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Montana Renewables invited to submit Part II of $600m DOE loan application

If awarded the loan would finance the manufacturing of 18,000 barrels per day of renewable diesel, SAF, and renewable naphtha.

Montana Renewables, a subsidiary of Calumet Specialty Products Partners, has been invited by the US Department of Energy to submit a Part II Application for a $600m loan guarantee through the Title XVII Innovative Clean Energy Loan Guarantee Program, according to a news release.

If awarded the loan would finance the manufacturing of 18,000 barrels per day of renewable diesel, SAF, and renewable naphtha using Haldor Topsoe’s HydroFlex technology.

Montana Renewables recently appointed Citigroup to serve as lead underwriter in the proposed offering of $250m of tax-exempt bonds to be issued by Cascade County, Montana. Its parent closed two transactions to fund working capital needs, including a supply and offtake agreement with Macquarie Commodities and Global Markets

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Data: Japanese Companies in North American Clean Fuels Projects

An updated look — following JERA Co.’s framework with ExxonMobil, announced last week — at the Japanese firms that are making investments and forging project partnerships as that island nation seeks a North American footing for low-carbon fuels.

Here is an updated view of the Japanese firms with involvement in North American clean fuels projects, following the announcement last week that JERA Co. established a framework to potentially offtake and invest in a low carbon hydrogen and ammonia project at Exxon’s Baytown Complex.

Japan is one of the largest importers of hydrogen worldwide, and it’s betting big on clean hydrogen for its decarbonization, planning to spend over $20 billion over the next 15 years to subsidize its production and supply chain.

In addition to investing to increase local capacity, Japanese firms are also focusing on importing clean fuels, with an eye on North America and the United States specifically, where project developers are increasingly looking to South Korea and Japan as buyers.

Many Japanese companies are actively participating in clean fuels projects across North America, including hydrogen, ammonia, methanol, and biofuel projects.

Around 4% of all clean fuels projects in North America have one or more Japanese firms involved as co-developers, equity investors, or off-takers. The investments are mostly in the United States, and companies like Mitsubishi and Mitsui, which have a long history of US investments, are the most active.

Without committing to specific projects yet, developers like Sempra Infrastructure and 8 Rivers have signed MoUs with Japanese counterparts to promote the development of a clean energy supply chain, while others, like Intersect Power or Hydrogen Canada, are explicitly targeting Japan as an end market for their hydrogen products.

See a full list of North American projects with Japanese involvement.

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Tata Steel to invest 65m euros in Dutch green steel production

Tata Steel Nederland has signed contracts with McDermott, Danieli and Hatch to advance technical preparations for green steel production.

Tata Steel Nederland has signed contracts with three companies – McDermott, Danieli and Hatch – to advance technical preparations for green steel production.

This phase in the project is expected to cost over 65m euros, and will result in an engineering package that forms the basis for final permitting and project planning, according to a press release.

Tata Steel wants to move to green steel manufacturing in a clean environment as fast as possible, with each of the three partner companies bringing their own specific expertise to help Tata shape and deliver hydrogen-based steel manufacturing.

The project is led by the Tata Steel internal project and sustainability team, in close support of the main delivery partners. McDermott is responsible for the construction input and support of the technical project management. Danieli is responsible for the engineering design for the  plant and technology that delivers the Direct Reduced Iron (DRI), the first step in the iron making process. Hatch is the technology licensor  of the electric furnaces (REF) that melt the DRI and help to reduce the oxygen content further thereby improving the final steel quality. The REF and DRI plant are closely coupled to form an integrated production system.

“We recently signed agreements about our future with two ministries and the province of North Holland. In doing so, we have committed to being CO2 neutral before 2045 and emit between 35 to 40% less CO2 before 2030. This will primarily be achieved via the hydrogen route where the blast furnaces are replaced with modern clean steel making technology that uses hydrogen or gas instead of coal,” said Hans van den Berg, CEO of Tata Steel Nederland in a statement.

DRI (direct reduced iron) technology is a relatively new production technology, in which iron ores are directly reduced using natural gas or hydrogen, rather than coal. The reduction of iron ores takes place in a DRI plant in a shaft reactor  at a relatively low temperature of up to about 1000°C. The reduced iron is then further processed into hot metal in an electric furnace (REF). During this step the right amount of carbon is being added to create a very precise and high quality feedstock for our steel plant.

The DRI-REF technology offers several advantages. By using green electricity and a predominant hydrogen stream, the CO2 emissions from the process are much lower than when using blast furnaces. The new process can also accommodate higher percentages of circular steel, where scrap can be added to the REFs or the induction furnaces.

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OCI to use 45Q tax incentives for Texas world-scale blue ammonia plant

The global producer and distributor of nitrogen expects a benefit of roughly $119m per year from the recently established 45Q tax incentive for carbon capture and sequestration.

Holland-based OCI N.V. is on track to break ground on a 1.1 million tons per year (MTPA) blue ammonia facility next month.

The global producer and distributor of nitrogen products expects to use the recently established 45Q tax incentive for carbon capture and sequestration at the facility, which will amount to a benefit of roughly $119m per year “that we can utilize to offset taxes or sell to third parties,” CEO Ahmed El-Hoshy said on the company’s 3Q22 earnings call.

In addition to the tax incentives, the project benefits from access to US Gulf Coast natural gas, he added.

El-Hoshy said the plant will be the first world-scale low-carbon ammonia project to commission when it comes online in 2025.

It will require $450m of capex in 2023 and “sub $1bn” in total, and will utilize existing infrastructure at the Beaumont site to export ammonia to the US Midwest fertilizer market as well as the US Gulf Coast’s growing clean ammonia market, El-Hoshy said.

Key infrastructure at the site has been designed to allow for a doubling of capacity to 2.2 MTPA in the future.

The facility will also have strategic supply advantages for the European Union via the company’s Rotterdam terminal, where throughput capacity is expected to triple to 1.2 MTPA by 2023.

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Solar-powered hydrogen producer raising capital for EU and US growth

A European JV developing off-grid hydrogen production units using concentrated solar power – “white hydrogen” – plans to raise capital for growth in Europe and the US.

hysun, a Spanish JV between European firms Nanogap and Tewer Engineering, will raise $15m over three years for its first industrial plant and commercialization by 2026, CEO and Co-founder Tatiana Lopez said in an interview.

hysun has not engaged a financial advisor to date, but is open to meetings, Lopez said.

The new venture, formed in November, has raised $2m and is actively seeking another $3m (pre-money valuation of $10m) equity for a100 g H2/h prototype to close by the end of the year.

The company will then need $4m for an industrial plant, locations for which are being scouted now in the US and Europe. After that, the founders intend to enter a commercialization phase.

hysun’s intellectual property allows it to produce off-grid “white hydrogen” via steam generated with concentrated solar technology, Lopez said. The lack of electrolyzers means about eight times less land is needed to generate projects as large as 200 MW assuming 2,500 hours of sunlight per year.

“You don’t need to be next to a wind farm or solar plant,” Lopez said, adding that the hydrogen is produced at $1 per kilo.

Average project sizes range between 50 and 100 tonnes per year, assuming the same amount of sunlight, though the technology is applicable on a micro scale. The company sees the end uses being for ammonia production, replacement of grey hydrogen in industry and remote location deployment.

Lopez said the company is interested in growing in the US and Europe but believes the US will develop its industry faster.

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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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Interview: Vinson & Elkins’ Alan Alexander on the emerging hydrogen project development landscape

Vinson & Elkins Partner Alan Alexander, whose clients include OCI and Lotus Infrastructure, has watched the hydrogen project development space evolve from a fledgling idea to one that is ready for actionable projects.

Vinson & Elkins Partner Alan Alexander, whose clients include OCI and Lotus Infrastructure, has watched the hydrogen project development space evolve from a fledgling idea to one that is ready for actionable projects.

In the meantime, a number of novel legal and commercial issues facing hydrogen project developers have come to the forefront, as outlined in a paper from the law firm this week, which serves as a guide for thinking through major development questions that can snag projects.

In an interview, Alexander, a Houston-based project development and finance lawyer, says that, although some of the issues are unique – like the potential for a clean fuels pricing premium, ownership of environmental attributes, or carbon leaking from a sequestration site – addressing them is built on decades of practice.

“The way I like to put it is, yes, there are new issues being addressed using traditional tools, but there’s not yet a consensus around what constitutes ‘market terms’ for a number of them, so we are having to figure that out as we go,” he says.

Green hydrogen projects, for example, are “quite possibly” the most complex project type he has seen, given that they sit at the nexus between renewable electricity and downstream fuels applications, subjecting them to the commercial and permitting issues inherent in both verticals.

But even given the challenges, Alexander believes the market has reached commercial take-off for certain types of projects.

“When the hydrogen rush started, first it was renewables developers who knew a lot about how to develop renewables but nothing about how to market and sell hydrogen,” he says. “Then you got the people who were very enthusiastic about developing hydrogen projects but didn’t know exactly what to do with it. And now we’re beginning to see end-use cases develop and actionable projects that are very exciting, in some cases where renewables developers and hydrogen developers have teamed up to focus on their core competencies.”

A pricing premium?

In the article, Vinson & Elkins lawyers note that commodities pricing indices are not yet distinguishing between low-carbon and traditional fuels, even though a clean fuel has more value due to its low-carbon attributes. The observation echoes the conclusion of a group of offtakers who viewed the prospect of paying a premium for clean fuels as unrealistic, as they would need to pass on the higher costs to customers.

Eventually, Alexander says, the offtake market should price in a premium for clean products, but that might depend in the near term on incentives for clean fuels demand, such as carbon offsets and levies, like the EU’s Carbon Border Adjustment Mechanism.

“Ultimately what we need is for the market to say, ‘I will pay more for low-carbon products,’” he says. “The mindset of being willing to pay more for low-carbon products is going to need to begin to permeate into other sectors. 30 or 40 years ago the notion of paying a premium for an organic food didn’t exist. But today there are whole grocery store chains built around the idea. When the consumer is willing to pay a premium for low-carbon food, that will incentivize a farmer to pay a premium for low carbon fertilizer and ammonia, which will ultimately incentivize the payment of a premium for low-carbon hydrogen. The same needs to repeat itself across other sectors, such as fuels and anything made from steel.”

The law firm writes that US projects seeking to export to Europe or Asia need to take into account the greenhouse gas emissions and other requirements of the destination market when designing projects.

In the agreements that V&E is working on, for example, clients were first focused on structuring to make sure they met requirements for IRA tax credits and other domestic incentives, Alexander says. Meanwhile, as those clean fuels made their way to export markets, customers were coming back with a long list of requirements, “so what we’re seeing is this very interesting influx” of sustainability considerations into the hydrogen space, many of which are driven by requirements of the end-use market, such as the EU or Japan.

The more stringent requirements have existed for products like biofuels for some time, he adds, “but we’re beginning to see it in hydrogen and non-biogenic fuels.”

Sharing risk

Hydrogen projects are encountering other novel commercial and legal issues for which a “market” has not yet been developed, the law firm says, especially given the entry of a raft of new players and the recent passage of the Inflation Reduction Act.

In the case of a blue hydrogen or ammonia project where carbon is captured and sequestered but eventually leaks from a geological formation, for example, no one knows what the risk truly is, and the market is waiting for an insurance product to provide protection, Alexander says. But until it does, project parties can implement a risk-sharing mechanism in the form of a cap on liabilities – a traditional project development tool.

“If you’re a sequestration party you say, ‘Yeah, I get it, there is a risk of recapture and you’re relying on me to make sure that it doesn’t happen. But if something catastrophic does happen and the government were to reclaim your tax credits, it would bankrupt me if I were to fully indemnify you. So I simply can’t take the full amount of that risk.’”

What ends up getting negotiated is a cap on the liability, Alexander says, or the limit up to which the sequestration party is willing to absorb the liability through an indemnity.

The market is also evolving to take into account project-on-project risk for hydrogen, where an electrolyzer facility depends on the availability of, for example, clean electricity from a newly built wind farm.

“For most of my career, having a project up and reaching commercial operations by a certain date is addressed through no-fault termination rights,” he says. “But given the number of players in the hydrogen space and the amount of dollars involved, you’re beginning to see delay liquidated damages – which are typically an EPC concept – creep into supply and offtake agreements.”

If a developer is building an electrolyzer facility, and the renewables partner doesn’t have the wind farm up and running on time, it’s not in the hydrogen developer’s interest to terminate through a no-fault clause, given that they would then have a stranded asset and need to start over with another renewable power provider. Instead, Alexander says, the renewables partner can offset the losses by paying liquidated damages.

Commercial watch list

In terms of interesting commercial models for hydrogen, Alexander says he is watching the onsite modular hydrogen development space as well as power-to-fuels (natural gas, diesel, SAF), ammonia and methanol, given the challenges of transporting hydrogen.

“If you’re going to produce hydrogen, you need to produce it close to the place where it’s going to be consumed, because transporting it is hard. Or you need to turn it into something else that we already know how to transport – natural gas, renewable diesel, naphtha, ammonia.”

Alexander believes power-to-fuels projects and developers that are focused on smaller, on-site modular low-carbon hydrogen production are some of the most interesting to watch right now. Emitters are starting to realize they can lower their overall carbon footprint, he says, with a relatively small amount of low-carbon fuels and inputs.

“The argument there is to not completely replace an industrial gas supplier but to displace a little bit of it.”

At the same time, the mobility market may take off with help from US government incentives for hydrogen production and the growing realization that EVs might not provide a silver-bullet solution for decarbonizing transport, Alexander adds. However, hydrogen project developers targeting the mobility market are still competing with the cost of diesel, the current “bogey” for the hydrogen heavy mobility space, Alexander says.

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