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Exclusive: CCUS developer advancing $600m Louisiana sequestration hub

Mercuria Energy-backed CapturePoint this week announced its first 45Q tax credit direct transfer deal for CO2 captured from an ethanol facility. We spoke to CEO Tracy Evans about the deal and what’s next for the CCUS developer, including potentially raising $600m in project finance for a Louisiana carbon capture hub.

CapturePoint LLC recently closed on its first 45Q tax credit direct transfer deal for CO2 captured from an ethanol facility in Kansas, a mechanism that will be a major component of the company’s earnings amid growth in CO2 capture and sequestration.

Meanwhile, the Allen, Texas-based CCUS developer could seek to raise approximately $600m as soon as next year for a sequestration hub in Louisiana, for which it has applied for two Class VI sequestration wells from the EPA, CEO Tracy Evans said in an interview.

Under the direct transfer deal deal, CapturePoint will transfer 45Q tax credits generated at the Arkalon ethanol facility in Liberal, Kansas to an unnamed buyer for 12 years. Since CapturePoint transports the CO2 to injection wells used for enhanced oil recovery, the company receives the 45Q benefit of $60 per ton for EOR activities.

At full capacity, the ethanol plant produces 250,000 metric tons of CO2 annually, but usually undergoes two turnaround processes per year, which reduces output. 

The Arkalon facility had a previously installed carbon capture unit that was re-built by CapturePoint, a project that was funded from the company’s existing cash flows from its EOR business as well as draws on its $100m borrowing line, Evans said. Under 45Q, existing carbon capture facilities of which 80% or more are rebuilt can qualify for the tax credits.

The direct transfer of the 45Q tax credits was done at a discount, though Evans declined to disclose the amount.

Additionally, CapturePoint is capturing and removing CO2 from CVR’s Coffeyville fertilizer plant, also in Kansas, for which it completed a tax equity deal last year that opened up a stream of revenues.

Class VI wells

Both the Coffeyville and Arkalon plant operations are owned by the CapturePoint oil company, acquired along with oil and gas operations in 2017.

But CapturePoint has launched a carbon management subsidiary, CapturePoint Solutions, which will focus on industrial emissions to Class VI sequestration wells.

The subsidiary could seek to raise around $600m as soon as next year to build out a planned hub, the Central Louisiana Regional Carbon Storage Hub (CENLA), Evans said. The capital expenditure for the project includes a pipeline, five to seven capture facilities, and the sequestration site.

“We would love to do project finance, but we’d like to potentially start spending money now” versus waiting for a permit to construct, he said. “That seems to be the gating item for a lot of the project finance guys.”

He expects the project will take around two years to construct, thus to keep it moving, the company could spend money now on things like right-of-way and equipment using its own cash flow, he added, along with equity commitments from existing investors.

“The CapturePoint Solutions model is essentially based on only 45Q revenues,” Evans said. “Whether we’re taking them or whether somebody is paying us the transportation and sequestration fee, it’s still coming from the 45Q credits.”

CapturePoint Solutions has applied for three Class VI wells, two in Louisiana associated with the CENLA hub, and another in Oklahoma. Evans expects to have drafts of the Class VI wells from the EPA by late this year at the earliest, but Louisiana’s recently established primacy over the Class VI process could speed things up.

Evans said the company has already signed up 1.5 million tons of CO2 emissions at the CENLA hub, where the proposed sites each have 7.5 million tons of sequestration capacity annually.

“We’re still in a process of signing up emitters,” he said. “There’s additional capacity in the area, so we could easily expand to a third site.”

CapturePoint Solutions has also signed an agreement with Azure for a greenfield SAF plant in Kansas, where CapturePoint Solutions will tie in and take away CO2 to its planned Oklahoma site.

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Sumitomo eyeing stake in Calgary carbon capture project

Sumitomo has been granted the right to acquire an equity interest in the East Calgary Carbon Transportation & Sequestration Project.

Reconciliation Energy Transition Inc. and Sumitomo Corporation of Americas, a subsidiary of Sumitomo Corporation, have entered into an agreement whereby RETI has granted Sumitomo the exclusive right to acquire a significant equity interest in the East Calgary Carbon Transportation & Sequestration Project.

The CTS Hub is a proposed CO2 transportation and sequestration development project that is expected to involve constructing compression capacity, a COpipeline network, and injection and monitoring wells to support permanent sequestration of CO2 in deep saline aquifers at a location east of Calgary, according to a news release.

The project has an estimated first phase targeted CO2 storage volume of 3.0 million tonnes per annum.

“We are pleased to welcome Sumitomo to our East Calgary CTS Hub. They are one of the world’s leading trading and business investment companies and we are excited to work with their dedicated CCUS team. This partnership, with our commitment to Indigenous ownership, is a pivotal step to bring the CTS project to fruition.” said Stephen Mason, Chairman & CEO of RETI.

“We are delighted to partner with RETI and its commitment to meaningful Indigenous ownership on the development of the CTS Hub. The mitigation of climate change is one of our key areas of focus and we recognize that CCUS is a key technology in that battle,” said Shinichi “Sandro” Hasegawa, General Manager of Energy Innovation Initiative Americas at Sumitomo Corporation of Americas.

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WEC Energy Group, EPRI complete hydrogen blending test

During two weeks of testing in mid-October, hydrogen and natural gas were tested in blends up to 25%/75% by volume to power a reciprocating internal combustion engine.

Upper Midwest utility WEC Energy Group and the Electric Power Research Institute (EPRI) successfully demonstrated the blending of hydrogen in a natural gas generator.

The project is the first hydrogen power test of a utility-scale, grid-connected reciprocating engine generator in the world, according to a press release earlier this month.

During two weeks of testing in mid-October, hydrogen and natural gas were tested in blends up to 25/75 percent by volume to power one of the reciprocating engine generating units that serves customers of Upper Michigan Energy Resources, a WEC Energy Group subsidiary.

The testing was performed on an 18 MW unit that uses a technology known as RICE — reciprocating internal combustion engines. The RICE unit was continually monitored during the test to measure performance, output and emissions data.

“We’re very pleased to take a leading role exploring the potential of this technology as we focus on providing customers with affordable, reliable and clean energy,” said Gale Klappa, executive chairman — WEC Energy Group. “As we bring more renewable energy online, we must ensure that we can keep the lights on when the sun is not shining and the wind is not blowing. The results of this project are a strong indicator that these dispatchable units can run on very low- and no-carbon fuels.”

“Demonstration projects like this one are critical to advancing clean energy technologies needed to meet net-zero goals,” said EPRI President and CEO Arshad Mansoor. “This project will provide key insights on how this could be replicated around the world, providing energy companies with a suite of solutions to reduce carbon emissions. We look forward to working with WEC Energy Group and other energy stakeholders throughout the clean energy transition.”

WEC Energy Group has set some of the most aggressive environmental goals in the energy industry, including net-zero carbon emissions from electric generation by 2050 and net-zero methane emissions from natural gas distribution by the end of 2030.

WEC Energy Group and EPRI worked with numerous industry groups on the project, including Wärtsilä, Burns and McDonnell, and Certarus. The project would not have been possible without the cooperation and support of Cleveland-Cliffs, the primary user of the power generated by the test unit.

EPRI will share a complete analysis of the project in early 2023 to further inform the energy industry on ways to successfully use hydrogen for RICE power generation to support reducing carbon emissions.

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Macquarie Commodities supporting Mexico low-carbon methanol project

The project is expected to produce approximately 300,000 MT of green methanol from captured carbon and green hydrogen and 1.8 million MT of blue methanol per year from natural gas with carbon capture.

Transition Industries LLC has entered into a Master Services and Marketing Agreement with Macquarie Commodities Trading, an affiliate of Macquarie Group’s Commodities and Global Markets business, for its Pacifico Mexinol project, a 6,145 metric tons (MT) per day methanol production facility near Topolobampo, Sinaloa, Mexico, according to a news release.

When it commences operations, Pacifico Mexinol is expected to be one of the largest single low carbon chemicals facilities in the world – producing approximately 300,000 MT of green methanol from captured carbon and green hydrogen and 1.8 million MT of blue methanol per year from natural gas with carbon capture.

Under the terms of the MSMA, Macquarie is responsible for marketing all the production from Pacifico Mexinol to customers on a global basis in accordance with methanol offtake agreements, the provisioning of financial hedging services as required by the Project, and supporting the Project in commodity planning and contracting for all required feedstock. The MSMA has a term of 15 years from the Commercial Operations Date of the Project.

The International Finance Corporation, a member of the World Bank Group, is participating in the co-development of this global-scale low carbon methanol plant. IFC would act as project co-developer with Transition Industries LLC, and as the co-lead mandated arranger alongside Kreditanstalt fur Wiederaufbau IPEX. The MSMA and financing for Pacifico Mexinol were announced at a formal signing ceremony for the Joint Project Development Agreement in Dubai, UAE, alongside the COP28 conference.

Pacifico Mexinol is expected to reach Final Investment Decision in 2024 and Commercial Operations Date in late 2027.

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Exclusive: Advanced Ionics raising $12.5m, seeking pilot project partners

Advanced Ionics, an electrolyzer developer based in the Midwest, is approaching a close on the second tranche of its Series A and is seeking sponsors for pilot projects in Texas and elsewhere.

The company’s Symbiotic electrolyzers use steam by tapping into excess heat from industrial settings, thereby lowering electricity needs for water splitting to 35 kWh per kg, with 30 kWh per kg possible. That compares to industry averages over 50 kWh per kg.

Advanced Ionics, the Milwaukee-based electrolyzer developer, is about six weeks out from closing a second tranche of its Series A and is seeking new partnerships for pilot projects in the US, Chief Commercial Officer Ignacio Bincaz told ReSource.

Bincaz, based in Houston, is working to close the second $12.5m tranche, which is roughly the same size as the first tranche. The company has technical teams in Wisconsin but could build out those as well as commercial capabilities in Houston.
The company’s Symbiotic electrolyzers use steam by tapping into excess heat from industrial settings, thereby lowering electricity needs for water splitting to 35 kWh per kg, with 30 kWh per kg possible. That compares to industry averages over 50 kWh per kg.

“We just put together our first stack, Generation One, which are 100 square centimeters,” Bincaz said. Generation Two stacks will come later this year, but to get to Generation Three — commercial size, producing between 7 and 16 tons per day — the company will have to conduct a Series B about one year from now.

“For that, we need to hit certain benchmarks on durability of a stack,” he said. “The money will go toward scaling up and getting the data expected by investors to get us to Series B.”

Aside from equity provisions, Advanced Ionics is looking for sponsors for pilots and related studies, Bincaz said. “There’s different ways that we’re looking for collaboration.”

Between 2027 and 2028 the company expects to have commercial-size Generation Three stacks in the market.

Pilot projects

Advanced Ionics has two pilot projects in development with Repsol Foundation and Arpa-E (US Department of Energy), respectively.

The Repsol project is a Generation One development producing 1 kilogram per day, Bincaz said. The government project will be the first Generation Two project.

Another pilot is in development with a large energy company that Bincaz declined to name. The company is also exploring pilot projects with bp, which is an investor in the company.

After four or so pilot projects of ascending scale, the company will look to do its first industrial-scale project using real process heat or steam, integrated into a hydrogen-use process like ammonia manufacturing or chemical refining.

“We’re talking to companies in Asia, companies in Europe, companies in the US,” he said, specifically naming Japan and Singapore. “I’m in early conversations.”

Advanced Ionics’ first tranche Series A was led by bp ventures, with participation from Clean Energy Ventures, Mitsubishi Heavy Industries, and GVP Climate.

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exclusive

Advisor Profile: Cameron Lynch of Energy & Industrial Advisory Partners

The veteran engineer and financial advisor sees widespread opportunity for capital deployment into early-stage renewable fuel companies.

Cameron Lynch, co-founder and managing partner at Energy & Industrial Advisory Partners, sees prodigious opportunity to pick up mandates in the hydrogen sector as young companies and early movers attract well-capitalized investors looking for auspicious valuations.

The firm, a three-year-old boutique investment banking outfit with offices in New York and Houston, is broadly committed to the energy transition, but is recruiting for new personnel with hydrogen expertise, Lynch said, adding that he is preparing for a new level of dealmaking in the new year.

“I think we can all expect 2023 will be even more of a record year, just given the appetite for hydrogen,” Lynch said. “Hydrogen is one of our core focuses for next year.”

Cameron Lynch

Lynch started his career as a civil & structural engineer and moved into capital equipment manufacturing and leasing for oil & gas, and also industrial gasses –things like cryoge

nic handling equipment for liquid nitrogen. He started the London office of an Aberdeen, U.K.-based M&A firm, before repeating that effort in New York.

Founding EIAP, Lynch and his business partner Sean Shafer have turned toward the energy transition and away from conventional energy. The firm works on the whole of decarbonization but has found the most success in the hydrogen space.

Earlier lifecycle, better valuations

Hydrogen intersects with oil& gas, nuclear, chemicals, midstream companies, and major manufacturing.

Large private equity funds that want to get into the space are realizing that if they don’t want to pay “ridiculous valuations for hydrogen companies” they must take on earlier-stage risk, Lynch said.

Interest from big private equity is therefore comparatively high for early-stage capital raising in the hydrogen sector, Lynch said, particularly where funds have the option to deploy more capital in the future, Lynch said.

“They’re willing to take that step down to what would normally be below their investment threshold.”

Lynch, who expects to launch several transactions in the coming months with EIAP, has a strong background in oil & gas, and views hydrogen valuations as a compelling opportunity now.

“It’s very refreshing to be working on stuff that’s attracting these superb valuations,” Lynch said.

There’s a lot of non-dilutive money in the market and the Inflation Reduction Act has been a major boon to investors, Lynch said. For small companies, getting a slice of the pie is potentially life changing.

Sean Shafer

The hydrogen space is not immune to the macroeconomic challenges that renewables have faced in recent months and years, Lynch said. But as those same challenges have accelerated the move toward energy security, hydrogen stands to benefit.

Supply chain issues post-COVID pose a potential long-term concern in the industry, and equity and debt providers question the availability of compressors and lead times.

“I would say that’s one of the key issues out there,” Lynch said. There’s also the question of available infrastructure and the extent to which new infrastructure will be built out for hydrogen.

EIAP sees the most convincing uses for hydrogen near term in light-weight mobility and aerospace, Lynch said. The molecule also has a strong use case in back-up generation.

Hydrogen additionally presents companies in traditional fossil fuel verticals the opportunity to modernize, Lynch said, citing a secondary trade EIAP completed earlier this year

California’s Suburban Propane Partners acquired a roughly 25% equity stake in Ashburn, Virginia-based Independence Hydrogen, Inc. The deal involved the creation of a new subsidiary, Suburban Renewable Energy, as part of its long-term strategic goal of building out a renewable energy platform.

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