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KKR and HASI form $2bn decarbonization fund

The investment fund, called CarbonCount Holdings, will invest up to an aggregate of $2bn in clean energy assets over the next 18 months.

Hannon Armstrong Sustainable Infrastructure Capital, Inc., a leading investor in climate solutions, and KKR, a leading global investment firm, last week announced an agreement to establish CarbonCount Holdings 1 LLC (CCH1) to invest up to a combined $2bn in climate positive projects across the United States, according to a news release.

HASI and KKR have each made an initial capital commitment of up to $1bn to CCH1, to invest up to an aggregate of $2bn in clean energy assets over the next 18 months. HASI will source the investments for and manage CCH1, remain the interface with its clients, and measure the avoided emissions of all investments in CCH1 using its proprietary CarbonCount® scoring tool. These investments will be consistent with HASI’s existing investment strategy which is focused on behind-the-meter, grid-connected, renewable natural gas and transport projects.

At close, CCH1 will be seeded with assets representing approximately 10% of the up to $2 billion total committed amounts.

“Our strategic partnership with KKR perfectly aligns with our Climate Clients Assets strategy, enabling us to capitalize on our ambitious pipeline of opportunities and scale our business,” said Jeffrey A. Lipson, President and Chief Executive Officer of HASI. “We are excited to collaborate with the KKR team, who share our commitment to accelerating the energy transition and whose interest in the relationship serves as a testament to HASI’s history of success.”

“CCH1 represents a significant milestone in our objective to migrate to a more capital light model and reduce reliance on public equity markets for growth,” said Marc Pangburn, Chief Financial Officer of HASI. “This transaction further increases the resilient, non-cyclical nature of our business.”

“HASI has built an impressive portfolio of sustainable infrastructure projects through strategic partnerships and we believe their pipeline of future opportunities is highly complementary to KKR’s existing clean energy investing strategy,” said Cecilio Velasco, Managing Director on KKR’s Infrastructure team. “We look forward to working together to advance projects in the sustainable infrastructure space and accelerate the energy transition.”

With over 15 years of experience in infrastructure investing, KKR has invested more than $15 billion in renewable energy and climate-related investments from its infrastructure platform alone. According to BloombergNEF, KKR is the 10th largest owner of solar assets operating and under construction in the U.S. KKR is funding the investment from its core infrastructure strategy.

Morgan Stanley & Co. LLC acted as the financial advisor for KKR, and Lazard acted as financial advisor for HASI.

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Electrolyzer company to go public in SPAC deal

Spain-based H2B2 Electrolysis Technologies is set to go public via a business combination with RMG Acquisition Corporation III, a publicly-traded special purpose acquisition company with shares trading on NASDAQ.

Spain-based H2B2 Electrolysis Technologies, a developer and operator of green hydrogen production systems for clean energy generation, and RMG Acquisition Corporation III, a publicly-traded special purpose acquisition company, announced today that they have entered into a letter of intent for a potential business combination.

Under the terms of the LOI, H2B2’s shareholders would continue holding substantially all of their equity in the combined public company. RMG III and H2B2 expect to announce additional details regarding the business combination when a definitive agreement is executed, which is expected before the end of the first quarter 2023.

Since its founding in 2016, H2B2 has become a key player in the green hydrogen energy sector. The company is expanding rapidly in Europe, the United States, Latin America, Asia and the Middle East and has secured a role in strategic projects. In particular, H2B2 has been selected as a participant in the IPCEI Hy2Tech (Important Projects of Common European Interest) program, through which it has been approved by the European Commission to receive up to €25m in public grants out of the €5.4bn that will be invested.

In 2019, the California Energy Commission awarded H2B2 a grant for the development of a green hydrogen production facility, Sohycal plant, in Fresno, California. This 3MW plant is scheduled to begin production in Q1 2023 and will become the first green hydrogen plant, powered by H2B2, vertically integrated from the photovoltaic production of electricity to the transportation and dispensing of green hydrogen at the charging station.

In 2021 Colombia’s Ecopetrol, one of the world’s leading oil companies, began working with H2B2 and recently incorporated the Company into its group of strategic partners as part of its plan to decarbonize and develop green hydrogen energy. H2B2 has also recently entered the Indian market through a joint venture with GR Promoter Group and the creation of GreenH.in Electrolysis.

The company has reinforced its commitment to good corporate governance by increasing the number of independent directors on its board, including newly appointed chairman Antonio Vázquez, who has four decades of experience in international business development. Vázquez most recently was chairman of IAG, the holding company for Iberia, British Airways, Vueling and Aer Lingus, and president of Iberia. The company also recently appointed as CEO Anselmo Andrade Fernández de Mesa, who has been part of the management team since the Company was founded in 2016, including as its CFO until 2021 and head of the business development division for the last two years.

As part of the company’s transition to public ownership, Andrade takes the reins from Felipe Benjumea Llorente, founder of H2B2, who will assume the role of strategic advisor so that he can continue to contribute to the development of the business globally.

“The steps we are taking to finalize our business combination with RMG III will represent a new era for our company and a great step forward in accelerating the decarbonization of the energy sector globally,” said Vázquez.

Anselmo Andrade added: “The company will continue to distinguish itself by bringing together a team with decades of experience in the hydrogen energy sector and deploying its proprietary technology as it continues its expansion.”

RMG III’s Jim Carpenter said “RMG III is excited to be partnering with a company that we believe has the potential to become a global green hydrogen leader.”

RMG III’s securities are listed on NASDAQ, with $483m cash in trust raised through its IPO.

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Brookfield Renewable-backed LanzaTech gets UK grant for waste gas-to-SAF facility

Illinois-based LanzaTech has received a £25m UK grant for a plant that will convert waste gases into synthetic kerosene for use in sustainable aviation fuel.

LanzaTech has announced that its DRAGON facility project has received a £25m grant from the UK Department for Transport’s Advanced Fuels Fund Competition, according to a news release.

LanzaTech’s Project DRAGON, which stands for Decarbonizing and Reimagining Aviation for the Goal Of Netzero, will convert waste gases into synthetic kerosene for use in sustainable aviation fuel (SAF).

With the funding, Project DRAGON will complete engineering and the project development in collaboration with Fluor Corporation and Technip Energies, required to reach a final investment decision (FID) for the entire waste gas to SAF project. The proposed plant, which will be sited in Port Talbot, South Wales, is expected to produce 102 million liters per year of ATJ Synthetic Paraffinic Kerosene (ATJ-SPK) to be blended with kerosene to make SAF, representing ~1% of annual UK jet fuel demand and making a significant contribution towards the UK Mandate for supplying 10% of total annual jet fuel demand in the U.K. with SAF by 2030.

LanzaTech recently reached a funding partnership with Brookfield Renewable, under which Brookfield committed to invest an initial $500m in constructing and operating new carbon capture and transformation projects that have achieved certain pre-agreed milestones. Brookfield will be LanzaTech’s preferred capital partner for LanzaTech CCT opportunities in Europe and North America and following initial investments totaling $500m, Brookfield could commit to making an additional $500m available for investments in the strategic partnership if sufficient projects are available at the agreed milestones. Brookfield will also invest $50 million in LanzaTech to support further corporate development.

The company went public earlier this year in a SPAC acquisition that valued LanzaTech at an implied $1.8bn pro forma enterprise value.

“We must accelerate deployment of SAF plants in the UK,” said Jennifer Holmgren, CEO of LanzaTech, in this week’s news release. “We’re excited that Project DRAGON has been recognized for its potential to deliver results and create new jobs while producing the volumes of SAF greatly needed by a sector that has limited options today. I thank the UK Department for Transport for its continued support and for showing leadership in validating new technologies that can have a real impact in the UK and beyond.”

Jonathon Counsell, International Airline Group’s head of sustainability, said: “Investing in Sustainable aviation fuels (SAF) is one of the best opportunities our industry has to decarbonise. We’re delighted that Project Dragon has received crucial financial support in the UK from the Department for Transport Advanced Fuels Fund.”

“IAG has committed $865m in SAF purchases and investments to date, including supporting the first of its kind LanzaJet ethanol-to-jet plant being built in the US. With the right policy support to incentivise further investment, the UK could see many SAF plants built over the next decade, creating 6,500 jobs and saving over three million tonnes of CO2 per year as well as improving the UK’s energy security.”

The feedstock for the planned facility would be waste gases, including potentially from Tata Steel’s adjacent steelworks in Port Talbot. These would be transformed via LanzaTech’s gas fermentation platform to make ethanol as a feedstock for the ATJ facility. LanzaTech have selected Fluor Corporation, a leading global engineering, procurement, and construction (EPC) firm, to provide Front End Engineering and Design (FEED) services for this part of the project. “With more than 110 years in the industry, Fluor brings world class front-end engineering and EPC firm experience to assist LanzaTech in deploying its technology,” said Jason Kraynek, president, Production & Fuels, Fluor Corporation.

In a second step the ethanol would be turned into SAF using the LanzaJet™ Alcohol-to-Jet (ATJ) process, which incorporates Technip Energies ‘ethanol to ethylene’ Hummingbird™ technology. This would be the world’s first commercial scale integration of Gas Fermentation (GF) and ATJ to produce SAF with GHG reductions expected to be greater than 70% relative to conventional jet fuel.

A spokesperson for Tata Steel in the UK said: “Achieving our ambition of making CO2 neutral steel involves looking at all ways to reduce our emissions, or in this case, potentially transforming some of our waste gases into useful products such as jet fuel.”

Bhaskar Patel, Technip Energies – SVP Sustainable Fuels, Chemicals and Circularity stated “We are excited to be partnering with LanzaTech™ through our teams in the UK on this journey to help decarbonize the UK aviation industry. The implementation of T.EN’s Hummingbird™ technology integrated within the LanzaJet™ ATJ process provides a ‘best in class’ technology pathway for conversion of ethanol to SAF”.

Jimmy Samartzis, CEO, LanzaJet said: “Project DRAGON will contribute roughly 10% of the entire UK Mandate for SAF by 2030. That’s significant, and government leadership like this is paving the way for emerging industries like SAF to achieve these ambitious and necessary goals. LanzaJet’s alcohol-to-jet technology paired with LanzaTech’s gas fermentation process is changing how we think about the circular economy across the world and driving decarbonization for aviation. We’re thrilled to be partnering with LanzaTech on this work and we’re grateful for this support from the UK Department for Transport.”

The Department for Transport’s Advanced Fuels Fund (AFF) Competition was established to support the UK advanced fuels sector in development and commercial deployment of innovative fuel production technologies that are capable of significantly reducing near-term UK aviation emissions, strengthening the UK project pipeline, and broadening technology options.

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Stonepeak acquires 50% stake in Virginia offshore wind farm

The infrastructure fund will acquire a 50% stake in Dominion’s Coastal Virginia Offshore Wind project for $3bn.

Stonepeak, a leading alternative investment firm specializing in infrastructure and real assets, today announced that it has reached an agreement with Dominion Energy to acquire a 50% interest in its Coastal Virginia Offshore Wind project through the formation of an offshore wind partnership.

The project is expected to be the largest offshore wind farm in the U.S. and one of the largest offshore wind farms globally upon completion.

CVOW is a 2.6 GW offshore wind project 27 miles off the coast of Virginia Beach, Virginia capable of serving the power needs of 660,000 homes.

Dominion Energy began developing CVOW in 2013 and is scheduled to begin offshore construction this spring. Construction is expected to be completed by year-end 2026. When fully constructed, each year CVOW will avoid carbon emissions equivalent to removing 1 million cars from the road, and will play an important role in supporting energy security and reliability, and lowering fuel costs by diversifying Dominion Energy customers’ energy supply.

Under the terms of the agreement, at closing Dominion Energy expects to receive proceeds of approximately $3bn, representing 50% of the CVOW construction costs incurred through closing less $145m (the initial withholding), Dominion said in a separate press release.

If the final construction costs of CVOW are $9.8bn or less, excluding financing costs, Dominion Energy will receive $100 million of the initial withholding. Such amount is subject to downward adjustment with Dominion Energy receiving no withheld amounts if the total costs, excluding financing costs, of CVOW exceed $11.3 billion. The transaction is expected to improve the company’s estimated 2024 consolidated FFO-to-debt by approximately 1.0% and reduce the company’s overall financing needs during construction.

Following closing, Dominion Energy and Stonepeak will each contribute 50% of the remaining capital necessary to fund construction of CVOW, provided the total project cost, excluding financing costs, is less than $11.3 billion (mandatory capital contributions). This represents 50/50 cost-sharing up to 15%, or nearly $1.5 billion, higher than the project’s current project budget ($9.8 billion) and up to 20%, or nearly $2.0 billion, higher than the project’s current pre-contingency budget ($9.45 billion).

“Having previously partnered with Dominion Energy, we look forward to extending our relationship through CVOW, which is a fitting addition to our global renewables strategy given its potential to provide meaningful renewable capacity to the U.S., advanced stage of development, and downside-protected fundamentals,” said Rob Kupchak, Senior Managing Director at Stonepeak. “Dominion Energy’s impressive track record building and operating large-scale infrastructure projects paired with Stonepeak’s experience successfully constructing offshore wind assets gives us confidence in CVOW’s path forward, and we are excited to partner with Dominion in delivering this critical renewable energy generation resource to its customers.”

Dominion Energy will continue to oversee CVOW’s day-to-day operations and construction at close, supported by Stonepeak’s expertise in investing in and delivering large and complex renewables and energy infrastructure projects including offshore wind. The transaction is subject to customary and regulatory approvals and is expected to be completed by the end of 2024.

Vinson & Elkins LLP served as legal advisor to Stonepeak. Mizuho Securities USA, through its affiliate Greenhill & Co., and Santander US Capital Markets LLC served as co-financial advisors.

McGuireWoods LLP and Morgan Lewis served as legal advisors to Dominion. Citi and Goldman Sachs & Co. LLC acted as sellside co-financial advisors for the transaction.

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Exclusive: Verde Clean Fuels seeking project finance for gas refineries

Publicly listed Verde Clean Fuels plans to seek equity and debt investors for low-carbon gasoline refineries it expects to deploy across the US. We spoke to CEO Ernest Miller about the strategy.

Verde Clean Fuels, a publicly listed developer of clean fuels technology and projects, is planning to seek project debt and equity investors to finance a series of low-carbon gasoline refineries it expects to deploy across the US.

Houston-based Verde, which employs syngas-to-gasoline refining technology, recently announced an agreement with Diamondback Energy to construct a facility in the Permian Basin that will utilize stranded natural gas to produce 3,000 barrels per day of gasoline.

The company is also pursuing a carbon-negative gasoline project on the premises of California Resources’ Net Zero Industrial Park in Bakersfield, California. The California project will produce approximately 500 barrels of RBOB renewable gasoline per day from agricultural waste, while capturing and sequestering around 125,000 tons of CO2 per year.

Verde is capitalized following a private investment in public equity (PIPE) injection of $54m as part of a reverse merger last year, allowing the company to take the Bakersfield and West Texas projects through the FEED phase, CEO Ernest Miller said in an interview.

Underpinning Verde’s business model is the view that gasoline will persist as a transportation fuel for many years to come, and that very few parties are working to decarbonize the gasoline supply chain.

“Between renewable diesel, renewable natural gas, and sustainable aviation fuel, there is very little awareness that renewable gasoline is even a thing,” Miller said. “The addressable market is enormous, and the impact that can be made by taking even a sliver of that market is enormous.”

Miller says that many market participants believe that electric vehicles will solve the emissions problem from road transport.

“The fact is that gasoline has a very, very long runway ahead of it,” he said. “Regardless of the assumptions you want to make about EV penetration, the volume of gasoline that we continue to use for the foreseeable future is huge.”

Verde Clean Fuels demo plant.

Verde’s projects are sized in the 500 – 3,000 barrels per day range, making them a unique player at the smaller end of the production range. The only other companies with similar methanol-to-gas technology are ExxonMobil and Danish-based Topsoe, which operate at a much larger scale, according to Miller.

Miller recognizes that low-carbon, or negative-carbon, gasoline operates within a complex ecosystem, with the California project potentially playing in that state’s LCFS and D3 RIN markets, in addition to the market for gasoline.

“What I would like to see us do is have an offtaker that plays in all three of those products – so if I can go to Shell Trading, or bp, or Vitol, and get one of them to say, ‘here’s a price,’ and they take all of that exposure and optionality,” Miller said, “that allows me to finance the project without having to manage a whole bunch of different commodity exposures and risk.”

Bakersfield 

The Bakersfield project, estimated to cost $235m to build, will utilize 450 tons per day of agricultural waste to produce gasoline, and sequester CO2 via California Resources’ carbon management company, Carbon TerraVault, a joint venture with Brookfield Renewable.

Because of the carbon sequestration, the project will qualify for incentives under 45Q, but since it is producing, in Miller’s words, “deeply carbon-negative gasoline,” most of the value for the project will come from California’s LCFS program.

In order to qualify for LCFS credits, the Bakersfield facility goes through the full GREET modeling process – including transport of feedstock, processing and refining, and transport away from the facility – returning a negative 125 grams equivalent per MJ carbon intensity score for the project, according to Miller.

As for investors, Verde “would like to see both California Resources and Brookfield Renewable in the project, either individually or through the Carbon TerraVault JV,” Miller said.

Verde is also in discussions with a handful of financial players, including infrastructure and pension funds that are looking for bond-like cash flow that a project finance model can provide. The company has also explored the municipal bond market in California, which would bring to bear a favorable capital structure for the project, Miller said.

Verde is not currently working with a project finance advisor, Miller said, noting that they have in-house project finance experience. In Texas, Verde is working with Vinson & Elkins as its law firm; and in California Verde is working with Orrick as counsel.

Gasoline runway

For the Diamondback facility in West Texas, which requires roughly $325m of capex, both Verde and Diamondback will take equity stakes in the project, and Verde will seek to bring in debt financing to fund the rest of the project costs in a non-recourse project finance deal, Miller said.

The Permian project seeks to provide a pathway to monetize stranded gas in the basin by taking advantage of and alleviating its lack of takeaway capacity, which causes gas prices at the Waha Hub in West Texas to trade at a significant discount to the Henry Hub price.

“Diamondback would take the position that any gas that’s getting consumed in the Permian Basin is gas that’s not getting flared in the Permian Basin,” Miller said, thus making the project a emissions-mitigating option. “There will never be enough natural gas takeaway capacity out of the Permian Basin,” he added, noting that driller profiles are only going to get gassier as time goes on.

Diamondback, for example, produces more in the Permian than it can take out via pipeline, therefore “finding a use, a different exposure, for that gas by turning it into gasoline, is of value for them,” Miller said.

“It’s the same dynamic in the Marcellus and Bakken and Uinta – all the pipeline-constrained basins,” he added, alluding to possible future expansion to those basins.

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exclusive

TC Energy executive talks hydrogen strategy

Canadian midstream giant TC Energy recently unveiled it was pursuing 10 hydrogen projects across North America. To learn more we caught up with Omar Khayum, a vice president at the company in charge of hydrogen project development.

TC Energy is evaluating 10 blue and green hydrogen hubs across North America, viewing incumbency as a significant competitive advantage.

The company is looking to use hydrogen as a means of providing a larger basket of low-carbon solutions to customers, according to Omar Khayum, a TC Energy vice president who is in charge of hydrogen project development. That basket includes mature power generation assets like wind, solar and pumped hydro, Khayum said in an interview, as well as additional firming resources, renewable natural gas, and carbon capture.

“We have a continental platform of customers that are in oil & gas and heavy industry that are looking to decarbonize their existing feedstock,” he said.

TC Energy is partnering with end-use customers, adding capabilities into the partnerships, and sharing in both the risk and benefit of the projects, he said.

“Our incumbency really allows us to partner with end users, and identify customer solutions,” Khayum said. “That’s our business model around de-risking what is a newer form of energy solution.”

Khayum declined to specify where the 10 hydrogen projects are located, other than to say they are proximate to industrial load – existing steelmaking, power plants, chemical facilities and refineries – and are not on the Gulf Coast. TC Energy has announced one project in Alberta which involves an evaluation of its Crossfield gas storage facility and would entail generating 60 tonnes of hydrogen per day with capacity potentially increasing to up to 150 tonnes per day.

In some cases, TC Energy is partnering with the end-use customer to jointly develop the hydrogen projects, Khayum said. “We are the lead developer in most cases but we’re not managing all of the risk ourselves – we’re putting together coalitions with organizations that have upstream and downstream capabilities to make sure we de-risk effectively.”

While conducting project management, TC will use external EPC firms and OEMs to deliver projects, depending on the location and technology in use, Khayum said.

Project funding

As for funding the projects, Khayum said the business model for hydrogen looks similar to the model for liquefied natural gas projects. “We have a wide degree of flexibility in how we can finance projects,” he said, noting the availability of project financing as well as the option to fund projects from TC Energy’s balance sheet.

“We have a number of financial advisors engaged to ensure that as we develop the projects from the offtake agreements to the supply chain agreements – and everywhere in between – those contracts are bankable to provide us the optionality to use project financing,” he said.

Khayum believes that the project finance market is still about 12 months away from being ready to finance hydrogen projects. “That’s because we are one of the early movers in hydrogen development and, as such, we’ll be bringing forward to the marketplace some of the first bankable offtake and supply chain contracts along with risk management tools and activities.”

He noted there was still work to be done among underwriters to validate those contracts for bankability. “We are working over the next year to not only get our projects to FID but working in tandem with our financial advisors to enable the banking system to accommodate those transactions.”

Much of the underwriting requirements have already been well-established in LNG, he noted. “If we can manage risk in a similar fashion,” he added, “we think it will be much more expeditious to achieving a positive FID.”

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Exclusive: Hydrogen blank-check deal and capital raise on track

A de-SPAC deal and associated capital raise for a hydrogen technology and project development firm are still on track to close this year, despite this year’s busted SPAC deals and sagging hydrogen public market performance.

H2B2 Technologies is still on track to close a de-SPAC deal and related capital raise before the end of this year, CEO Pedro Pajares said in an interview.

Spain-based H2B2 announced the deal to be acquired by RMG Acquisition Corp. III and go public in a $750m SPAC deal in May. In tandem, Natixis Partners and BCW Securities are acting as co-private placement agents to H2B2 for a capital raise that the company must close as part of the acquisition.

The company said recently in filings that the deal as well as the capital raise would close before the end of 2023, a fact that Pajares reiterated in the interview. He declined to comment further.

Many publicly traded hydrogen companies have dropped significantly in value in recent months, and dropped further on Friday following news from Plug Power that it would need to raise additional capital in the next 12 months to avoid a liquidity crisis.

Meanwhile, there have been 55 busted SPAC deals this year, according to Bloomberg, with Ares Management’s deal for nuclear tech firm X-Energy the latest to not close.

Expansion

H2BE recently inaugurated SoHyCal, its first facility in Fresno, California, and wants to get the message out to offtakers in California’s Central Valley that it has hydrogen available to sell.

“What we want to show is that H2B2 is the solution for those who are seeking green hydrogen in the Central Valley,” Pajares said.

Phase 1 (one ton per day) of the plant was funded by a grant from the California Clean Energy Commission. Phase 2 (three tons per day) will involve transitioning to solar PV power, and the company could consider a project finance model to finance the expansion, though Pajares believes the market is not yet ready to finance hydrogen projects.

In addition to project development, the company is also an electrolyzer manufacturer. It is focusing its efforts in the California market on future projects that are larger than SoHyCal, as well as those related to individual offtakers, Pajares said. End users will be in mobility and fertilizer, with offtake occurring via long-term contracts as well as through spot market transactions.

The company is pursuing developments in other regions of the US as well, he added, declining to name specific areas.

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