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Houston investment firm takes stake in hydrogen company

The target company, Kaizen Clean Energy, specializes in the design, development, and manufacture of hydrogen generators for decentralized power.

Balcor Companies has taken a stake in Kaizen Clean Energy, Inc., a developer of hydrogen-based distributed energy resources, according to a news release.

Terms of the investment were not disclosed.

Founded in 2021, KCE is a future fuels-focused company, headquartered in Houston, TX, specializing in the design, development, and manufacture of hydrogen generators for decentralized power in transportation, power, agricultural, EV charging, municipalities, and hydrogen markets, according to the release.

Balcor Companies is an investment firm headquartered in the Museum District of Houston, Texas. They are composed of three divisions: hospitality, commercial real estate, and private equity.

Balcor’s founder and director, Chris Balat, said, “We are thrilled to make our first foray into the energy sector with Kaizen Energy as our trusted partner. Our association with Kaizen is a testament to our commitment towards a sustainable future, driving positive change in the world while delivering value to our stakeholders.”

Kaizen Clean Energy, a dynamic and forward-thinking energy company, is equally excited about the collaboration and its potential to accelerate clean energy adoption in the United States. Craig Klaasmeyer, Kaizen’s Co-Founder stated, “We welcome our future collaboration with Chris and his team at Balcor. Through our long-standing relationship with Balcor, we realize there is a shared vision of the potential for Kaizen to reduce global emissions.”

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Tenaska unveils Alabama CCS hub

Construction on the project is slated to begin as soon as late 2025, pending permitting approvals.

Tenaska has unveiled the Longleaf CCS Hub, a carbon capture and storage (CCS) project planned for Mobile County. The facility will provide an innovative business solution to assist manufacturers, power plants, industrial processors and other industries in South Alabama in meeting emissions regulations and climate mandates.

Longleaf CCS Hub is participating in an award through the U.S. Department of Energy’s (DOE) Office of Fossil Energy and Carbon Management (FECM), allowing for $17.9 million in funding to support geologic characterization and permitting efforts, according to a news release.

This DOE funding brings together a diverse project team, which includes Southern States Energy Board (award recipient), Tenaska, Advanced Resources International, Crescent Resource Innovation, ENTECH Strategies, the Geological Survey of Alabama, the University of South Alabama and Williams. Baker Hughes Oil Field Services and Environmental Resources Management will also participate as vendors, with Southern Company Services taking on the role of the Project Industry Network lead.

Tenaska’s initial development of the Longleaf CCS Hub started in 2022. The project’s Class VI application is under review by the U.S. Environmental Protection Agency, and Tenaska has solicited interest from a number of emitter customers in the region. Pending all necessary permitting approvals, construction is slated to begin as soon as late 2025, with commercial injection expected a year later. Actual start of construction will be scheduled to synchronize the start of injection with the customers’ readiness to capture CO2.

The project aims to add to the stability and growth of the region, offering a viable path for existing businesses to comply with evolving environmental standards and attracting new ventures that will contribute to the region’s economic vitality and employment opportunities.

“Through the Longleaf CCS Hub, we’re not just addressing the growing demand for efficient CO2 management solutions; we’re fostering an ecosystem of economic resilience and sustainability,” said Joel Link, president of Tenaska’s Development Group. “This project reflects our commitment to innovative solutions while propelling Alabama to the forefront of economic growth.”

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NGT/NOGAT transitioning North Sea pipelines from gas to H2

The pipeline owners are the first to receive the Certificate of Fitness for the transport of green hydrogen in the North Sea.

Noordgastransport (NGT) and Northern Offshore Gas Transport (NOGAT) are the first pipeline owners to receive the Certificate of Fitness for the transport of green hydrogen through their existing pipelines in the North Sea, according to a press release.

The certificate was issued by Bureau Veritas Inspection & Certification. NGT’s 12-to-14 MW pipeline currently carries natural gas from the UK border to Uithuizen, but is now certified to carry up to 100% hydrogen.

“By making use of existing infrastructure, we are able to make the transition to green hydrogen in the North Sea more swiftly,” Hans Janssen, director at NOGAT, said in the release. “This can be pure hydrogen, but also a temporary mix of natural gas and green hydrogen.”

In 2018 DNV investigated the robustness of the pipelines’ steel, which showed that the steel is suitable and safe for hydrogen transportation. The pipelines are regularly inspected internally and externally to ensure their integrity. A major inspection is conducted every five years. The pipelines are supervised by the State Supervision of Mines. The Certificate of Appropriateness is valid until 2062.

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US fuel cell developer garners tax equity investments

Connecticut-based fuel cell developer FuelCell Energy has closed on tax equity financings supporting at least three fuel cell projects in the US.

Connecticut-based fuel cell developer FuelCell Energy has closed on tax equity financings supporting at least three fuel cell projects in the US.

The company closed on a tax equity financing transaction with East West Bank for the 7.4 MW fuel cell project located on the US Navy Submarine Base in Groton, CT, also known as the Submarine Force. East West Bank’s tax equity commitment, closed in August 2021, totals $15m.

FuelCell Energy installed 7.4 MW of SureSource™ power platforms at the U.S. Navy Submarine Base in Groton, CT to provide a long-term supply of power to an existing electrical substation, according to a news release. The fuel cell plant is part of a multifaceted plan by the Connecticut Municipal Electric Energy Cooperative to provide new power resources and support the desire of the Department of Defense to add resiliency and grid independence to key military installations. The highly efficient fuel cell power generation project minimizes carbon output while providing continuous power to the strategic military base. The U.S. Navy continues to purchase power from CMEEC and Groton Utilities, who in turn purchase the power from FuelCell Energy under a 20-year power purchase agreement.

This pay-as-you-go structure enables CMEEC and the Navy to avoid a direct investment in owning the power plant which will be operated and maintained by the company.

The company also closed on a tax equity sale-leaseback financing transaction for the 1.4 MW SureSource 1500™ biofuels fuel cell project with the City of San Bernardino Municipal Water Department in California with Crestmark Equipment Finance, a division of MetaBank®. Crestmark’s commitment totals $10.2m through a ten-year sale-leaseback structure and further demonstrates the market’s interest in FuelCell Energy’s differentiated ability to use on-site biofuels, to eliminate flaring and deliver carbon neutral decarbonization energy platforms.

A third tax equity investment in 2021 came from Franklin Park for the 7.4  MW fuel cell project located in Yaphank, Long Island, in New York. Franklin Park’s tax equity commitment totals $12.7m following the declaration of mechanical completion of the 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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California renewables developer taps advisor for capital raise

Utility-scale solar and storage developer RAI Energy has tapped an advisor for a capital raise. The company is evaluating co-development conversion for green ammonia production at projects in Arizona and California.

RAI Energy, the utility-scale solar and storage developer, has hired an advisor as it pursues a capital raise.

The company is working with Keybanc Capital Markets in a process to raise up to $25m, according to two sources familiar with the matter.

In an interview, RAI Energy CEO and owner Mohammed S. Alrai said the company “is excited about having [Keybanc] act as our financial advisors on this fundraising round.” He noted that RAI is first a solar-plus-storage developer and is approaching investors as such.

However, RAI is evaluating co-development conversion for green ammonia production at two of its project sites in Arizona and California, he said.

“Hydrogen is a natural next step,” Alrai said of his company, adding that the end-product would be green ammonia for use in fertilizer production and industrial sectors. Pure hydrogen could also be kept for use in transportation.

A variety of partnerships would be required to develop hydrogen at RAI’s solar sites, Alrai said. The company could need advisory services to structure those partnerships.

RAI is working with engineers on the hydrogen question now and is open to additional technology and finance advisory relationships, he said. The company is also evaluating several electrolyzer manufacturers.

“It’s an open book for us right now,” Alrai said of hydrogen production. “We’re always open to talking to people who can help us.”

For hydrogen project development, RAI would seek project level debt and equity similar to its solar developments, Alrai said. Early-stage project sites in Colorado and New Mexico could also be candidates for hydrogen co-development.

Keybanc delined to comment for this story.

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California renewables firm in talks for green fuel co-development

A utility-scale solar and storage developer based in California has started outreach and discussions to have green fuels projects co-developed at some of its larger sites in the western US.

RAI Energy, the California-based solar and storage developer, has started to engage with other companies about developing green fuels along with its utility-scale projects, CEO and owner Mohammed S. Alrai said in an interview.

RAI recently took a development loan from Leyline Renewable Capital. That transaction ends a process launched by Keybanc first reported by The Hydrogen Source.

Alrai remains the 100% equity owner, he said. The liquidity from Leyline will last about two years.

The company’s most impending projects are in Colorado and California, Alrai said. Discussions around green fuels envision a partner coming in as a co-developer and customer for RAI’s renewable power.

“We’re definitely open to entering into conversations with all stakeholders,” Alrai said, adding that the effort could require capital raising. “We will be coming to the market to potentially raise equity.”

RAI is moving toward long-term ownership and operation of projects, he said. The company could also sell projects to raise capital.

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