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IRS 45V tax credit rules draft stricter than EU

A leaked draft report of pending 45V guidance from the US Treasury Department has advocates of the emerging green hydrogen industry warning of too-stringent measures.

US Treasury guidance for clean hydrogen producers to claim the top $3/kg rate of the hydrogen production tax credit could be overly onerous on the fledgling industry, according to responses to reporting on a draft in Politico and Bloomberg.

Reportedly, new rules include requirements that hydrogen be produced from newly created renewables (additionality), as well as geographic correlation and hourly time-matching requirements to qualify for the top rate.

“The proposal suggests that there will be an hourly matching requirement from 2027, making the rules stricter than those in the EU: a surprise to many, and potentially problematic in the eyes of some,” Ben Heininger, a manager at Baringa, said in a statement on LinkedIn. “This will lead to a material increase in costs, given the challenges in procuring firm 24/7 green power – a boon for storage developers no doubt.”

The increase in cost will drive the levelized cost of hydrogen higher and producers will likely have greater concerns over competitiveness for exports, Heininger said.

“If true, the Biden Administration’s proposed strategy for implementing these provisions will fail to get this new industry off the ground,” Jason Grumet, chief executive officer of the Washington-based American Clean Power Association, said in a statement yesterday. “It is surprising and disappointing that the administration would propose such a rigid approach that is at odds with decades of learning about new technology deployment.”

The 45V tax credit was originally unveiled as part of the Inflation Reduction Act and is split into four rates based on emissions intensity.

Hydrogen project developers and investors worry that stringent 45V rules will put the nascent industry on its back foot, significantly enough to kill projects by increasing the cost of green hydrogen production as the number of hours an electrolyzer can be operational is reduced and the sources of energy from which they can purchase power is limited.

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Apex’s towering green hydrogen plans

Apex Clean Energy is advancing a colossal green hydrogen hub in West Texas, powered by a planned 6.5 GW of renewable generation capacity.

Apex Clean Energy has towering ambitions for green hydrogen production in Texas.

The Charlottesville, Virginia-based renewable energy firm is developing 6.5 GW of renewable generation capacity in West Texas that would support green hydrogen production, ReSource has learned, making it one of the largest projects of its kind in development in North America.

Part of a green hydrogen production, storage, transportation, and export hub known as “Project Rio,” the renewables encompass multiple sites under development in a cluster of counties roughly 200 miles northwest of San Antonio. The planned production sites also include solar and battery storage facilities co-located with electrolyzers.

Under the plan, the green hydrogen produced on site would be transported via a new 500-mile hydrogen pipeline to Corpus Christi, for potential conversion to derivatives like ammonia or methanol and available for domestic end users or export.

If completed as conceived, the scale and complexity of the project would signify an infrastructural magnum opus for Apex and its partners, and a feather in the cap of the power and energy private equity strategy of Ares Management, the owner of both Apex and EPIC Midstream, which operates pipelines running from outside of Corpus Christi through West Texas. The new hydrogen pipeline would likely be built on EPIC’s existing right of way.

Project Rio represents a potential breakthrough in the realm of sustainability, as much for its sheer size as for its project-on-project-on-project schematics and its intention to utilize produced water from nearby oil and gas drilling operations in water-scarce West Texas.

The size and final siting for the project could still change, as some aspects of development are in early stages, a source close to Apex said. However, Apex’s development team in Texas has held meetings with local landowners, with a website for the project noting 5.8 GW of renewables across multiple projects as of October, 2023. The plan, as currently conceptualized, would call for 6.5 GW of renewables, according to several sources.

“This is a revolutionary project – the largest proposed in North America,” Apex Senior Public Engagement Manager Anna Richey said in a recent promotional video. An Apex spokesperson declined to comment for this story.

One of the Apex green hydrogen production sites, called Big Trail, is located near Eldorado, Texas, but straddles four counties – Menard, Kimball, Sutton, and Schleicher – according to an Apex public affairs campaign

The Big Trail project entails 3.3 GW of renewables, while another project, called Desert Trail, is sized at 1.5 GW, “with an additional 1,000 MW+ of renewable energy likely,” in Irion, Crockett, and Schleicher counties, according to the project website.

In announcing the green hydrogen partnerships in 2022, Apex, Ares, and EPIC noted that the project would “produce green hydrogen and other derivative green fuels in volumes not yet seen in the United States.” The more precise scope of the renewables for the hub has not been previously reported.

In addition to the West Texas hub, Apex is developing more renewables projects in the Texas Panhandle to power further green hydrogen production there, sources said.

World scale

The project’s ambitious purview would put Apex and its partners at the forefront of green hydrogen development in North America. A similarly grandiose project, advanced by Hy Stor in Mississippi, would bring on around 2.7 GW of electrolyzers in the first phase, reportedly powered by twice that capacity through a mix of onshore wind, solar and geothermal energy.

Hydrogen City, a project from Green Hydrogen International and INPEX CORPORATION, is aiming to bring on 3.75 GW of behind-the-meter renewable energy for phase 1 of the project, which is in Duval County, immediately west of Corpus. At an estimated cost of $6bn, it would power 2.2 GW of electrolysis and produce 280,000 tons per year of green hydrogen, with the project size scaling up to 60 GW depending on demand. 

Germany’s RWE, meanwhile, in partnership with Korea’s LOTTE Chemical and Japan’s Mitsubishi Corporation, is pursuing an integrated green and blue ammonia facility, also in Corpus Christi, that would ultimately produce 10 million tons of clean ammonia per year.

Pattern Energy is pursuing a $9bn green ammonia project with a production capacity estimated at 1 million tons of green ammonia per year – again, in Corpus Christi, ReSource has reported.

And elsewhere in Texas, Air Products and AES are developing a green hydrogen production facility in North Texas that would consist of a combined 1.4 GW of wind and solar generation, producing 200 metric tons per day of green hydrogen. The estimated cost of that project is $4bn.

Still, the technological readiness of electrolyzers for green hydrogen production at scale has been called into question by some in the industry. Sanjiv Lamba, the CEO of global chemical company Linde, recently re-emphasized his view that green hydrogen still has a roughly five to seven year runway to reach maturity for large-scale projects, in part because electrolyzer complexes are still unproven at gigawatt scale.

Apex would seek to bring its green hydrogen projects online later this decade, potentially in line with the technology development timeline referenced by Lamba.

Pipeline capacity

Apex, which is majority owned by Ares Management through its Infrastructure and Power strategy, plans to utilize a new dedicated hydrogen pipeline to be built by EPIC Midstream, another Ares portfolio company. 

The pipeline aspect of the green hydrogen hub could boost its cost competitiveness against other developments in the region that will depend on trucking, as gaseous hydrogen shipped via pipeline has been shown to be a more cost-effective method of transport, especially in large volumes and over longer timelines. And experts have said it would make sense to use EPIC’s existing pipeline right of way, on which it can build without having to acquire new land rights or clear trees. 

The Corpus Christi area has approximately 110 miles of existing hydrogen pipelines, while Texas’s larger hydrogen pipeline network is concentrated further east, from Freeport to Houston to Port Arthur. Thus this new pipeline proposal would open up a swath of West Texas to hydrogen transported from renewable energy facilities where, in theory, it can be made cheaply – by Apex and, potentially, by others.

​“We are evaluating overbuilding the capacity of the pipeline to support others injecting,” Apex Policy Manager Laura Merten recently told Canary Media. ​“The goal is to support and help develop this whole hydrogen economy.”

Pattern Energy has previously discussed developing a green hydrogen project in West Texas that would tie in to a hydrogen pipeline for transport to the Gulf Coast.

EPIC has not yet filed a new construction permit for the hydrogen pipeline, according to the Texas Railroad Commission. And no other hydrogen pipelines are currently under construction in the state. Representatives of Ares and EPIC did not respond to requests for comment.

Water sources

Access to water rights can be a thorny issue in West Texas, and Apex has so far found solutions that have avoided backlash from local communities.

Apex previously burnished its green hydrogen chops by developing a 345 MW wind farm under a PPA with Plug Power for a facility in Young County, Texas. The wind farm was subsequently sold to NextEra and commissioned last year, according to local news reports and Apex’s website. The electrolyzer portion of that project is still under construction, Plug Power investor materials show.

For the Young County project, Apex helped to procure water sources for the electrolysis, ultimately working with the city of Graham to help fund and build a wastewater treatment plant, with a third of the water going to the hydrogen production facility and the remaining water used by the city for irrigation.

For Big Trail, Apex has told local officials it plans to use produced water from oil and gas drilling – dodging a potential conflict with landowners over the use of groundwater. 

Another company with plans to split water via electrolysis for an e-methanol plant, ETFuels, ran into concerned local landowners at a recent meeting of the Plateau Underground Water Conservation & Supply District board of directors, which oversees water rights in the area. Instead of using groundwater, ETFuels was told by a landowner to look for alternate sources of water, “much like Apex Clean Energy proposes to do,” according to a local newspaper report.

“As we look ahead to this massive project, multiple times the scale of the previous project, we are looking for other opportunities to partner with local stakeholders and really benefit the communities we work in, and see [water development] as a huge opportunity for us,” Apex’s Merten said on a recent webinar.

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Air Liquide Finance announces cash tender offers for two series of USD Notes

The tender offers to purchase for cash up to $350m of its outstanding 2.500% notes due 2026 and $100m of its outstanding 3.500% notes will enable the company to optimize its funding structure.

Air Liquide Finance has announced offers to purchase for cash up to $350m of its outstanding 2.500% notes due 2026 and $100m of its outstanding 3.500% notes due 2046, according to a press release.

“The Offeror intends, but is not obligated, to increase either or both of the applicable Maximum Tender Amounts to the extent necessary to allow for a combined acceptance of Notes validly tendered and not validly withdrawn at or prior to the Early Tender Time up to an aggregate maximum principal amount for both series of up to [$500m],” the release states.

Air Liquide has retained BofA Securities Europe SA, Citigroup Global Markets Limited and Natixis Securities Americas to act as the dealer managers for the tender offers, and Global Bondholder Services Corporation to act as the information and tender agent.

The Tender Offers will expire at 11:59 p.m., New York City time, on April 11, 2023.

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Waste-to-fuel firm retains advisors, plans California plant sale out of bankruptcy

A Canadian waste-to-fuel firm has retained bankers and is planning to conduct a sale of a state-of-the-art plant near Los Angeles.

Anaergia, an Ontario, Canada-based waste-to-fuels firm, has hired an advisor for a strategic review, and is planning to run a bankruptcy sale of its plant in Rialto, California.

Rialto Bioenergy, the Anaergia subsidiary that owns the plant, filed for bankruptcy in May, and is planning to conduct a sale with a milestone to consummate a transaction by April, 2024, according to bankruptcy documents.

Rialto is owned 51% by Anaergia and 49% by Igneo Infrastructure, a stake it acquired in 2020.

Anaergia meanwhile has retained Piper Sandler to conduct a strategic review of the company, citing management’s previous statements that it will need additional liquidity to continue as a going concern.

A source familiar with the matter said Piper Sandler will also advise on the Rialto asset sale, pending approval by parties to the Chapter 11 process. Representatives of Anaergia and Piper Sandler did not respond to requests for comment.

B. Riley Securities has also been retained as financial advisor and valuation consultant to the company, filings show.

Rialto Bioenergy’s bankruptcy, filed in the Southern District of California, was precipitated by a lack of feedstock available to the facility as a result of a delay in the implementation of organic waste diversion laws in Los Angeles. The delay caused insufficient revenues to cover Rialto’s costs and debt service, according to the company.

It owns a multi-feedstock bioenergy facility that converts organic waste into carbon-negative RNG, with the capability to also generate renewable electricity and fertilizer. The facility can process up to 1,000 tons per day of waste and convert it into up to 1,000,000 MMBtu per year of RNG.

In Chapter 11, Rialto reached an agreement for a $30m debtor-in-possession loan arranged by UMB Bank, a stipulation of which was to retain an investment banker to sell the waste facility. 

A final hearing for approval of the DIP loan is scheduled for October 16, while the motion to approve sale procedures will be heard at a hearing on October 30.

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exclusive

Illinois ethanol company seeking offtaker for SAF project

Seeking to diversify into new markets, Marquis, a family-owned ethanol producer based in Illinois, is looking for an offtaker for its first sustainable aviation fuel plant.

Marquis, a family-owned ethanol producer based in Illinois, is seeking an offtaker for its first sustainable aviation fuel plant.

The company, which is developing the plant in partnership with LanzaJet, an SAF firm, recently completed a feasibility study for the project, and is looking for airlines or users of renewable diesel as offtakers, Dr. Jennifer Aurandt Pilgrim, the company’s director of innovation, said in an interview.

Marquis owns and operates a 400 million gallon per year ethanol plant – the largest dry-grind ethanol plant in the world – which produces sustainable ethanol for fuel and chemicals as well as a feed for the aquaculture and poultry industries.

The company will divert roughly 200 million of those gallons to make 120 million gallons per year of SAF and renewable diesel, Aurandt said, noting that Marquis is looking to branch into new markets where ethanol is a feedstock.

“As more electric vehicles come on, there will be about a 3 billion gallon demand destruction for ethanol, and SAF is one of the great markets that we can diversify into,” she said.

Aurandt said financing for the SAF facility will ultimately depend on who the offtaker is.

Use cases

United Airlines, Tallgrass, and Green Plains Inc. recently formed a joint venture – Blue Blade Energy – to develop and then commercialize SAF technology that uses ethanol as its feedstock.

SAF using corn as a feedstock does not currently qualify for incentives in the Inflation Reduction Act, which uses standards laid out by the International Civil Aviation Organization that effectively exclude corn-based SAF from qualifying.

Marquis and other ethanol producers are pushing for the adoption of a lifecycle greenhouse gas model, known as GREET, developed by the Argonne National Laboratory, that would allow corn-based feedstock to qualify, said Dustin Marquis, the company’s director of government relations.

The company is also looking to attract partners to set up operations in the Marquis Industrial Complex, which is touted as a 3,300-acre industrial site with natural gas lines, access to multiple forms of transportation, and carbon sequestration on-site.

“We’re looking for other businesses where there would be either vertical integration or business synergies between the two organizations,” Marquis said.

Marquis said in a news release it would develop two 600 ton per day blue hydrogen and blue ammonia facilities along with manufacturing for carbon neutral bio-based chemicals and plastics.

CO2 utilization

In its production process, Marquis makes 1.2 million tons of biogenic CO2 per year, and has applied for an EPA Class IV permit for sequestration.

“We like to say it’s direct air capture with the corn plant,” Aurandt said, adding that the CO2 is purified via fermentation to 99.9% pure, and will be injected into a formation that sits beneath the Marquis Industrial Complex.

The company is additionally developing a CO2 utilization project with LanzaTech, which would augment ethanol production using CO2 as a feedstock. The project was recently awarded an $8.54m grant from the US Department of Energy, the largest award in the category of corn ethanol emission reduction.

“We can increase the amount of ethanol that we produce here by 50%,” Aurandt said. “So we could make 200 million gallons of ethanol per year” from CO2, she added, noting that the pilot demonstration will be the largest CO2 utilization project in North America. It is expected to be operational in late 2024.

The SAF plant and the CO2 utilization project will use hydrogen for refining and as an energy source, respectively, Aurandt said.

Gas Liquid Engineering is the EPC for the CO2 unit, and Marquis will use compressors from Swedish multinational Atlas Copco.

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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

Biomass-to-hydrogen developer in talks for development capital, series A

A California developer that uses woody biomass to make green hydrogen is in discussions to raise capital for project development and a series A funding round.

Yosemite Clean Energy, a California-based biomass-to-hydrogen start-up, is in discussions with potential investors to raise development capital for projects and a series A round.

The company is currently seeking around $20m of development capital that would help advance woody biomass-to-hydrogen projects to FID, CEO Tom Hobby said in an interview.

Hobby said he is also in discussions with strategic capital partners about a series A funding round. The company is not using an advisor for the capital raise, Hobby said, but is working with the law firm Kilpatrick Townsend & Stockton.

The company has so far raised less than $2m at the corporate level from friends and family and an additional $5m – including grants – for projects, Hobby added. The development capital as well as the series A raise would be conducted at the project level.

Yosemite has signed a letter of intent and term sheet for offtake from its first project in Oroville, California, which will produce approximately 24,000 kg per day (2,760 MMBtu) of green hydrogen from woody biomass, and is set for FID later this year. Hobby declined to name the offtaker but described it as a “global trading house.”

Hobby, whose family has lived in the Sierra Nevada for generations, emphasizes the company’s role as a partner with local communities to help manage forest waste, which has served as fuel for explosive wildfires in recent years.

“It’s de-risking their communities from catastrophic wildfires,” he said.

Design incentives

Under the original design for the Oroville facility, the company had planned to produce 31,000 kg per day of RNG and 12,200 kg per day of green hydrogen. But due to incentives for green hydrogen in the Inflation Reduction Act, the company has pivoted to a hydrogen-only design, Hobby said.

The $3/kg incentive for green hydrogen in the IRA created “additional value for no real capital cost differential,” he said.

Yosemite’s second project is in Toulumne County, California and will follow a design substantially similar to the Oroville facility.

The company employs dual-bed gasification technology licensed from Austrian firm Repotec, while Primoris is doing detailed design and engineering.

The technology takes wood and creates a medium-strength BTU gas that can be used to make different products, Hobby said. “Once it’s in a gaseous form, we can use it for a lot of purposes: we can take it to make power, we can produce hydrogen, we can use the Fischer-Tropsch process to make second-generation biofuels like aviation fuel, and we have a patent that can do hydrogen and RNG.”

Project ownership

Meanwhile, Yosemite has hired a Texas-based firm to help raise capital for projects, which are estimated to cost $250m at the outset, but could decline once efficiencies are achieved, Hobby said.

The company’s project ownership model is unique in that it seeks to bring in local wood businesses – in logging, land clearing, and orchard removal – as providers of biomass and also equity investors in the projects.

“To have their investment and their wood at the same time is huge,” Hobby said.

In raising capital for the projects, in addition to equity and debt investors, Yosemite is evaluating a mix of sources in the tax-exempt bond market as well as lower-interest loans from within California and export finance solutions. The company recently received two $500,000 Forest Biomass to Carbon-Negative Biofuels grants from the California Department of Conservation.

Hobby would like to build 50 woody biomass plants in California, which would utilize approximately 5 million tons of the 35 million tons of waste woody biomass available annually in the state.

“Our goal is not to have to truck and ship wood more than 50 miles,” he said. “If you put circles around every place in California that’s a decent wood basket […] I think we could sign about 50 facilities across the state.”

The company is also planning to expand beyond California to other states with a low-carbon fuel standard, Hobby said.

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