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FuelCell Energy secures $87m project financing

Investec led the financing effort, with proceeds used to repay existing indebtedness and potentially to accelerate commercialization of fuel cell technologies.

FuelCell Energy has entered into an $87m non-recourse project financing facility. In addition to diversifying the company’s access to capital, the proceeds from this facility were used to repay some of the company’s existing indebtedness and may be used to accelerate commercialization of its hydrogen fuel cell technologies, strategic initiatives, and for other general corporate purposes.

The multi-bank term facility includes Investec Bank plc as Coordinating Lead Arranger and Sole Bookrunner, Bank of Montreal as Mandated Lead Arranger, together with Liberty Bank as Depositary Agent and Lender along with Connecticut Green Bank and Amalgamated Bank as lenders. The 7-year term financing package comprises an $80.5m term loan and a $6.5m Debt Service Reserve Letter of Credit for a portfolio of six operating assets.

“At Investec, we have led more than $10bn in energy and infrastructure project financings over the past five years and this successful closing for FuelCell Energy evidences our continued commitment to help decarbonize the U.S. economy. We believe this financing strategy is ideal for FuelCell Energy, allowing the company to diversify its capital stack as well as access term project capital to support the growth of its business and operations of its existing assets,” said Fred Petit, co-head of Investec’s North American Power & Infrastructure Group.

“This facility enables FuelCell Energy to execute a more efficient financing structure by sensibly leveraging a portfolio of long-term contracted operating assets supported by investment-grade counterparties while attracting a diverse group of lenders and bringing material incremental cash back to FuelCell Energy. We are very pleased to have participation across this expanded bank group,” said Michael Bishop, EVP and CFO of FuelCell Energy. “The 7-year term allows the Company to navigate the current volatility in the fixed income markets and secure project financing at competitive pricing. FuelCell Energy is always looking to diversify our sources of capital while partnering with world class financial institutions such as those represented in this non-recourse facility,” added Mr. Bishop.

Proceeds to the Company following repayment of existing project debt were approximately $46.1m of unrestricted cash and $14.5m of restricted cash to fund performance reserves.

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Shell sells interest in SouthCoast Wind

Shell has sold its 50% interest in SouthCoast Wind, a proposed offshore wind farm off the coast of Massachusetts with 2.4 GW of capacity.

Shell New Energies US LLC (Shell), a subsidiary of Shell plc, has sold its 50% equity share in SouthCoast Wind Energy LLC (SouthCoast Wind) to joint venture partner Ocean Winds North America LLC (Ocean Winds), according to a news release.

Terms of the transaction were not disclosed.

SouthCoast Wind is a 50-50 joint venture between Shell and Ocean Winds, established to develop offshore wind projects off the coast of Massachusetts.

“In-line with our Powering Progress strategy, Shell continues to hone our portfolio of renewable generation projects in key markets where we have an advantaged position,” said Glenn Wright, Senior Vice President, Shell Energy Americas. “We are grateful to Ocean Winds for their years of partnership within this venture, and continue to seek opportunities to provide more energy, with fewer emissions.”

This deal was structured to simultaneously sign and close, with an immediate effective date.

SouthCoast Wind is developing a proposed offshore wind farm in US federal waters about 30 miles south of Martha’s Vineyard and 23 miles south of Nantucket, Massachusetts with an approximate capacity of 2,400 MW via Lease OCS-A 0521, which covers 127,388 acres. Formerly named Mayflower Wind Energy LLC, this joint venture was established in 2018.

Ocean Winds is a 50-50 offshore wind joint venture owned by EDP Renewables and ENGIE.

In the U.S., Shell is a 50-50 partner in an additional offshore wind joint venture, Atlantic Shores Offshore Wind LLC (Atlantic Shores), with EDF-RE Offshore Development, LLC. Atlantic Shores is developing a portfolio of wind farms off the coast of New Jersey and New York.

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Data: Japanese Companies in North American Clean Fuels Projects

An updated look — following JERA Co.’s framework with ExxonMobil, announced last week — at the Japanese firms that are making investments and forging project partnerships as that island nation seeks a North American footing for low-carbon fuels.

Here is an updated view of the Japanese firms with involvement in North American clean fuels projects, following the announcement last week that JERA Co. established a framework to potentially offtake and invest in a low carbon hydrogen and ammonia project at Exxon’s Baytown Complex.

Japan is one of the largest importers of hydrogen worldwide, and it’s betting big on clean hydrogen for its decarbonization, planning to spend over $20 billion over the next 15 years to subsidize its production and supply chain.

In addition to investing to increase local capacity, Japanese firms are also focusing on importing clean fuels, with an eye on North America and the United States specifically, where project developers are increasingly looking to South Korea and Japan as buyers.

Many Japanese companies are actively participating in clean fuels projects across North America, including hydrogen, ammonia, methanol, and biofuel projects.

Around 4% of all clean fuels projects in North America have one or more Japanese firms involved as co-developers, equity investors, or off-takers. The investments are mostly in the United States, and companies like Mitsubishi and Mitsui, which have a long history of US investments, are the most active.

Without committing to specific projects yet, developers like Sempra Infrastructure and 8 Rivers have signed MoUs with Japanese counterparts to promote the development of a clean energy supply chain, while others, like Intersect Power or Hydrogen Canada, are explicitly targeting Japan as an end market for their hydrogen products.

See a full list of North American projects with Japanese involvement.

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Atome seeking project finance for Paraguayan fertilizer project

The UK-based developer is seeking investors for a green fertilizer project in Paraguay to serve the South American and European markets.

Atome, the UK-based green hydrogen, ammonia, and fertilizer project development company, has issued a notice to seek project financing for a fertilizer project in Paraguay, according to information from the company.

The financing is for Phase 1 of the Villeta project, issued by Natixis Corporate & Investment Banking. The project will deliver green fertilizer to both South American and European markets.

The publicly traded company has large-scale projects in Latin America and Europe.

Carbon footprint analytics indicate a significant amount of carbon credit revenue generation, with some 500,000 credits potential each year, an alert sent out by the company states.

Management will present to all shareholders on 6 September at 11 a.m. BST. IDB Invest, the Washington DC based multilateral for the Americas, is already onboard with a signed mandate.

Initial carbon footprint analysis indicates a potential displacement of some 500,000 tons of carbon dioxide-equivalent each year from the production of green fertilizer at Villeta.

“As a result, the company estimates that it has the potential to generate approximately 500,000 valuable carbon credits each year,” company materials state.

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Exclusive: Additional details revealed on e-fuels equity raise

A US e-fuels developer is in the midst of a Series C raise with BofA Securities advising.

E-fuels developer Infinium is raising $300m in a Series C capital raise that launched last year, according to a source familiar with the matter.

BofA Securities has been engaged to advise on the process, as previously reported by ReSource. The amount of the capital raise was not previously reported.

Infinium and BofA did not respond to requests for comment. 

Infinium recently announced the existence of Project Roadrunner, located in West Texas, which will convert an existing brownfield gas-to-liquids project into an e-fuels facility delivering products to both US and international markets. Breakthrough Energy Catalyst has contributed $75m in project equity.

Infinium, which launched in 2020, closed a $69m Series B in 2021, with Amazon, NextEra and Mitsubishi Heavy Industries participating. Its Project Pathfinder in Corpus Christi is fully capitalized.

About a dozen projects, split roughly 50/50 between North America and the rest of the world, are in development now. The company is always scouting new projects and is looking for partners to provide CO2, develop power generation and offtake end products, an executive said previously.

A CO2 feedstock agreement for a US Midwest project with BlackRock-backed Navigator CO2 Ventures was recently scrapped after the latter developer cancelled its CO2 pipeline project.

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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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Cutting the electricity out of electrolysis

Milwaukee-based start-up Advanced Ionics is seeking to commercialize an electrolyzer that cuts electricity needs for hydrogen production to as low as 30 kWh per kilogram.

Advanced Ionics is seeking to ramp manufacturing capacity and raise capital as it begins to commercialize an electrolyzer promising to reduce electricity needs, CEO Chad Mason said in an interview.

The Milwaukee-based company is working to demonstrate its low-cost electrolyzer technology through a partnership with the Repsol Foundation.

The technology will be tested locally, but could grow to include additional tests and, eventually, a commercial relationship with the Spain-based energy and petrochemical company.

Advanced Ionics is looking to move into a larger facility in Milwaukee to advance early-stage production of the electrolyzer, which uses steam from process and waste heat to reduce the amount of electricity required in electrolysis.

The company last year raised $4.2m in a seed round led by Clean Energy Ventures, with participation from SWAN Impact Network. It has also received financial support from Repsol and $500,000 from the DOE.

As it scales, Mason said, the company will also need to raise additional capital, but he declined further comment.

Going to market

The Repsol arrangement is part of the company’s early access program allowing potential end users to take a first look at the technology.

“Repsol is just the tip of the iceberg here,” Mason said. “We’re talking to some really amazing partners at some of the largest energy companies in the world. People who use hydrogen today and want to make it green immediately understand what we’re doing.”

Given the concentration of hydrogen use in petrochemicals and ammonia, Advanced Ionics is targeting these sectors for deployment of its electrolyzers to produce clean hydrogen, Mason added.

Mason noted that, as the traditional petrochemical industry dies off over time, it will be replaced by green materials and green fuels like sustainable aviation fuel and biofuels that require hydrogenation to be useable.

“You’ll see a bit of a replacement happening on the petrochemical side, towards a green chemical,” he said, adding that a third potential key market is green steel production using hydrogen.

Thermodynamically favored

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’ water vapor electrolyzer

“We set out to build an electrolyzer specifically that would operate at intermediate temperatures,” he said. “And that allows you to have the synergy with those processes, and the downstream effect is the most cost-effective hydrogen you can get.”

The resulting hydrogen could be available for less than $1 per kg – but, Mason notes, the underlying power price math assumes an abundance of cheap, clean power. The models are usually pricing in two cents per kWh, the availability of which, Mason added, is “extremely geographically dependent.”

“If you’re in Texas, you have a system with wind, solar, and some amount of clean energy grid back-up, it’s pretty attractive,” he said. “Or if you hook up to a hydroelectric facility in the Northwest or in the Quebec area.”

Mason added, “Electrolysis rides on the coattails of cheap, clean electricity. What we have under our control is to make sure we’re using as little electricity as possible.”

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