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Exclusive: Zero-emission locomotive start-up in Series B capital raise

A locomotive start-up focused on the US market for zero-emission freight trains is undergoing a Series B capital raise, with sights on a much larger Series C raise next year.

OptiFuel Systems, a provider of zero-emission line haul locomotives and generation solutions, is conducting a $30m Series B capital raise.

The South Carolina-based firm is seeking to finalize the Series B by the end of this year, and plans to use proceeds to advance production of its zero-emission technologies for the rail industry, which represents a massive decarbonization opportunity, CEO Scott Myers said in an interview.

Meanwhile, the firm will seek to tap the market for around $150m for a Series C next year, Myers added. The company is not working with a financial adviser. 

While the Series B will focus on bringing to production some of OptiFuel’s smaller rail offerings, such as the switcher locomotives, the Series C will be mostly dedicated to progressing testing, manufacturing, and commercialization of its larger line haul locomotive.

The company is also considering making its own investments into digesters for RNG facilities, from which it would source the gas to run its RNG-fueled locomotives. As part of its offering, OptiFuel also provides refueling infrastructure, and envisions this aspect of its business to be just as profitable as selling trains.

“We anticipate that we would be the offtaker” of RNG, “and quite potentially, the producer,” Cynthia Heinz, an OptiFuel board member, said in the interview.

A systems integrator, OptiFuel offers modular locomotives for the freight industry that can run on zero-emission technology such as renewable natural gas, batteries, and hydrogen. The company recently announced that it will begin testing of its RNG line haul locomotive, which is a 1-million-mile test program that will take two years and require 10 RNG line haul locomotives.

Image: OptiFuel

The company’s target market is the 38,000 operating freight trains in the U.S., 25,000 of which are line haul locomotives run by operators like BASF, Union Pacific, and CSX. Fleet owners will be required to phase out diesel-powered trains starting next decade following passage of in-use locomotive requirements in California, which includes financial penalties for pollution and eventual restrictions on polluting locomotives. Other states are evaluating similar measures.

“The question is not will the railroads change over: they have to,” Myers said. “The question is, how fast?”

Following completion of testing, OptiFuel aims to begin full production of the line haul locomotive – which has a price tag of $5.5m per unit – in 2028, and is aiming to produce 2,000 per year as a starting point. The smaller switcher units are priced between $1.5m and $2.5m depending on horsepower.

OptiFuel has held discussions with Cummins, one of its equipment providers, to source at least 2,000 engines per year from Cummins to support its production goal. 

“That’s a $10bn-a-year market for us,” Myers added.

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CF Industries execs tout Waggaman ammonia plant acquisition

CF Industries executives touted their agreement to buy the Waggaman ammonia facility and predicted that many of the announced Gulf Coast ammonia projects will not get built.

Amid expectations for continued cost inflation to build the raft of announced Gulf Coast ammonia projects over the next few years, the per-ton cost of CF Industries’ acquisition of the Waggaman ammonia production facility is going to look “really attractive,” CEO Tony Will said today on an investor call.

CF in March agreed to pay $1.675bn to Incitec Pivot Limited to purchase an ammonia production complex located in Waggaman, Louisiana, with nameplate capacity of 880,000 tons of ammonia annually.

Asked about potential cost inflation due to a burst in planning and construction activity for ammonia plants, Will noted that the expects every aspect of the projects to experience cost pressures in the coming years, impacting both the time it takes for the projects to get built and the overall cost picture. (ReSource is tracking eight announced green or blue ammonia projects on the Gulf Coast.)

“The raw materials, the metals, the fabrication, the transportation, the labor — you’re seeing inflation in every single aspect,” Will said. “Remember, none of these projects that have been announced are really under way at this point, so minimum of 2027, maybe 2028 before any of these would potentially start up. It’s one of the reasons that make us so happy about the Waggaman acquisition, because our belief is, by the time some of these projects that are being discussed […] the cost per ton of capacity is going to look really attractive” from Waggaman, he added.

CF is under agreements with JERA Co., Lotte, and Mitsui to advance three separate clean ammonia facilities. It is also advancing green and blue ammonia elements at its Donaldsonville complex, and has entered into an agreement with NextEra to evaluate a joint venture to develop a zero-carbon intensity (green) hydrogen project at CF Industries’ Verdigris Complex in Oklahoma.

Addressing a question about long-term demand dynamics given the prospect of a flood of new ammonia capacity coming online, Will acknowledged uncertainty in the market but expressed confidence in the potential for long-term contracts with counterparties that will use ammonia as a source of clean energy.

“Whether its JERA, Lotte, or a number of others, they’re pretty far advanced in terms of their thinking on some of the pilot projects they’ve run on co-combustion and so forth,” he said. “Our sense is that [demand] is probably going to be developing in larger increments as we get into the ’27 – ’28 timeframe, but by the time we get to 2030 I think there will be a sizeable volume of ammonia consumed in non-traditional applications.”

Will expressed doubts about whether some of the announced Gulf Coast ammonia projects would ever get build. “How real are they, are they actually going to go forward, and are people going to be willing to put the money down?”

Looking back to 2012, Will noted there were around 27 new project announcements, of which only four got built, two of them by CF Industries and the other two by traditional industry participants. “A lot of the speculative plants that were talked about never materialized. And I would expect that same dynamic to happen here,” he said, characterizing some of the announcements as “vaporware.”

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Biomass-to-hydrogen developer to receive California grant

The first grant, of $500,000, will support Yosemite Clean Energy’s flagship project in Oroville, CA, and will help bring Yosemite to a final investment decision.

Yosemite Clean Energy was selected to receive two $500,000 Forest Biomass to Carbon-Negative Biofuels grants from the California Department of Conservation (DOC), according to a recent news release.

The first grant will support Yosemite’s flagship project in Oroville, CA, and will help bring Yosemite to a final investment decision; the plant will produce 24 tons of renewable hydrogen per day. The second grant will support preliminary engineering for Yosemite’s Tuolumne County hydrogen project.

The DOC grant program is a vote of confidence for forest biomass to biofuels projects in the state and will increase the pace and scale of biofuels development.

The projects funded under the program will support sustainable forest stewardship within California that will help reduce the risk of wildfires and provide zero emission, carbon-negative fuels for the transportation industry.

Yosemite’s applications were scored #1 and #2 out of the 8 projects selected to receive funding, the release says.

This grant is the first round in a two-phase grant program, with the second phase giving 2 to 4 awards of between $10m and $20m to construct projects. As stated on the Program website, the DOC received a $50m budget allocation in FY21-22 focused specifically on creating carbon-negative hydrogen and/or liquid fuel from forest biomass within the Sierra Nevada. The DOC has worked closely with both the California Air Resources Board (CARB) the California Energy Commission (CEC), and the Natural Resources Agency, CalFire, IBank, the Governor’s Office of Planning and Research, and the Sierra Nevada Conservancy to develop the grant program.

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Nikola introduces mobile fuel cell truck fueler

Nikola Corporation has developed a heavy-duty, 700 bar (10,000 psi) hydrogen mobile fueler capable of direct fueling hydrogen fuel cell electric vehicles.

Nikola Corporation has developed an innovative, heavy-duty, 700 bar (10,000 psi) hydrogen mobile fueler capable of direct fueling hydrogen fuel cell electric vehicles (FCEVs), according to a news release.

Nikola’s mobile fueler program includes its own mobile fuelers as well as a number of third party mobile fuelers, which will provide Nikola’s customers with a variety of flexible fueling options.

“Nikola has spent the greater part of two years developing a flexible mobile fueling solution which cools and compresses hydrogen to rapidly fill 700 bar FCEV heavy-duty trucks,” said Nikola Corporation President and CEO, Michael Lohscheller. “Coupled with Nikola’s hydrogen tube trailer, with a capacity of 960 kg, Nikola’s mobile fueler can refuel customer trucks back-to-back. This will deliver flexible hydrogen fueling solutions for our customers starting in 2023 and will complement Nikola’s permanent hydrogen fueling stations which are being developed.”

Nikola’s first mobile fueler has completed commissioning and testing and has been released for market operation. Nikola has additional hydrogen mobile fuelers being commissioned in Q1 2023.

“Nikola’s mobile fueler program will be an integral part of Nikola’s flexible customer service in its early years by delivering hydrogen to its FCEV customers at locations which meet their needs,” said Carey Mendes, Nikola Corporation president of energy. “Along with Nikola’s portfolio of hydrogen supply and permanent heavy-duty stations, these flexible mobile fuelers will ensure that our customers have complete coverage for their fueling needs.”

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Pharma and fuels tech provider could be ready for public listing

International biotechnology firm Insilico Medicine is applying the algorithms that produce novel drugs to synthesizing more sustainable petrochemical fuels and materials.

Insilico Medicine, a global biotechnology firm serving the pharmaceutical and carbon-based energy industries, could be ready for a public listing in the next phase of its corporate evolution.

Insilico, founded in Baltimore and now based in Hong Kong, has raised about $400m in private capital to date and is in the position of a company that would be exploring a public listing in the US and Hong Kong, CEO Alex Zhavoronkov said in an interview. He declined to say if he has hired a financial advisor to run such a process but said a similar company in his position would have.

The generative AI platform that the company uses to produce novel drugs can be applied to produce more sustainable carbon-based fuels, Zhavoronkov said. The objective is to maximize btu and minimize CO2, making the fuels burn longer and cleaner.

Saudi Arabia’s state oil company Aramco is a user of the technology and participated in Insilico’s $95m Series D (oversubscribed and split between two sub-rounds) last year through its investment arm Prosperity7.

Petrochemistry is going to be needed well into the future, Zhavoronkov said. In addition to renewable energy and other ESG efforts, the efficiency of petrochemicals should be a top priority.

“If you burn certain petrochemicals in certain combinations, you can achieve a reasonably clean burn and an energy efficient burn,” he said. For specific tasks like space travel or Formula 1 racing, combined fuels produce the necessary torque, and generative chemistry can achieve those objectives in a more sustainable way. “I think that we can make the world significantly cleaner just by modifying petrochemical products.”

The technology can also be used to make organic matter in petrochemical products degrade more quickly, which is useful in the case of plastics, Zhavoronkov said.

The company’s AI is primarily based in Montreal and in the drug discovery business in China, but fuel research takes place in Abu Dhabi. Zhavoronkov said he has hired a lot of “AI refugees” from Russia and Ukraine to work at the latter location. The company has 40 employees in the UAE and will likely scale to 70.

Insilico is capitalized for the next two years or so, he said. That doesn’t account for revenue, which closed at just under $30m in 2022. The petrochemical and materials business is under the AI research arm of the business, which is covered by funds raised to date.

“Our board would probably not allow me to reinvent myself as an energy play,” Zhavoronkov said. But the board does not object to applying resources to petrochemical products.

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Government money still top of mind for early movers in US hydrogen

Gaining access to funding from government and other agency sources is top of mind for many developers seeking to de-risk their projects and reach FID. But only hydrogen, ammonia, and other clean fuels projects exhibiting “the best in the business” are garnering support from government financing agencies and commercial lenders, experts say.

The US Department of Energy came out this week with the news that it was not yet ready to release the long-awaited winners of its $8bn hydrogen hubs funding opportunity, as Secretary of Energy Jennifer Granholm noted Monday at the Hydrogen Americas Summit in Washington, DC.

The delay disappointed many in the industry, who are also waiting for crucial guidance from the IRS on rules for clean hydrogen tax credits.

Gaining access to funding from government and other agency sources is top of mind for many developers seeking to de-risk their projects and reach FID. But only hydrogen, ammonia, and other clean fuels projects exhibiting “the best in the business” are garnering support from government financing agencies and commercial lenders.

Speakers on a financing panel at the summit yesterday pointed to the successful FID of the Air Products-backed NEOM green hydrogen project in Saudi Arabia as an effective project finance model, where major sponsors working together helped to de-risk the proposal and attract support from export credit agencies and global banks.

In the US, large players like ExxonMobil (Hydrogen Liftoff Hub), NextEra (Southeast Hydrogen Network), and Chevron (ACES Delta) have applied for DOE hydrogen hubs funding, according to the results of a FOIA request, joining major utilities and other oil and gas companies like bp and Linde in the running for funds.

In addition to inadequate regulatory guidance, some developers have already started grumbling that the proposed government assistance will not be enough to meet the scale of decarbonization needs. And the nascent clean fuels project finance market still needs to sift through techno-economic challenges in order to reach its potential, according to comments made yesterday on a panel called Financing Clean Hydrogen.

Leopoldo Gomez, a vice president of global infrastructure finance at Citi, sees a big role for the project finance framework for hydrogen facilities undertaken by independent project developers as well as strategics looking to strike the appropriate risk allocation for new projects.

And Michael Mudd, a director on BofA’s global sustainable finance team, said hydrogen projects are similar in many ways to established facilities like power and LNG, but with additional complexities, like understanding the impact of intermittent power and how to appropriately scale technologies.

Credibility

This year, Pennsylvania-based Air Products along with ACWA Power and NEOM Company finalized and signed an $8.5bn financing agreement for NEOM the project, which will build 4 GW of renewables powering production of up to 600 tons per day of hydrogen. The National Development Fund and the Saudi Industrial Development Fund kicked in a total of $2.75bn for the project, with the balance covered by a consortium of 23 global lenders.

“It is very important from the financing side to make sure the parties that are at the table are the best in the business, and that’s what we’re seeing with the projects that are able to receive either commitments from the DOE Loan Programs office or from commercial lenders and export credit agencies,” Gomez said.

Highly credible engineering firms are also critical to advance projects, and the EPCs themselves might still need to get comfortable integrating new technologies that add more complexity to projects when compared to power generation or LNG projects.

“The bottom line is that having someone that’s very credible to execute a complex project that involves electrolyzers or carbon capture or new renewable power generation within the parameters of the transaction” is critical for providing risk mitigation for the benefit of investors, Gomez added.

Funding sources

Additional funding sources are intended to be made available for clean fuels projects as part of the Inflation Reduction Act, the panelists said.

Most notably, tax credit transferability and the credits in section 45Q for carbon capture and sequestration and 45V for clean hydrogen are available on a long-term basis and as a direct-pay option, which would open up cash flows for developers.

“If you can use [tax credit transfers] as a contract, you can essentially monetize the tax credits in the form of debt and equity,” Mudd said. And if a highly rated corporate entity is the counterparty on the tax transfer, he added, the corporate rating of the buyer can be used to leverage the project for developers that don’t have the tax capacity.

Still, section 45V is potentially the most complex tax credit the market has ever seen, requiring a multi-layer analysis, according to Gomez, who advised patience among developers as prospective lenders evaluate the potential revenue streams from the tax credit market.

“First and foremost we’ll be looking at cash flows driven by the offtake contract, but it will be highly likely that lenders can take a view on […] underwriting 10 years of 45V at a given amount,” Gomez added.

Crucial guidance on how to conduct a lifecycle emissions analysis is still outstanding, however, making it difficult to bring all project parties to the table, according to Shannon Angielski, a principal at law and government relations firm Van Ness Feldman.

“It’s going to hinge on how the lifecycle analyses are conducted and how you have some transparency across states and borders” regarding the potential for a green premium on clean hydrogen, she added.

Agency support

In Canada, the Varennes Carbon Recycling plant in Quebec has received CAD 770m of provincial and federal support, primarily from the Canada Infrastructure Bank and the province of Quebec, noted Amendeep Garcha of Natural Resources Canada.

Around CAD 500m of funding from the Canada Infrastructure bank is also going to support hydrogen refueling infrastructure, Garcha said, with the aim of establishing a hydrogen highway that will form the basis of the hydrogen ecosystem in Quebec.

Pierre Audinet, lead energy specialist from World Bank Group, noted how the international development agency was stepping in to provide support for projects that might otherwise not get off the ground.

“In the world where I work, we face a lot of scarcity of capital,” he noted, adding that the World Bank has backed the implementation of clean fuels policies in India with a $1.5bn loan.

Additionally, the World Bank has supported a $150m project in Chile, providing insurance and capital for a financing facility that will reduce the costs of electrolyzers. Chile, while it benefits from sun and wind resources, said Audinet, is less competitive when it comes to transportation given its geographic location.

The agency is also working to help the local government in the Northeastern Brazil port of Pecem. Shared infrastructure at the port will help reduce risks for investors who have taken a stake in the port facilities, Audinet said.

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Avangrid touting green hydrogen opportunity in onshore renewables sale

Advisors selling up to 50% of the company’s US onshore renewables platform are pitching the value-enhancing potential of green hydrogen development in the process.

Avangrid is touting the opportunity to develop a major pipeline of green hydrogen projects as it prepares to collect initial bids for a stake in its US onshore renewables platform, according to two sources familiar with the matter.

The Portland, Oregon-based clean energy firm, which is owned by Spain-based Iberdrola, is running a process to sell up to a 50% stake in roughly 9.6 GW of operational projects and an 18 GW development pipeline, the sources said. The process launched in March with Lazard and Rothschild on the sellside.

As part of the platform’s opportunities for value enhancement, the company is promoting the potential for green hydrogen, with a sale teaser noting that parent Iberdrola is a global leader in green hydrogen development with two operational projects and 60 in development.

“[Avangrid] Onshore Renewables intends to leverage this experience to become an early leader in hydrogen project development in the US,” the teaser reads, stating a goal of building out some 900 MW of green hydrogen projects by 2035.

The company is also involved in seven “hydrogen hub” regions in the US: regions participating in the Department of Energy’s grant process for funding under the Bipartisan Infrastructure Act.

Avangrid last year signed an MoU with Sempra Infrastructure to develop large-scale green hydrogen and ammonia projects powered by renewable sources. The teaser notes that the company is advancing a flagship joint development project and initiating conversations with offtakers.

The operating renewables portfolio for sale includes 8.7 GW of wind power and some 300 MW of solar in Pennsylvania, Colorado, California, New York, Iowa, and North Carolina, along with the 536 MW Klamath cogeneration plant in Oregon. The development pipeline has roughly 14.2 GW of solar and solar-plus-storage capacity and 3.8 GW of wind.

Avangrid declined to comment. Rothschild and Lazard did not respond to requests for comment.

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