devens will have a transformational impact by enabling ultra-low-cost green hydrogen at an industrial scale.”

Green hydrogen, made by breaking the chemical bonds of water using renewable electricity, is a growth industry that can make an immediate impact on the global climate crisis. Electric Hydrogen expects its technology to establish the standard for industry-wide cost reduction to make green hydrogen cheaper than fossil alternatives.

“There are a lot of factory announcements in our industry, but not a lot of real capacity being built,” said Raffi Garabedian, EH2’s Chief Executive Officer and Co-founder. “We have a backlog of customer orders to fulfill and are moving quickly to build and ship the world’s most powerful electrolyzers.”

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Africa-based PE firm to buy Air Liquide assets in 12 countries

Adenia Partners is acquiring 12 Air Liquide subsidiaries in Africa.

Adenia Partners, a leading private equity firm that has been making responsible and sustainable investments in Africa for over 20 years, has signed an agreement with Air Liquide, world leader in industrial and medical gases, for the acquisition of 12 of its subsidiaries in West and Central Africa and the Indian Ocean.

As part of the agreement, the entities and employees in Benin, Burkina Faso, Cameroon, Congo, Ivory Coast, Gabon, Ghana, Madagascar, Mali, Democratic Republic of Congo, Senegal and Togo will form a new, independent, pan-African industrial gases group, that Adenia intends to strengthen and develop through long-term support and additional investments of up to 30 million euros.

In addition, as part of the transaction, Air Liquide has entered a long-term contract with Adenia for the supply of numerous industrial and specialty gases, according to a news release. These supplies, together with Air Liquide’s support in the transition, notably through a technical assistance contract, will complement future investments.

Christophe Scalbert, Partner at Adenia, commented: “With a presence in 12 countries, sales approaching 60 million euros, and unique expertise and teams, we see the emergence of a continental leader that will benefit from strong infrastructure development, increasing industrial activities and natural resources industries on the African continent. Adenia intends to accelerate the growth of this new group by investing heavily in production and storage capacity to better serve its customers.”

Completion of this transaction is subject to customary regulatory approvals.

Acquirer advisors :
– Financial, Tax and IT Due Diligence : Deloitte
– Legal (due diligence and documentation) : Asafo & Co
– Strategic and commercial advisor : Decrop Consulting
– Technical DD : DPGS & Alliance Partners
– ESG Due Diligence : ClassM

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Hydrogen tech firm looking for distribution partners with eye on Series B

A Florida-based hydrogen technology company is hoping to find strategic partners with distribution networks as part of its impending Series A capital raise, with an eye on a much larger Series B later.

BoMax Hydrogen, the Florida-based hydrogen production technology firm, is searching for strategic partners with distribution networks as part of its soon-to-launch Series A capital raise, CEO Chris Simuro said in an interview.

BoMax, founded in 2014 and headquartered in Orlando, will launch a $15m Series A on November 1, Simuro said. The company has hired Taylor DeJongh to run the process, as recently reported by ReSource.

Greenberg Traurig is the company’s law firm, Simuro said. They use a regional accountant in Florida.

Taylor DeJongh is looking for three to five investors to put in between $3m and $5m each. BoMax is in discussions with French container shipping company CMA-CGM as a potential investor, he said.

“We are truly searching for distribution partners,” Simuro said, adding that company doesn’t envision itself touching the end-use customer.

The Series A funds should provide up to 24 months of runway and expand the company’s manufacturing capacity, Simuro said. A follow-on Series B capital raise will likely be $100m or more.

BoMax has raised some $5m to date, including from state government aerospace economic development agency Space Florida.

Funds from the Series A will be used to make a beta prototype, scale operations at the company’s labs in Orlando and prepare for commercial production.

No electrolysis

The company touts a novel technology making hydrogen from visible light without the need for solar electrolysis, according to a pre-teaser marketing document seen by ReSource. An alpha prototype has been awarded by the US Department of Energy.

Requiring a larger footprint, electrolysis can ultimately produce 38 liters of hydrogen per hour per square meter, Simuro said. BoMax believes it can reach 50 liters per hour in six months time.

“It replicates how hydrogen is made in the natural world,” Simuro said. “In order to do this globally, we are going to need partners.”

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Exclusive: World Energy GH2 targeting early 2025 FID

World Energy GH2 is aiming to reach FID early next year – and advancing project financing discussions with a pair of advisors – on the $5bn phase 1 green ammonia development in Newfoundland and Labrador known as Project Nujio’qonik. We spoke to Managing Director and CEO Sean Leet in detail about the project.

World Energy GH2, the developer of a green ammonia export project in Newfoundland and Labrador, Canada, is aiming to reach FID in early 2025 on phase 1 of Project Nujio’qonik, Managing Director and CEO Sean Leet said in an interview.

Phase 1 of the project entails the construction of a 1 GW wind facility and 600 MW of electrolysis for an estimated cost of $5bn, Leet said. Once complete, the first phase of Project Nujio’qonik is expected to produce approximately 400,000 tonnes of green ammonia for export.

The developer is working with Green Giraffe and RBC Capital Markets to advance a project financing deal, the same advisors that assisted World Energy GH2 on a $95m loan from Export Development Canada, announced last week.

The debt-to-equity split for the $5bn capital raise is still being iterated as the company looks at financing options with the available government subsidies and potential support from export agencies, Leet said. The company has not yet lined up an arranger for debt financing and expects to make a decision on that role at a later date, he added.

A schedule update is in progress as part of the project’s FEED readiness assessment. This update, considering factors such as long lead item availability and offtaker delivery requirements, is a required step before the start of FEED and is expected to be released around April 15. 

The FEED readiness assessment, Leet said, “is a process that we’ve undertaken with some value engineering due to some learnings from the pre-FEED deliverables and some other aspects of just making sure we’re well prepared for FEED so we can execute flawlessly on that.”

Leet expects the FEED process will take between nine and 12 months, setting the developer up for an FID in early 2025. As part of a competitive bidding process, World Energy GH2 was awarded four different Crown land sites, each capable of producing 1 GW of wind power, allowing for additional phases up to 4 GW of renewables.

Newfoundland, the distant Canadian island where Project Nujio’qonik is located, has become a hotbed of green ammonia project activity due to its exceptional wind resource, with as many eight major projects springing up (see, and zoom, on map).

Investment outlook

The Canadian government has promulgated a clean hydrogen investment tax credit of up to 40% on certain expenses, available until 2035. And in its most recent budget, the government floated the idea of providing contracts for difference to help de-risk emission-reducing projects. 

Leet believes that the CfD arrangement, which will be administered by the Canada Growth Fund, will be tied to the Canada-Germany Hydrogen Alliance, an agreement that promotes clean hydrogen trade ties between the two nations. Canadian Prime Minister Justin Trudeau and German Chancellor Olaf Scholz signed the accord at World Energy GH2’s site in Stephenville, with the aim of shipping hydrogen or ammonia by 2025 – a timeline that looks increasingly stretched. And World Energy GH2 earlier this year became the first North American member of Germany’s Port of Wilhelmshaven's energy hub.

“Those details haven’t been announced yet but we’re hopeful that the CfD mechanism is there to work alongside the ITC,” Leet said.

Additional financing could come from more export credit agencies “in the countries you would expect” that would support local companies providing equipment to Project Nujio’qonik. “That will be a very likely piece of our financing arrangement.”

World Energy GH2 is in discussions with various offtakers, but will be able to engage in greater detail once the ITC and CfD subsidies are clarified, and once the project receives its environmental permit, Leets said. 

World Energy GH2 was set up as a standalone Canadian company with the sole purpose of executing on Project Nujio’qonik. It is owned by its founders along with SK ecoplant, the environment and energy arm of Korea’s SK Group, which took a 20% stake in the company – and also the project – for $50m.

Gene Gebolys, the founder and CEO of World Energy LLC, a provider of low-carbon fuels, is also a founder of Project Nujio’qonik. And John Risley, another partner of the Canadian project, is a co-owner of World Energy LLC.

Support from existing investors along with the Export Development Canada facility announced last week make the project entity well capitalized to move “expeditiously” through FEED to FID, Leet said.

Canada to Europe

World Energy GH2 is talking to the major ammonia players about a scale-up of import capacity on European shores.

Leet noted specifically that the Antwerp-Bruges port has plans to scale up to handle the increased amounts of ammonia imports, for use in the various industries located in Belgium and potentially on to Germany from there.

Three companies – Fluxys, Advario Stolthaven Antwerp, and Advario Gas Terminal – have said they are considering constructing an open-access ammonia import terminal at the port of Antwerp-Bruges. Air Liquide also said it will build an ammonia cracking facility there.

The Port of Wilhelmshaven, Germany, where World Energy GH2 is a member of the energy hub, has similar plans to scale up, with various companies evaluating ammonia import terminals and cracking facilities.

Meanwhile, Leet said the ammonia product that it ships to Europe, in addition to benefiting from Canadian subsidies and tax credits, will also comply with the EU’s RFNBO standards.

The project has existing grid and water connections already at the Port of Stephenville, since the hydrogen plant will be built on top of a former paper mill which consumed both water and electricity. 

“So we're fortunate to have that grid connection available to us and the power in the Newfoundland grid is well over 90% existing hydro,” Leet said. “So between that and our wind power, we will have no issue meeting the standard set by the EU for green hydrogen and it will be 100% RFNBO compliant.”

The company is working on regulatory certification with multiple bodies but has not finalized a provider.

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US salt cavern developer selling hydrogen storage project

A US-based developer of salt cavern projects for hydrogen storage has retained a financial advisor to sell its first project and is informally seeking an equity investor.

Phoenix Hydrogen, a salt cavern storage developer based in Berkeley, California, has hired a financial advisor to run a sale of its primary project in Arizona, according to two sources familiar with the matter.

Scotiabank is leading the process, which will launch next week, the sources said. The sale is for 100% of the company’s first project near Kingman, Arizona. The project is expected to reach FID in the next 18 months.

Phoenix CEO Shawn Drost said in an interview that the company is informally seeking a platform equity investment as well but is only willing to take on a minority partner. An equity sale would need to raise an amount in the “low-tens” of millions, he said. It’s a difficult proposition, as equity providers in the space tend to demand majority positions.

The company wants to bankroll projects from beginning to end as an owner operator, he said, but requires capital to do so.

Phoenix, a six-person team, has a relationship with GHD Group for EPC, he said. The company is seeking relationships with production-side developers to sign site and storage leases.

Scotiabank did not respond to requests for comment.

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Hydrogen liquefaction provider looking for growth equity

An emerging liquid hydrogen and liquefaction management company is seeking equity to support manufacturing expansion in Europe and the US.

Absolut Hydrogen, a French liquid hydrogen and liquefaction company based in Grenoble, is looking for equity to scale up production following operations of their demonstration project in France, CEO Jerome Lacapere said in an interview.

Absolut has a partnership with SAF firm ZeroAvia to develop refueling infrastructure for aircraft, and is primarily focused on serving the mobility sector.

A subsidiary of Groupe Absolut, the company offers a full LH2 product range with an entry small-scale hydrogen liquefaction system (< 50 kg/day), a 100 kg/day Turbo-Brayton based H2 liquefier and a 1T/day liquefier based on the same technology.The company's liquefaction demonstration plant in France should produce 100 kg per day, Lacapere said. After that Absolut will need new investment to scale production.Longer term the company has its sites on the US transport market, Lacapere said.“We need to grow in the United States,” Lacapere said. The company will need US-based advisory services and offices in the country to do that, he said.

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