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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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Green ammonia developer seeking financing or buyer for Midwest projects

A developer of large-scale green ammonia projects in the Midwest is seeking co-financing or a buyer for its approximately 5.5 GW pipeline of projects.

GoSolar, a large-scale green ammonia and renewable energy developer, has an approximately 5.5 GW pipeline of projects in the Midwest, and is seeking co-financing to develop the projects or buyers that would assume control.

The two large-scale projects that are the most advanced are in Iowa and Missouri, and both consist of one part that is off-grid DC power for hydrogen and ammonia production, and another part that is grid-connected for local energy needs but which can also produce hydrogen, Gordon Baier, the firm’s co-owner and CEO, said in an interview.

The company conducted a year-long analysis of potential locations before settling on sites that were near expected coal-plant retirements, ammonia pipelines, water access, and offtake markets, he said. The Iowa and Missouri projects are located near the NuStar Energy ammonia pipeline, which opens up wider market access.

Baier, a native of Germany who has developed over 100 renewable energy projects, said that offtakers as well as potential financing partners or acquirers for the projects could be nearby fertilizer plants and their owners: Koch Industries, the owners of Iowa Fertilizer Company; CF Industries; and BASF. 

GoSolar has not engaged a financial advisor. It is using Hodgson Russ as legal counsel.

An ideal partner would be a long-term owner and operator that would contract with GoSolar under a development services agreement. “Or it could be an EPC who wants to flip it later to whomever puts the highest price on the table. At this point we are open and flexible,” Baier said.

The Iowa project in Lee County consists of a planned off-grid 1,850 MW DC PV solar plant to DC buffer storage and 370 MW DC hydrogen electrolyzer capacity, producing 340,500 metric tons of certified green ammonia per year. The project also has a separate grid-connected section with 207 MW DC PV solar and 207 MW BESS planned.

To the south, in Marion County, Missouri, GoSolar has planned a 3,700 MW+ DC solar plant, also off grid, with BESS storage and 750 MW of electrolysis, with production of 675,000 tons per year of green ammonia. In addition, a grid connected portion of the Missouri project would have 500 MW+ DC PV solar, 500 MW+ BESS, and 100 MW of hydrogen production.

The projects can scale further in phase 2, to around 10 GW of total renewable capacity, Baier noted. GoSolar is in discussions with thyssenkrupp Nucera and thyssenkrupp Uhde to provide electrolyer and ammonia production technologies, respectively.

The DC-to-DC-to-DC aspect of the projects mean the project is 20% more efficient, as they are not incurring losses on DC/AC conversion, Baier said. “And that is a big boost to make this very, very viable,” he said, adding that the project is being evaluated by RMI and that he hopes to showcase project feasibility in the next few weeks.

Additionally, the DC electricity is off grid and therefore qualifies under 45V requirements for clean hydrogen without interfering with the grid, he added.

Meanwhile, GoSolar set up the non-DC portions of its projects following a one-to-one ratio for solar PV and BESS in order to sell an attractive resource profile into the electricity supply market. 

“The main reason behind that is to have a long duration and full capacity to buffer eventually all of the solar into the battery so that you are not being curtailed on the other end,” he said. “That’s exactly what the utilities are looking for: to have sufficient energy on hold for a demand response in peak, or as a long-duration load to the grid to simulate their shutting down coal power plants or potentially shutting down their nuclear plants.”

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FuelCell Energy secures $20m debt financing for Naval Submarine Base

Lenders on the financing include Liberty Bank and Amalgamated Bank.

FuelCell Energy, Inc. has closed on a project debt financing transaction with Liberty Bank and Amalgamated Bank as senior lenders and the Connecticut Green Bank as subordinated lender for its Connecticut Municipal Electric Energy Cooperative (CMEEC) fuel cell microgrid-ready project at the Naval Submarine Base New London, located in Groton, Connecticut (Groton Project).

Liberty Bank and Amalgamated Bank’s senior commitment totals $12m with a seven-year term and Connecticut Green Bank’s commitment totals $8m with a 20-year term, according to a news release.

According to SEC filings, the portion of the loan provided by Liberty will accrue at 6.75%, while the piece from Amalgamated Lender will accrue interest at 6.07% during all times at which a “Carbon Offset Event” is not continuing and 7.32% at all times at which a “Carbon Offset Event” has occurred and is continuing.

Michael Bishop, EVP and CFO of FuelCell Energy, said, “We are thrilled to enter into this long-term financing solution with this banking group. With its recurring revenue and cash flow profile, this fuel cell project allows for the efficient and cost-effective financing of our Company. In addition, we believe this financing further highlights financial institutions’ confidence in the demonstrated long-term performance of our globally deployed power platforms. Lastly, the long-term nature of the loan commitments allows the Company to confidently redeploy that capital in support of our growth initiatives.”

“The Connecticut Green Bank is proud to be part of the Groton Project. This strategically important project and our continued partnership with FuelCell Energy, Amalgamated Bank, and Liberty Bank exemplify how the green bank model works to leverage public dollars to attract multiples of local- and national-level private investment into clean energy infrastructure,” said Bert Hunter, Executive Vice President and Chief Investment Officer of the Connecticut Green Bank. “This also highlights the environmental, economic, and strategic value of distributed base load fuel cells, capable of operating as a microgrid, as a key to grid resilience, reliability, and energy security, especially for our nation’s military defense.”

“Liberty Bank is proud to support FuelCell Energy, Inc., a leader in the green energy industry, with project financing for the Groton Project to provide grid resilience for the local community and our nation’s military. Liberty Bank is committed to clean energy solutions partnering with The Connecticut Green Bank, who is a testament to the power of collective action in addressing the urgent challenge of providing sustainable energy sources to Connecticut,” said Daniel Longo, First Vice President of Liberty Bank.

William Peterson, SVP Senior Lending Officer & Director of Climate Lending of Amalgamated Bank, commented, “Our team’s significant experience in sustainable lending uniquely positioned Amalgamated to partner with Liberty Bank and the Connecticut Green Bank to underwrite FuelCell Energy’s project at the Naval Submarine Base as it further develops its power supply through sustainable energy. Sustainable lending is a critical and growing source of financing as the United States strives to achieve net-zero emissions across federal operations by 2050. Amalgamated’s team of recognized thought leaders and sustainable lending experts are excited by the opportunity to help combat climate change as we work to underwrite sustainable solutions and emerging technologies much like FuelCell Energy’s project with the U.S. Navy.”

Bishop concluded, “We believe that the commitment from these respected financial institutions demonstrate the financeability of the solutions FuelCell Energy is offering to customers like CMEEC, that are helping them achieve their decarbonization, resiliency and clean energy goals.”

Proceeds of this financing have been (i) redeployed to FuelCell Energy (ii) used to retire a $3m corporate credit facility with Connecticut Green Bank (iii) used to fund project reserves and (iv) pay transaction fees.

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Raven SR raises $15m, makes board appointments

Ascent Funds led the latest $15m investment into the renewable fuels firm, with contributions from existing investors Chevron New Energies, ITOCHU Corp. and Stellar J Corp.

Raven SR Inc., a renewable fuels company, has board additions and an executive promotion, coupled with securing $15m in new investments.

The company said the latest fundraising underscores the confidence in Raven SR’s proprietary Steam/CO2 Reforming technology that converts various waste streams into renewable transportation fuels like hydrogen and sustainable aviation fuel (SAF). The process outperforms all known alternatives in efficiency, producing more hydrogen and SAF per ton of waste, according to the company.

In August, 2021, Raven closed on a $20m strategic investment from Chevron U.S.A., ITOCHU Corporation, Hyzon Motors Inc. and Ascent Hydrogen Fund. Samsung Ventures made a strategic investment earlier this year, allowing the company to expand into the Asia-Pacific market.

In 2022 it launched a Series C funding round led by Barclays and BofA Securities.

In addition to today’s funding milestone, Raven SR said Stuart McFarland, former CFO of Fannie Mae, has been appointed chairman of the Board of Directors, with Mark Gordon, chief investment officer of Ascent Funds, as vice chairman.

Named as new board members: Justin Heyman, managing director of RockCreek Group, and Robert Kinghorn, founder and CEO of Stellar J Corp. Matt Scanlon, the current CFO, has been promoted to president and interim CFO.

Ascent Funds, a venture capital fund dedicated to advancing the energy transition, led the latest $15m investment, with contributions from existing investors Chevron New Energies, ITOCHU Corp. and Stellar J Corp., the engineering, procurement and construction company managing construction of Raven SR’s hydrogen project in Richmond, California.

“Raven SR is pleased to have the continued and enhanced support of our investors as we move toward construction of our organic waste-to-hydrogen facility,” said Matt Murdock, founder and CEO of Raven SR. “This funding is crucial for finalizing our production setup, and the expanded board strengthens our team for the next phase.”

McFarland said he was honored by the board’s trust in his leadership and is looking forward to teaming with Murdock as they move the company ahead. McFarland also acknowledged the support from shareholders and the dedicated project team, emphasizing their importance in Raven SR’s journey.

“With this solid foundation, 2024 is shaping up to be a landmark year for Raven SR as it commercializes its Steam/CO2 Reforming technology to bring clean and sustainable fuel to the world,” said McFarland.

Raven SR’s unique process is non-combustion and catalyst-free as verified by the California EPA. The Richmond project is the first and only California Environmental Quality Act-permitted biomass-to-hydrogen facility in the state.

The Steam/CO2 Reforming technology diverts waste from landfills, produces a carbon-negative fuel and ensures a low carbon footprint compared to traditional hydrogen production methods, placing Raven at the forefront of the waste-to-hydrogen sector.

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Exclusive: Monarch Energy targeting green hydrogen FID in 2024

Monarch is moving forward with several green hydrogen projects in the Gulf Coast region, most notably a 500 MW project near Beaumont, Texas and a 300 MW project near Geismar, Louisiana.

Green hydrogen developer Monarch Energy aims to take its first final investment decision as soon as next year, CEO Ben Alingh said in an interview.

Monarch is moving forward with several green hydrogen projects in the Gulf Coast region, most notably a 500 MW project near Beaumont, Texas and a 300 MW project near Geismar, Louisiana.

Alingh said the company is seeking to advance the projects to FID by late 2024 and early 2025. Monarch has not engaged a project finance banker yet, he said.

The company recently announced a $25m preferred equity investment and $400m project equity commitment from LS Power.

The proceeds of the preferred equity raise will fund pre-FID aspects of Monarch’s 4.5 GW green hydrogen development platform: overhead, project development, interconnection, land, permitting, and engineering.

The $400m commitment, meanwhile, is earmarked for project equity investments in Monarch’s pipeline of projects. Under the arrangement, the projects will be dropped into a new entity, Clean Hydrogen Fuels, LLC, where LS Power provides the capital and Monarch provides the project, Alingh said.

“On a project-by-project basis the projects will be transferred to Clean Hydrogen Fuels if they are selected,” he said. The Clean Hydrogen Fuels entity is jointly owned by Monarch and LS Power.

Monarch did not use a financial advisor for the capital raise. Clean Energy Counsel served as Monarch’s law firm.

For both the Beaumont and Geismar facilities, Monarch has signed MoUs with Entergy to supply long-term renewable power. Monarch is engaged with industrial users of hydrogen in each location as potential offtakers. It plans to deliver hydrogen via local Monarch-developed hydrogen pipelines that it is developing with EPC partners, he said.

“We endeavor to be as close to our end user as possible with our electrolyzer project, to limit development and execution risk on delivery,” he said. For the volumes of Monarch’s projects, trucking solutions are not on the table, he said, as it would simply require too many trucks.

The company has additional production facilities under development in Freeport, Texas, as well as four other locations in Texas, according to the ReSource project database.

Monarch is also interested in end markets for hydrogen derivatives like methanol and ammonia, but Alingh notes that every project “starts with one core focus, and that is making the cheapest green hydrogen possible.”

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Exclusive: Pan-Atlantic developer planning e-methanol project in West Texas

A clean fuels developer with projects on both sides of the Atlantic is pursuing an e-methanol project in West Texas with an estimated cost of between $800m – $900m.

Green fuels developer ETFuels is planning an e-methanol project in West Texas.

Following the blueprint of projects in development in Finland and Spain, ETFuels has leased land and the Lone Star State is in the early stages of determining the feasibility of the project, which would require between 300 MW – 500 MW of renewables, Director Patrick Woodson said.

Depending on the ultimate size of the project, it would cost between $800m – $900m and produce 80,000 to 120,000 tons per year of e-methanol on site, he said, which would then be trucked to end markets.

“We like the modularity of projects of that size,” he said, noting “more optionality to bring projects to market.”

Woodson, the former CEO and Chairman of E.ON Climate & Renewables, a renewables developer, said ETFuels would develop the renewables portion of the project internally.

The company is still exploring likely target markets for the e-fuels, but Woodson noted that they perceive robust demand for green methanol from the shipping industry.

“We understand the decarbonization challenges faced by the shipping industry are significant, with question marks over pricing and supply availability at scale, and we are addressing these head-on,” ETFuels CEO Lara Naqushbandi said in a news release last year.

ETFuels attracted financial backing last year from France-based SWEN Capital Partners, with Green Giraffe providing financial advisory services.

For its Spain project, the company is developing a 100,000 ton green methanol plant, including 420 MW of solar PV and 120 MW of onshore wind capacity powering 220 MW of electrolyzers.

It expects to take a final investment decision on the Spain project by 2025, with production anticipated for 2028, according to the company website.

ETFuels as a third project in development in Finland, powered by “relentless” Arctic winds.

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Exclusive: Emissions reduction technology firm in Series A capital raise

A technology start-up that uses plasma to reduce emissions from natural gas and methane flaring is seeking an additional $15m to top off its Series A capital raise. One of its principal products converts natural gas into hydrogen and usable graphene with no CO2 emissions.

Rimere, a climate solutions company with proprietary plasma technology, is seeking to raise an additional $15m as part of its ongoing Series A capital raise.

The start-up recently announced an anchor investment of $10m from Clean Energy Fuels Corp, a publicly listed renewable natural gas firm, and is pursuing further investments from strategics and financial players, with an eye on closing the round in 2Q24, CEO Mitchell Pratt said in an interview.

The company is not currently working with a financial advisor on the Series A capital raise, Pratt said. Its legal counsel is Morrison Foerster.

The anchor investment along with additional funds raised will allow Rimere to advance development and field testing of its two principal products, the Reformer and the Mitigator. 

The Mitigator is a plasma thermal oxidizer that reduces the greenhouse gas potency of small-scale fugitive methane emissions, while the Reformer transforms natural gas into clean hydrogen and usable graphene without creating any CO2 emissions.

The products are meant to work in tandem to decarbonize natural gas infrastructure and deliver cleaner gas to end users in transportation, power generation, and industry.

“We believe that, overall, what the technology does is revalue natural gas reserves and the long-term viability of natural gas for global future energy,” Pratt said.

Commercial strategy

Rimere will develop a commercial strategy throughout the course of this year for the Mitigator, and plans to deploy the product in the beginning of next year.

“We have quite a bit of interest for this as a solution because of the low cost of the product and the terrific results,” Pratt said, noting that the Mitigator removes CO2 for under $5 per metric ton.

In contrast, the Inflation Reduction Act passed in 2022 introduced the Methane Emissions Reduction Program, a charge on methane emitted by oil and gas companies that report emissions under the Clean Air Act. The charge starts at $900 per metric ton of methane for calendar year 2024, increasing to $1,500 for 2026 and beyond.

To be sure, the Mitigator, as a thermal oxidizer, transforms methane, which is a much more potent greenhouse gas, into hydrogen, water, and CO2 for a net reduction of the global warming impact of 200 metric tons a year of CO2.

The Reformer, a container-style unit, is being scaled up to produce 50 kg per day of hydrogen from natural gas along with 150 kg of graphene, a marketable nano carbon where the CO2 is captured. Graphene is used in batteries, composites, medical devices, and concrete to reduce greenhouse gas emissions, among other applications.

Rimere plans to increase the scale of the Reformer to between 400 – 600 kg per day and raise additional funds next year, Pratt said. The amount of funds needed for that is not yet known, he said.

Pratt envisions an application for hydrogen blending using the two products.

“We see it as a way to decentralize hydrogen production, taking advantage of a cleaner natural gas infrastructure, because we’ve applied the Mitigator to cleaning up those fugitive methane emissions that are occurring in the normal operations of equipment,” Pratt said.

For example, Rimere can tap into a natural gas pipeline, take a slipstream of gas, extract the valuable graphene, and then re-inject hydrogen and natural gas back into the pipeline.

Additionally, the blending application can be positioned at an end-use customer’s facility, allowing the Reformer to start blending hydrogen into the gas stream, going into boilers and burners and reducing the CO2 emissions more effectively and immediately, Pratt said.

$1 per kg

Taking the average cost of delivered natural gas and power to industrial users, the company can already produce hydrogen at $1 per kilogram, Pratt said.

For every four kilograms of end-use product – one being hydrogen, the other three graphene – the energy cost allows hydrogen to be produced at or below $1 per kg.

“The last 12 months of running is less than a dollar,” he said, emphasizing that the graphene production is not subsidizing the hydrogen.

“Although the value of graphene could make hydrogen a throwaway fuel.”

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