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Milestone Carbon developing West Texas sequestration sites for industrial emitters

Milestone Carbon is establishing itself as an early destination for carbon emissions in the Permian Basin in order to attract larger industrial emitters in the future, including producers of low-carbon fuels.

Milestone Carbon is looking for industrial partners that need carbon sequestration services, with an eye on low-carbon fuel producers, thermal power plants and cement factories as potential anchor tenants.

The Houston-based company, a subsidiary of Milestone Environmental Services, is putting sequestration wells in now in order to attract early emissions from natural gas processing facilities in the Permian Basin, Senior Vice President Chris Davis said in an interview.

Getting established with early emitters will help attract new anchor partners from the low-carbon fuel, cement, and thermal power industries that are looking to build facilities with longer development timelines, said Davis.

Milestone last week announced an agreement to lease more than 22,000 acres of land and pore space for permanent geologic sequestration of CO2, which will form part of its two CO2 sequestration hubs in both the Delaware and Midland basins

With a Class II injection well from the Texas Railroad Commission in hand, and depending on the timing of infrastructure build-out and finalized commercial agreements, Milestone could begin injecting CO2 as early as 2025, placing it among the earliest to begin permanent sequestration in Texas.

“We want to plant our flag out front so that these low-carbon industries that are still in development phase, they say, ‘We’re thinking with the end in mind. I now know where I can plan my new facility and optimize around that,’” Davis said.

The company is open to co-investment in projects, but it’s not a requirement for what it is pursuing currently, Davis said.

The parent company, Milestone Environmental Services, was recently acquired by New York-based SK Capital from its previous investor, Amberjack Capital.

SK took a controlling stake in Milestone in partnership with President and CEO Gabriel Rio, who will continue to serve in that role and retain significant ownership in the company. 

Early emissions

The Delaware and Midland basins within the Permian are active areas for hydrocarbon activity, where carbon from natural gas processing can be captured and sequestered. There are additional existing and potentially new sources of carbon emissions from industry, as well as anticipated direct air capture projects, Davis noted.

“We have over the last two years been evaluating different sites that we think would be really attractive and advantaged for decarbonization for heavy industry, and have been systematically leasing up land in different places,” he added.

In the Midland Basin, for example, there are over 2 million tons of existing emissions from natural gas processing within 30 miles of Milestone’s site. Many of the natural gas processing facilities already have carbon separation facilities and are emitting high-purity CO2 into the atmosphere.

“In those instances, we’re stepping in there, compressing that CO2, dehydrating it and moving it through pipelines into our wells,” he said.

Milestone is designing wells around 500,000 tons to 1 million tons per year, under the belief that the company needs to get smaller-scale carbon sequestration projects off the ground now. 

“We think there’s a real opportunity here to develop some lower-complexity, faster-to-market projects,” he said.

Strategically, getting the early emissions in the ground helps to establish the hub to attract future larger facilities with longer development cycles, he said.

“We can get the emissions in from the gas plants and then be ready with the Class VI wells for these larger-volume projects.”

Anchor partners

Milestone is interested in providing carbon sequestration solutions to partners with anticipated emissions in the hundreds of thousands of tons of CO2 per year. Once these anchor partners are committed, the company can start to accept smaller emissions sources such as direct air capture companies, which are trying to hit around 50,000 tons per year initially. 

Developers of low-carbon projects requiring sequestration that are not thinking early on in the development process about how to dispose of CO2 might find, in the end, that they don’t have a place to put it, he said.

“Another message that I’m trying to get out there to people is that low-cost pore space is scarce – it’s more scarce than people believe,” he said. “To get it permitted, to get the landownership rights, to meet all of the regulatory requirements, takes a lot of time and capital, and there’s a scarcity of those sites that will be available pre-2030 for emissions.”

Milestone has fielded inquiries on potentially supplying CO2 as a feedstock for e-fuels, but for now is focused on geologic sequestration.

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Monarch Energy considering Illinois SAF plant

The plant would supply SAF to the Rockford International Airport, according to a column by Illinois Senator Tammy Duckworth.

Monarch Energy is considering a sustainable aviation fuel facility in Rockford, Illinois.

The plant would supply SAF to the Rockford airport, according to a column by Illinois Senator Tammy Duckworth.

“Monarch is considering building a facility that would use the emissions from nearby landfills that are already overburdened with waste from metro areas, converting them into American-made Sustainable Aviation Fuel (SAF) that could then be used at Rockford International Airport,” the senator wrote.

In an interview last year, Monarch CEO Ben Alingh said the company was focused on several green hydrogen projects in the Gulf Coast region, most notably a 500 MW project near Beaumont, Texas and a 300 MW project near Geismar, Louisiana.

Monarch has a $25m preferred equity investment and $400m project equity commitment from LS Power.

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

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

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Phoenix Motor enters hydrogen fuel cell market

Phoenix Motor Inc has acquired hydrogen fuel cell manufacturing assets from Altergy Systems.

Phoenix Motor Inc. a manufacturer of all-electric, medium-duty vehicles, has acquired hydrogen fuel cell manufacturing assets, including an automated, robotic fuel cell assembly line, from Altergy Systems.

Phoenix will utilize the manufacturing facility to design and produce hydrogen fuel cells to power forklifts, hybrid buses, vans and trucks, and long-range, heavy-duty trucks, according to a press release.

Phoenix Motorcars CEO, Dr. Lance Zhou commented, “We are excited to further expand our operations with our entrance into the rapidly growing hydrogen fuel cell market. The acquisition of these manufacturing assets enables Phoenix to accelerate its development plans, and leverage the automated production capabilities of these facilities, as we transition to mass production of hydrogen fuel cells for the burgeoning EV market in the coming quarters. In addition, the Inflation Reduction Act, also known as the U.S. climate bill, which was signed into law this week, should provide tremendous incentives, opportunities and market stability for us to grow this important clean energy power source. We are currently integrating the acquired assets and facility into our company and look forward to providing regular updates as we achieve important milestones in the hydrogen fuel cell business.”

The acquired manufacturing facility, located in Folsom, CA, has the capability to produce a fuel cell every 30 seconds on its advanced, robotic fuel cell assembly line. With the ability to produce fuel cells in high volumes, using off-the-shelf materials, stamped and molded fabrication, and robotic automated assembly equipment, Phoenix Motorcars plans to raise production at the Folsom facility in the quarters ahead.

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Ares acquires RNG developer

Ares has made a strategic investment to acquire RNG developer Dynamic Renewables in a process run by Lazard.

Dynamic Renewables, a full-service developer, owner and operator of waste management and anaerobic digestion renewable fuel projects across the U.S., has been acquired by fund managed by Ares Management’s Infrastructure Opportunities strategy, according to a news release.

In addition, an unregulated affiliate of NorthWestern Energy has acquired a small minority stake in the company.

Terms of the deal were not disclosed. Lazard acted as financial advisor to Dynamic on the transaction. Husch Blackwell served as legal counsel to Dynamic. Latham & Watkins LLP served as legal counsel to Ares.

The investment from Ares is intended to support Dynamic in the further development and construction of its broader pipeline of renewable natural gas (“RNG”) assets located throughout the U.S. Ares has approximately $14.9bn in infrastructure equity and debt assets under management as of March 31.

Founded in 2011, Dynamic is a leading fully integrated origination, development, financing and operations platform that provides waste recovery solutions focused on the dairy and food processing industries. Dynamic has a material project development pipeline and is currently overseeing the construction of six assets, which are expected to be operational by the end of 2023 and forecasted to generate a combined total of more than 4,000 MMBtu per day of renewable natural gas. These six projects are projected to mitigate more than 300,000 metric tons of carbon dioxide emissions per year.

Dynamic is also the owner of BC Organics, a flagship asset developed by the Company. Located in Brown County, Wisconsin, BC Organics is a large-scale biorefinery facility that sources dairy manure feedstock from eleven multigenerational farms and comprises sixteen anaerobic digester tanks capable of processing 900,000 gallons of manure per day. BC Organics will produce carbon negative transportation fuel and provide its partner dairy farms with a long-term, sustainable manure management solution that converts the feedstock into clean water and reusable animal bedding.

Dynamic is led by its co-founders – Chief Executive Officer Duane Toenges, Chief Technology Officer Dan Nemke and Executive Vice President of Special Projects Karl Crave – who have worked together in the anaerobic digestion industry for nearly two decades.

“We are excited about the business we have built in Dynamic and our current momentum,” said Toenges. “Ares brings a wealth of experience in investing and developing projects in the renewable natural gas industry. They have expressed their support for the Company and our strategy in achieving our next phase of growth. Further, the recent commissioning of our BC Organics project is a tremendous milestone for Dynamic, and we look forward to completing additional projects this year for our strategic partners.”

“We are thrilled to partner with Dynamic, and our investment is aligned with Ares’ commitment to accelerate the transition to a lower-carbon economy through the Company’s innovative waste management and anaerobic digestion capabilities,” said Andy Pike, partner and co-head of Ares Infrastructure Opportunities. “Dynamic has a demonstrated track record of leadership in the rapidly growing renewable fuels sector, and we look forward to working together to build out its pipeline while supporting local communities in delivering more sustainable waste management practices.”

“We are pleased to further our existing relationship with Dynamic with this minority investment in the Company,” said Brian Bird, president and chief executive officer of NorthWestern. “The investment in Dynamic is a positive step for NorthWestern in meeting its net zero goals and a great opportunity to expand the RNG production capabilities of our service territory and its surrounding area. We are excited about the growth of the RNG industry, the carbon negative fuel that Dynamic’s assets will generate, and the complementary nature of this investment with our long-term goals.”

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Carbon capture OEM eyeing US for manufacturing plant

A Vancouver-based maker of carbon capture equipment is considering building a manufacturing plant in the US. Its number one target market: gray hydrogen producers.

Svante, a carbon capture original equipment manufacturer based in Vancouver, is eyeing the US as it seeks to expand its market presence across North America.

The company has raised sufficient capital to construct its first plant in Vancouver, where it will make specialized filters and contactor machines used in the carbon capture and removal processes, Svante CEO Claude Letourneau said in an interview.

Within several years, Svante is planning to build a second manufacturing facility in the United States, closer to where its customers are located and where CO2 can be monetized, Letourneau said.

Svante raised $318m last year in a series E fundraising round led by Chevron New Energies. It will spend approximately $100m to build the Vancouver facility.

Letourneau says the company’s principal target market in North America is existing gray hydrogen facilities that use steam methane reforming, of which there are around 1,000. The cost of adding carbon capture to existing SMR plants brings the cost of blue hydrogen from $1.50 per kilogram to around $2 per kilogram, according to Letourneau, compared to green hydrogen that will cost between $3 – $6 per kilogram with a similar carbon footprint.

“It’s a good solution,” he said.

Optimizing costs

As an original equipment manufacturer, Svante has partnerships with some of the largest EPC companies in the world for carbon capture projects: Kiewit in North America, Technip in Europe, and Samsung in Asia.

“When you have a technology that you want to take to market, you need to get the benefit of a close relationship with these EPC contractors if you want to deploy quickly and reduce costs,” he said.

He noted that the filters and contactors typically make up between 10% – 15% of the cost of a carbon capture plant, while the rest is in the balance of plant. Filters typically have a lifespan of three to five years, he said, allowing for additional recurring revenues for Svante after the initial installation.

Svante is working on five to six projects with Kiewit in North America that are in the pre-FEED and FEED stages, with FIDs expected by the end of next year. It is also working with Linde on a Department of Energy-sponsored pre-FEED carbon capture project for Linde’s Port Arthur gray hydrogen facility.

Additionally, Svante has a partnership with Swiss-based Climeworks for direct air carbon capture technologies.

“We want to be for carbon capture what GE Aerospace is for the jet engine industry,” he said, using an analogy to a market in which there are only several OEMs in a large, consolidated industry.

Target market

There are around 10,000 emitting plants globally that need carbon capture in order to decarbonize; meanwhile there are only 40 carbon capture facilities in operation, according to Letourneau. Svante’s Vancouver plant will be able to make equipment for around 10 plants per year, but eventually the company would like to scale up to between 50 – 100 plants per year with additional manufacturing capacity.

“This is a big problem we’re trying to solve here,” he said.

To build the second plant in the US, the company will explore using project finance debt and seek to take advantage of US government incentives for clean energy manufacturing. The recently enhanced carbon capture tax incentives – of $85 per ton of CO2 captured versus $50 previously – will also benefit Svante’s carbon-emitting customers.

In addition to gray hydrogen, the company is targeting carbon emissions from oil and gas refining as well as pulp and paper mills.

Use cases

Svante’s modular solid sorbent technology can be inserted to capture flue gas at the end of the refining process instead of inside the plant, offering fewer disruptions to existing systems. Svante then concentrates the CO2 into a pipeline grade for storage or industrial use.

“Nobody makes these filters in the world,” Letourneau continued, “so if I want to convince somebody to give Kiewit and ourselves a purchase order for $300m to build a 1 million-ton-per-year plant, they need to see that we have a manufacturing plant to make the filters, they need to see that we have the size of the contactor done at commercial size, and they need to see that we’ve done all the engineering studies to justify that this project can be monetized, economical, and the like.”

The company is sufficiently capitalized to advance the projects in its pipeline, and is focused on completing the Vancouver plant and garnering purchase orders in order to become profitable. A potential future exit could come in the form of an IPO or sale to a larger player, Letourneau said.

“We understand the market is quite buoyant and probably a few large companies are going to try to dominate, and they may decide they want to acquire a company like us, so an M&A is a possible exit in the next five years, depending on the conditions,” he said.

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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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Methanol-to-hydrogen firm planning capital raise

An early-stage provider of distributed methanol-to-hydrogen solutions is planning a capital raise as it scales up.

Kaizen Clean Energy, a Houston-based methanol-to-hydrogen fuel company, is planning to raise additional capital in support of upcoming projects.

The company, which uses methanol and water to produce hydrogen with modular units, recently completed a funding round led by Balcor Companies, in which Balcor took a minority interest in Kaizen.

Additional funding in the capital raise was provided by friends and family, Kaizen co-founder and chief commercial officer Eric Smith said in an interview.

But with its sights on larger project opportunities this year, the company is already targeting an additional capital raise to support continued growth, Smith said. He declined to comment further on the capital raise and potential advisors, but noted that the company’s CFO, Craig Klaasmeyer, is a former Credit Suisse banker.

Kaizen’s methanol model utilizes a generator license from Element 1 and adds in systems to produce power or hydrogen, targeting the diesel generator market, EV charging and microgrids as well as hydrogen fueling and industrial uses.

Compared to trucking in hydrogen, the model using methanol, an abundant chemical, cuts costs by around 50%, Smith said, noting that Kaizen’s containers are at cost parity with diesel.

In addition, the Kaizen container is cleaner than alternatives, producing no nitric or sulfur oxide, according to Smith. Its carbon intensity score is 45, compared to 90 for the California electric grid and 100 for diesel generators.

Smith also touts a streamlined permitting process for Kaizen’s containerized product. The company recently received a letter of exemption for the container from a California air district due to low or no emissions. The product similarly does not require a California state permit and similarly, when off grid, no city permits are required, he added.

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