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KBR selected for Houston blue ammonia project

KBR will provide licensing and engineering design for the 1.1 million tonnes per annum blue ammonia plant in the Houston Ship Channel in development by INPEX and LSB Industries.

KBR said today that its blue ammonia technology has been selected by Tokyo-based INPEX Corporation and Oklahoma City-based LSB Industries for a large, commercial-scale clean ammonia production and export project in the US Gulf Coast, according to a news release.

Under the terms of the contract, KBR will provide technology licensing and proprietary engineering design for a 1.1 million tonnes per annum ammonia plant, designed to capture carbon while maximizing yields.

LSB is developing a facility in the Houston Ship Channel in partnership with INPEX, Japan’s largest E&P company, and plans to build and operate an ammonia synthesis loop using low-carbon hydrogen produced by Air Liquide, who will also handle the carbon capture and sequestration as well as the nitrogen supply.

Based on LSB’s feasibility study, the cost of the project would come in between $500m and $750m.

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EU Commission members to provide €5.2bn for hydrogen

The public funding is expected to unlock an additional €7 billion in private investments.

The European Commission member states have approved a plan to provide up to €5.2bn in public funding to support research and innovation, first industrial deployment and construction of relevant infrastructure in the hydrogen value chain.

The project, called “IPCEI Hy2Use” was jointly prepared and notified by thirteen Member States: Austria, Belgium, Denmark, Finland, France, Greece, Italy, Netherlands, Poland, Portugal, Slovakia, Spain and Sweden.

The public funding is expected to unlock an additional €7bn in private investments. As part of this IPCEI, 29 companies with activities in one or more member states, including small and medium-sized enterprises and start-ups, will participate in 35 projects.

According to an official news release, IPCEI Hy2Use will cover a wide part of the hydrogen value chain by supporting (i) the construction of hydrogen-related infrastructure, notably large-scale electrolysers and transport infrastructure, for the production, storage and transport of renewable and low-carbon hydrogen; and (ii) the development of innovative and more sustainable technologies for the integration of hydrogen into the industrial processes of multiple sectors, especially those that are more challenging to decarbonise, such as steel, cement and glass. The IPCEI is expected to boost the supply of renewable and low-carbon hydrogen, thereby reducing dependency on the supply of natural gas.

Several projects are expected to be implemented in the near future, with various large-scale electrolysers expected to be operational by 2024-2026 and many of the innovative technologies deployed by 2026-2027. The completion of the overall project is planned for 2036, with timelines varying in function of the project and the companies involved.

Norway, as part of the European Economic Area, also participates to the IPCEI ‘Hy2Use’ with two individual projects. The EFTA Surveillance Authority is in charge of assessing State aid notified by Norway.

IPCEI Hy2Use follows and complements the first IPCEI on the hydrogen value chain, the IPCEI “Hy2Tech”, which the Commission approved on 15 July 2022. While both IPCEIs address the hydrogen value chain, Hy2Use focuses on projects that are not covered by Hy2Tech, namely hydrogen-related infrastructure and hydrogen applications in the industrial sector (while Hy2Tech focuses on end-users in the mobility sector).

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EUR 220m granted for Spanish H2 production

The European Commission has approved a EUR 220m Spanish measure to support Cobra Instalaciones y Servicios, S.A. in the production of renewable hydrogen for use in industrial sectors.

The European Commission has approved a  EUR 220m Spanish measure to support Cobra Instalaciones y Servicios, S.A. (COBRA) in the production of renewable hydrogen for use in industrial sectors, according to a press release.

The measure is in line with the EU Hydrogen Strategy and the European Green Deal targets, meant to reduce dependence on Russian fossil fuels and fast forward the green transition in accordance with the REPowerEU Plan.

COBRA, which is not yet active in hydrogen production, will start producing renewable hydrogen at large scale via water electrolysis. The renewable hydrogen produced will be used for external industrial off-takers, in particular in energy-intensive and hard-to-abate sectors such as refineries and ceramics.

The aid, which will take the form of a direct grant, will support the construction and the installation of electrolysers in the Spanish regions of Cartagena and Castellón. The two electrolysers will have a total capacity of 205 MW and are expected to produce approximately 8,550 tonnes of renewable hydrogen and 6,840 tonnes of oxygen per year. The electrolysers are envisaged to be constructed in stages, with the first electrolyser operating as of 2023.

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Pending renewable fuels SPAC deal adds green hydrogen to business model

The companies in a pending renewable fuels SPAC takeover will add green hydrogen production to its syngas to gasoline plus other products process. Its first facility will be constructed in Maricopa, Arizona.

The companies in a pending renewable fuels SPAC takeover will add green hydrogen production to its syngas to gasoline plus other products process, according to a press release.

CENAQ Energy Corp., a special purpose acquisition company focused on energy and energy transition, and Bluescape Clean Fuels Intermediate Holdings, a renewable feedstock company, said that the Inflation Reduction Act of 2022 contains incentives for the production of green hydrogen that should allow the addition of green hydrogen at the post-combination company, Verde Clean Fuels, Inc.

By adding an external source of green hydrogen to Verde’s STG+® process, Verde expects to be able to utilize approximately two-thirds less feedstock while maintaining the same gasoline output with no change in total capital expenditures for its first facility to be constructed in Maricopa, Arizona, the release states.

The green hydrogen incentives are in the form of 10-year production tax credits that equate to as much as $3.00 per kilogram of green hydrogen produced. Verde’s initial facility is anticipated to use green hydrogen volumes that would result in the generation of approximately $20m per year of production tax credits. The generation of these production credits could provide Verde with new and attractive financing alternatives.

Bluescape is currently in discussions with several green hydrogen providers to either acquire electrolyzer assets or form a joint venture to provide green hydrogen to Verde’s initial facility as well as to planned future Verde renewable gasoline facilities.

The parties announced the signing of the merger in August, and have since twice extended the deadline for completing the combination. The deadline is now February 16, 2023.

The business combination values BCF at an implied $280m enterprise value and a pro forma equity value of approximately $500m.

Imperial Capital is serving as financial advisor to CENAQ. Vinson & Elkins L.L.P. is serving as legal counsel to CENAQ.

Kirkland& Ellis LLP is serving as legal counsel to BCF.

Baker Botts L.L.P. is acting as legal counsel to Imperial Capital.

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How hydrogen from nuclear power shows pitfalls of ‘additionality’

An interview with the Nuclear Energy Institute’s Director of Markets and Policy Benton Arnett.

Tax credits for low-carbon hydrogen production in the Inflation Reduction Act represent one of the climate law’s most ambitious timelines for implementation, with the provision taking effect late last year. That means low-carbon hydrogen producers can, in theory, already begin applying for tax credits of up to $3 per kilogram, depending on the emissions intensity of production.

However, IRS guidelines for clean hydrogen production have yet to be issued, and industry groups, environmentalists, and scientists are taking sides in a debate over whether the tax credits should require hydrogen made via electrolysis to be powered exclusively with new sources of zero-carbon electricity, a concept known as “additionality.”

In a February letter, a coalition of environmental groups and aspiring hydrogen producers expressed concern to the IRS that guidelines for 45V clean hydrogen production tax credit implementation would not be sufficiently rigorous, especially when it comes to grid-connected electrolyzers. Citing research from Princeton University, the group argued that grid-powered electrolyzers siphon off renewable generation capacity, requiring the grid to be backfilled by fossil power and thus producing twice the carbon emissions that natural gas-derived hydrogen emits currently.

(The group, which includes the National Resources Defense Council, Intersect Power, and EDF Renewables, among others, also argues in favor of hourly tracking, which they say would better guarantee energy used for electrolysis comes from clean sources, and deliverability, requiring renewable power to be sourced from within a reasonable geographic distance. In February, the European Commission issued a directive phasing in, over a number of years, rules for additionality, hourly tracking, and deliverability.)

Benton Arnett, director of markets and policy for the Washington, DC-based Nuclear Energy Institute, a nuclear industry trade association, does not believe the concept of additionality was part of Congress’s intent when the body crafted the Inflation Reduction Act. For one, he notes, the text of the 45V provision for clean hydrogen production includes specific prescriptions for the carbon intensity of hydrogen production as well as for the analysis of life-cycle emissions, but says nothing about additionality.

“When you get legislative text, you don’t usually have prescriptions on carbon intensities for the different levels of subsidies,” he said. “You don’t usually have specifications on what life-cycle analysis model to use – and yet all of that is included in the 45V text. Clearly [additionality] is not something that was intended by Congress.”

Reading further into the law, section 45V contains precise language allowing renewable electricity used for the production of hydrogen to also claim renewable energy tax credits, or “stacking” of tax credits. Further, the statute includes a subsection spelling out that producers of nuclear power used to make clean hydrogen can also avail themselves of the 45U tax credit for zero-emission nuclear energy production.

“It’s really hard for me to think of a scenario where the drafters of the IRA would have included a provision allowing existing nuclear assets to claim 45V production tax credits and also be thinking that additionality is something that would be applied,” Arnett said.

Text of the IRA

The NEI emphasized these provisions in a letter to Treasury and IRS officials last month, noting that, “given the ability to stack tax credits for existing sources with section 45V, the timing of when the section 45V credit was made available” – December 31, 2022 – “and congressional support for leveraging existing nuclear plants to produce hydrogen, it is clear Congress intended for existing facilities to be eligible to supply electricity for clean hydrogen production.”

Arnett adds that the debate around additionally ignores the fact that not all power generation assets are created equal. Nuclear facilities, in particular, given the regulatory and capital demands, do not fit within a model of additionality geared toward new renewable energy capacity. (Hydrogen developers have also proposed to use existing hydropower sources for projects in the Pacific Northwest and Northeast.)

This year, the NEI conducted a survey of its 19 member companies representing 80 nuclear facilities in the US. The survey found that 57% of the facilities are considering generation of carbon-free hydrogen. Meanwhile, the US Department of Energy’s hydrogen hubs grant program requires that one hub produce hydrogen from nuclear sources; and the DOE has teamed up with several utilities to demonstrate hydrogen production at nuclear power plants, including Constellation’s Nine Mile Point Power Station, Energy Harbor’s Davis-Besse Nuclear Power Station, Xcel Energy’s Prairie Island Nuclear Generating Plant, and Arizona Public Service’s Palo Verde Generating Station.

“We’re worried that if [additionality] goes into effect it’s going to remove a valuable asset for producing hydrogen from the system, and it’s really going to slow down penetration of hydrogen into the market,” Arnett said.

As for the research underlying arguments in favor of additionality, Arnett says that it appears to take the 45V provision in a vacuum, without considering some of the larger changes that are taking shape in US electricity markets. For one, the research, which argues that electrolyzers would absorb renewable capacity and require fossil-based generation to backfill to meet demand, assumes that natural gas generation will continue to be the marginal producer on the electrical grid.

“One of the shortcomings of that is that the IRA has hundreds of billions of dollars of incentives aimed at changing that very dynamic. The whole goal of the IRA is that marginal additions of power are carbon-free,” he said, noting incentives for clean electricity production tax credits, investment tax credits, supply chain buildouts, and loan program office support for all of these projects.

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Exclusive: New sustainability hedge fund to raise up to $2bn

A new hedge fund founded by a clean fuels industry veteran is gathering partners to raise up to $2bn initially for deployment into ammonia and other climate-transition technologies.

New Waters Capital, an emerging hedge fund based in New York City, is gathering its primary partners for its first fundraise of between $1bn and $2bn, founder Bill Brown said in an interview.

Brown formerly spent 15 years at North Carolina-based 8 Rivers Capital, which recently announced an ammonia project in Texas. Brown, a co-founder, sold his shares to South Korea’s SK, Inc. in that company’s majority takeover of 8 Rivers last year.

Brown recently created New Waters as a multi-strategy fund manager to invest in publicly traded companies in sustainability, AI, and clean fuels.

“The molecule-based economy is really important, and there’s some companies that have been in the molecule-based economy that are not really sure what they’re doing,” Brown said.

This creates an environment ripe for disruption, he said.

The firm is in the process of selecting its prime brokers, which will help determine the size of New Waters’ fundraises, Brown said. The first raise will be conducted in the next six months, and likely not be larger than $2bn to start.

New Waters’ law firm is Seward & Kissel.
The Wild West of molecules

Of all hydrogen produced in the US, about 65% is used for fertilizer production, Brown said. In Japan, where hydrogen is being co-fired with coal, replacing all coal-fired generation with ammonia would require 10 times the current ammonia production of the US.

“The market for molecules is so big, and yet the largest producer in the US of ammonia is CF Industries.” That company has one plant in Louisiana that represents roughly one third of total US ammonia production. “So CF is tiny compared to the opportunities out there.”

Brown said he is looking for the companies that are going to be the Valero and Phillips 66 of ammonia refining. He believes 8 Rivers is on track for something like that.

“We look at companies like that,” he said. “I think that entire market is up for grabs right now; it’s a whole new market.”

 Companies that can seize that market are the companies that are going to be part of the energy system of the future.

“In many respects right now, we’re in the Wild West, if you will, of the molecules of the future,” Brown said.

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Pennsylvania RNG firm outlines strategic outlook

A growing RNG developer, owner and operator based in Pennsylvania is anticipating a liquidity event on the part of its private equity owner — once it has locked down a “critical mass” of projects.

Vision RNG, a developer of US RNG projects, could see its next project reach commercial operations in Tennessee in a line of projects in southeastern and mid-western states, CEO Bill Johnson said in an interview.

Vision Ridge Partners, a private equity firm, is the majority owner of the company. Management owns the remaining minority stake.

The company is still in early stages and would likely need to get something like six projects to COD before a liquidity event.

“Locking down projects creates a lot of value,” Johnson said, noting that Vision Ridge will likely follow a typical private equity monetization pattern.

The company’s project at Meridian Waste’s Eagle Ridge Landfill in Bowling Green, Missouri is fully operational. It uses 1,500 scfm of landfill gas (LFG) and produces 375,000 MMBtu of RNG annually.

That mid-sized project is similar in scale to what is being developed in Tennessee, which will likely be the next project to reach COD, Johnson said, declining to provide details on exact location.

“We’re working on developing other opportunities with some of the largest publicly owned landfill companies in the country,” Johnson said.

Projects require between $20m and $60m in capex, ranging from small to large, Johnson said. Vision Ridge takes care of the company’s equity requirements.

Debt options are being considered on a project-by-project basis, he said. Debt tends to range from 50% to 70% of total spend.
“We’ll look to put reasonable project debt on these,” he said.

Vision has not to date retained the services of an investment bank, Johnson said.

Vision is pursuing opportunities in Kentucky, Alabama, South Carolina and Oklahoma, and will evaluate suppliers of services and equipment for each. The location-agnostic company is also open to new relationships with potential future financial and strategic acquirers.

“If you are a private equity group, you’re a potential buyer of the company at some point, so we would be happy to know them and keep their interest in us up,” Johnson said. An acquirer would not necessarily need to have expertise in RNG.

M&A potential

M&A of projects is an option on the table, Johnson said. But returns are better if Vision develops its own projects; and a more challenging macroeconomic environment makes acquisitions somewhat unlikely.

“With the market premiums being paid, I see us continuing to keep our head down and focusing on organic growth,” Johnson said.

Johnson said he expects to see continued consolidation in the greater market. Many large strategic and midstream companies have yet to make significant buys in RNG.

He pointed to bp’s acquisition of Archaea Energy as a significant milestone in the RNG market.

“There’s quite a number of potential acquirers,” Johnson said. “The market is kind of fundamentally and always will be under-supplied and over-demanded.”

Vision would potentially be open to a merger with a portfolio company of a strategic or PE investor, Johnson said.

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