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Nel needs more orders to build Michigan electrolyzer plant

Nel Hydrogen executives said today that they will need to win more large-scale orders in order to take a positive final investment decision on a proposed Michigan electrolyzer factory.

Norway-based Nel Hydrogen will need to win more large-scale orders in order to build its proposed electrolyzer gigafactory in Michigan, executives said today.

The company announced last month that it has selected Plymouth Charter Township near Detroit as the location for the plant, with an anticipated annual capacity of 4 GW between PEM and alkaline technology.

Nel has so far secured more than $50 million in financial support for the site. Pending approval of additional state and federal applications, this amount could increase to around $150m.

The company has still not made a final investment decision on the facility, and does not provide a timeline for when it expects to do so.

“For us to do something in Michigan we first need to utilize the capacity that we are building now,” CEO Håkon Volldal said. “It doesn’t make sense to build another factory in Michigan and run our current facilities with utilization rates at sixty to seventy percent.”

To execute on the new plant, it would take large-scale orders that they would ideally like to produce and deliver in the US. 

“We will not invest a lot of capital up front and wait for the order,” he said. “We would like to see the orders materialize before we invest, and that’s why we don’t give an exact schedule for when we start the construction.”

Nel’s order intake for 3Q23 came in at 352 NOK ($31m), the lowest of the previous four quarters. Volldal noted that Nel’s win rate for electrolyzer contracts remains around one or two per quarter; however, the 3Q contract wins were smaller compared to previous quarters.

Its total backlog for electrolyzers stands at 2,442bn NOK ($218.5m).

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Royal Caribbean testing biofuel blends in cruise ships

The cruise vacation provider is testing biofuel blends in several of its ships out of Europe.

Royal Caribbean Group, the vacation cruise provider, has completed more than 12 consecutive weeks of biofuel testing in Europe, according to a news release.

In Barcelona, Royal Caribbean International’s Symphony of the Seas became the first ship in the maritime industry to successfully test and use a biofuel blend to meet part of her fuel needs.

The company confirmed onboard technical systems met operational standards, without quality or safety concerns, demonstrating the biofuel blend is a reliable “drop in” supply of lower emission energy that ships can use to set sail.

The company began testing biofuels last year and expanded the trail this summer in Europe to two additional ships. The biofuel blends tested were produced by purifying renewable raw materials like waste oils and fats and combining them with fuel oil.

The biofuel blends tested are accredited by International Sustainability and Carbon Certification (ISCC), which verifies reductions of fuel emissions, the release states.

 

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Iberdrola and BP to collaborate on green hydrogen production

Iberdrola and BP today announced their plan to form a strategic collaboration aiming to help accelerate the energy transition.

Iberdrola and BP today announced their plan to form a strategic collaboration aiming to help accelerate the energy transition.

The companies intend to develop large scale green hydrogen production hubs in Spain, Portugal and the UK, as well as production of derivatives such as green ammonia and methanol, which could be exported to Northern Europe.

This collaboration will combine Iberdrola’s world-class track record in renewables development and its global customer base, with BP’s experience in gas processing, trading and its global customer portfolio, according to a press release.The companies aim to jointly develop advantaged hydrogen production hubs with total capacity of up to 600ktpa, integrated with new renewable power.

The green hydrogen project at bp’s Castellón refinery will be part of the agreement. The two companies, together with the Instituto Tecnológico de la Energía, have submitted the Castellón project to the Spanish government’s hydrogen value chain PERTE call.

Likewise, Iberdrola’s industrial hydrogen projects under development, as well as new projects, will be part of the agreement. Based on this collaboration in Spain, Portugal and the UK, Iberdrola and bp intend to explore potential future opportunities for green hydrogen production in other geographies.

Iberdrola and BP aim to finalize both joint venture agreements by end 2022, subject to regulatory approvals

The companies also intend to collaborate to significantly expand fast EV public charging infrastructure to support the adoption of electric vehicles.

Iberdrola and BP plan to form a joint venture that intends to invest up to €1 billion to roll-out a network of up to 11,000 rapid and ultra-fast EV public charge points across Spain and Portugal, significantly expanding access to charging for consumer and fleet customers thus accelerating electric mobility.

The plan includes installing and operating an initial 5,000 fast charge points by 2025, and up to a total of 11,000 by 2030, including Iberdrola’s existing fast charging hubs.

The companies are also looking at options to jointly serve EV customers in the UK.

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Toyota powering California port facility with fuel cell technology

Toyota and FuelCell Energy have completed installation of a fuel cell system at the Long Beach vehicle processing center.

FuelCell Energy, Inc. and Toyota Motor North America, Inc. (Toyota) have announced the completion of the first-of-its-kind “Tri-gen system” at Toyota’s Port of Long Beach operations, according to a news release.

The Tri-gen system, owned and operated by FuelCell Energy, produces renewable electricity, renewable hydrogen, and water from directed biogas. FuelCell Energy has contracted with Toyota to supply the products of Tri-gen under a 20-year purchase agreement.

Tri-gen is an example of FuelCell Energy’s ability to scale hydrogen-powered fuel cell technology, an increasingly important energy solution in the global effort to reduce carbon emissions. Tri-gen will enable Toyota Logistic Services (TLS) Long Beach to be the company’s first port vehicle processing facility in the world powered by onsite-generated, 100 percent renewable energy and represents the types of innovative and bold investments the company is making as part of its environmental sustainability strategy.

“By utilizing only renewable hydrogen and electricity production, TLS Long Beach will blaze a trail for our company,” said Chris Reynolds, Chief Administrative Officer, Toyota. “Working with FuelCell Energy, together we now have a world-class facility that will help Toyota achieve its carbon reduction efforts, and the great news is this real-world example can be duplicated in many parts of the globe.”

FuelCell Energy CEO Jason Few said, “FuelCell Energy is committed to helping our customers surpass their clean energy objectives. By working with FuelCell Energy, Toyota is making a powerful statement that hydrogen-based energy is good for business, local communities, and the environment. We are extremely pleased to showcase the versatility and sophistication of our fuel cell technology and to play a role in supporting Toyota’s environmental commitments.”

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Buckeye Partners closes acquisition of Bear Head Energy

Buckeye Partners has closed on the acquisition of Bear Head Energy.

Buckeye Partners has closed on the acquisition of Bear Head Energy, Inc., according to a news release.

Bear Head is developing a large-scale green hydrogen and ammonia production, storage and export project in Point Tupper, Nova Scotia with hydrogen electrolyzer capacity of more than 2 GW.

As part of the project’s phased development, Buckeye plans to partner with on-shore and off-shore renewable energy developers to build out a large-scale green hydrogen hub for Atlantic Canada.

Buckeye established its Alternative Energy operating segment as a clean energy business that focuses on the development, construction, and operation of alternative energy projects, including hydrogen, wind, and solar-powered energy solutions.

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Of CfDs and RFNBOs: Untangling the global hydrogen policy web

US ammonia and hydrogen project developers are increasingly looking to Japan and South Korea as target markets under the belief that new rules for clean hydrogen and its derivatives in Europe are too onerous.

Much fuss has been made about the importance of pending guidance for the clean hydrogen industry from US regulators. Zoom out further and major demand centers like the European Union, Japan, and South Korea have similarly under-articulated or novel subsidy regimes, leaving US clean fuels project developers in a dizzying global tangle of red tape. 

But in the emerging global market for hydrogen and ammonia offtake, several themes are turning up. One is that US project developers are increasingly looking to South Korea and Japan as buyers, turning away from Europe following the implementation of rules that are viewed as too onerous for green hydrogen producers.

The other is that beneath the regulatory tangle lies a deep market, helping to answer one of the crucial outstanding questions that has been dogging the nascent ammonia and hydrogen industry: where is the offtake? 

Many projects are proceeding towards definitive offtake agreements and final investment decisions despite the risks embedded in potential changes in policy, according to multiple project finance lawyers. In most cases, reaching final agreements for offtake would not be prudent given the raft of un-issued guidance in these major markets, said the lawyers, who acknowledge a robust offtake market but may advise their clients against signing final contracts.

The European Union rules for green hydrogen and its derivatives became law in June, and included several provisions that are proving challenging for developers and their lawyers to structure around: prohibiting state-subsidized electricity in the production of green hydrogen, and the requirement that power for green hydrogen be purchased directly from a renewable energy supplier. 

Taken together, the policy developments have pushed many US project developers away from Europe and toward Japan and South Korea, where demand for low-carbon fuels is robust and regulations are viewed as less burdensome, if still undefined, experts say.

Developers are carefully choosing jurisdictions for their target offtake markets, “limiting their focus to North Asian rather than European buyers, with the expectation that certain standards and regulations will be less strict, at least in the near term,” said Allen & Overy Partners Hitomi Komachi and Henry Sohn, who are based in Japan and Korea, respectively.

Trade association Hydrogen Europe lambasted the new European rules last year while they were still in formation, saying they would cause a “mass exodus” of the continent’s green hydrogen industry to the US.

Make or break

US policymakers delivered a shock blow with last year’s approval of the Inflation Reduction Act – but its full benefits have yet to flow into the clean fuels sector due to outstanding guidance on additionality, regionality, and matching requirements. 

At the same time, the 45V tax credit for clean hydrogen has been called potentially the most complex tax credit the US market has ever seen, requiring a multi-layered analysis to ensure compliance. The US policy uncertainty is coated on top of an already-complex development landscape facing developers of first-of-kind hydrogen and ammonia projects using electrolyzer or carbon capture technologies. 

“Even though folks are moving forward with projects, the lack of guidance impacts parties’ willingness to sign definitive documents, because depending on the guidance, for some projects, it could break the economics,” said Marcia Hook, a partner at Kirkland & Ellis in Washington DC.

Now, US developers seeking access to international markets are contending with potential misalignment of local and international rules, with Europe’s recently enacted guidelines serving as a major example of poorly arrayed schemes. 

Some US developers have already decided it may be challenging to meet the EU’s more rigorous standards, according Hook, who added that, beyond the perceived regulatory flexibility, developers appear to be garnering more offtake interest from potential buyers in Asia.

Projects that depend on outstanding guidance in Asia are also moving ahead, a fact that, according to Alan Alexander, a Houston-based partner at Vinson & Elkins, “represents a little bit of the optimism and excitement around low-carbon hydrogen and ammonia,” particularly in Japan and Korea.

“Projects are going forward but with conditions that these schemes get worked out in a way that’s bankable for the project,” he added. “It’s not optimal, but you can build it in,” he said, referencing a Korean contract where conditions precedent require that a national clean hydrogen portfolio standard gets published and the offtaker is successful in one of the  Korean power auctions.

RED III tape

Unlike the US, the EU has focused on using regulation to create demand for hydrogen and derivative products through setting mandatory RFNBO quotas for the land transport, industry, shipping and aviation sectors, according to Frederick Lazell, a London-based lawyer at King & Spalding.

Lazell called the EU rules “the most fully-developed and broad market-creation interventions that policymakers have imposed anywhere in the world.” As a result, being able to sell RFNBO into Europe to meet these quotas is expected to fetch the highest prices – and therefore potentially the highest premiums to suppliers, he said.

The European guidelines enacted in June introduced several provisions that will make it challenging for US developers to structure projects that meet the EU’s classification for renewable fuels of non-biological origin (RFNBOs).

For one, the European Commission issued guidance that prohibits subsidies for renewable energy generation when it is transmitted via a power purchase agreement through the electrical grid to make RFNBO.

This provision potentially eliminates all green hydrogen-based projects in the US from qualifying as an RFNBO, a managing partner at a US-based investment firm said, given that green hydrogen projects will likely be tied to renewables that are earning tax credits.

“The EC’s decision to include this restriction on State aid makes the EU’s version of additionality more onerous than even the strictest requirements being considered in the US,” lawyers from King & Spalding wrote in a September note, adding that some people in the industry argue that the decision is inexplicable under the RED II framework that authorized the European Commission to define additionality. 

A second challenge of the EU regulations is the mandate that PPAs be contracted between the RFNBO producer and the renewable energy source. Such a requirement is impossible for electricity markets where state entities are mandated to purchase and supply power, a structure that is common in multiple jurisdictions. Moreover, the requirement would remove the possibility of using a utility or other intermediary to deliver power for green hydrogen production.

“These technical issues may be serious enough for some in the industry to consider challenges before the Court of Justice of the European Union,” the King & Spalding lawyers wrote. “However, it is not yet clear whether there is the appetite or ability to turn such suggestions into a formal claim.”

Go East

Although the subsidy regimes in Japan and South Korea are expected to be less stringent in comparison to the EU, the programs are still not completely defined, which leaves some uncertainty in dealmaking as projects move forward.

The traditional energy sector has always dealt with change-in-law risk, but the risk is heightened now since regulations can change more rapidly and, in some cases, impact ongoing negotiations, said Komachi and Sohn, of Allen & Overy, in a joint email response. 

“Certain regulations coming into force may be contingent or related to the funding plan of the project,” they said. As such, clean fuels offtake frameworks need to facilitate not only the tracking and counting of emissions, they added, but also leave sufficient flexibility as regulatory frameworks evolve.

Japan, through its Hydrogen Basic Strategy, set out targets to increase the supply of hydrogen and ammonia in the country while reducing costs, deploying Japanese electrolysis equipment, and increasing investment into its supply chain. Additionally, Japan is contemplating a contracts-for-difference-style regime to support the gap between the price of clean hydrogen or ammonia and corresponding fossil fuels for 15 years.

Still, standards for “clean hydrogen” have not been clarified, though most observers believe the country will follow a carbon emissions lifecycle analysis in line with IPHE criteria, which is proposed at 3.4 kilograms of carbon dioxide per kilogram of hydrogen. Similarly, rules around “stacking” subsidies in Japan with other jurisdictions such as the Inflation Reduction Act have not been defined.

Meanwhile, Korea is considering carbon emissions standards of up to 4 kilograms of CO2 per kilogram of hydrogen. It is pushing for greater use of hydrogen in part through its Amended Hydrogen Act, requiring electric utilities to buy electricity made from hydrogen in a bidding round starting in 2024. The requirement scales up from 1,300 GWh of general hydrogen in 2025 to 5,200 GWh for general hydrogen and 9,5000 GWh for clean hydrogen in 2028.

Both countries are working to incentivize the entire supply chain for hydrogen and ammonia to ensure the separate pieces of infrastructure will be available on investable and bankable terms, with the aim of creating a demand center when the export centers are developed, Komachi and Sohn added.

They also point out that the emerging clean fuels offtake market will operate in the near term in a more spotty fashion in comparison with the more liquid markets for oil and gas.

“Hydrocarbon markets have gradually moved towards portfolio players, trading and optimization,” said Goran Galic, an Australia-based partner at Allen & Overy. “Smaller market size, technological and regulatory considerations mean that clean fuels, at least initially, require more of a point-to-point approach and so building long-term working relationships between the developers and offtakers is a key aspect of offtake strategy.”

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Exclusive: CO2-to-X firm seeking platform and project capital

A CO2-to-X development company with proprietary CO2 utilization technology is seeking to raise capital from potential strategic partners that would utilize its product, which can decarbonize industrial emitters while producing hydrogen and carbon monoxide. For methanol production, the company says it can reduce the amount of natural gas required per ton of methanol to 27 MMBtu, compared to the typical 35 MMBtu, “a massive change in a commodity market,” a company executive said in an interview.

HYCO1, a founder-owned CO2-to-X development company with proprietary CO2 utilization technology, is seeking partners to invest at both the platform and project level as it advances a series of commercial proposals.

Based in Houston and owned by its three founders, the firm is developing and commercializing technology that utilizes waste CO2 and methane to produce high purity hydrogen and carbon monoxide, which can then be used to make low-carbon syngas, fuels, chemicals, and solid carbon products.

The founders went “all in” on the technology and funded the first $10m for development themselves, and have since raised an additional $10m from two different ethanol producers that are planning to use the product, called HYCO1 CUBE, at their ethanol plants.

“We’re in the process of raising between $20m – $30m this year, with one or more strategics in investment sizes of $10m or more,” HYCO1 co-founder and CFO Jeffrey Brimhall said in an interview.

Beyond that, Brimhall says the firm plans to close on project financing for various projects in development, “which will spin development capital, license fees, and revenue back to HYCO1.”

HYCO1 is having direct conversations for the platform capital with the investment teams from potential strategic partners – like further ethanol producers, or specialty chemical producers and other operators of steam methane reformers.

Using the technology, the company hopes to qualify for tax credit incentives under 45V for the hydrogen produced utilizing recycled CO2 as a feedstock, as reflected in comments made last week to the IRS.

Projects in development

Meanwhile, HYCO1 is advancing a first three projects to maturity: a $175m green carbon syngas project on the US Gulf Coast; a $400m green methanol project on the Gulf Coast; and a $1.2bn green carbon synthetics project at an existing ethanol plant in Lyons, Kansas.

For the Kansas ethanol project, HYCO1 is having conversations with the “top five banks,” Brimhall said, about a project finance deal. 

“We’re starting offtake discussions for both methanol and synthetics,” he said. “And as those offtake discussions firm up, we know for a fact that big intermediaries are going to want to come in and we’re likely going to work with those who have discretionary capital that they can invest on their own account and then pull in others with them.”

The company recently entered into a 20-year carbon dioxide supply agreement with Kansas Ethanol for the project. It will be co-located with Kansas Ethanol and utilize all 800 tons per day of CO2 emitted by the plant to produce approximately 60 million gallons per year of low-carbon and zero-carbon products.

HYCO1 is working to reach FID on the Kansas project by 1Q25, but its critical path depends on getting in the pipeline of an ISODEWAXING provider, such as Chevron or Johnson Matthey, said Kurt Dieker, another HYCO1 co-founder and its chief development officer.

“Assuming a conservative schedule, assuming they get engaged in the next 10 weeks, that would put us in 1Q of next year” for FID, said Dieker, who has deep experience in the ethanol industry, having worked for ICM, the technology behind 70% of the ethanol gallons produced in the US today.

The CUBE

HYCO1’s CUBE technology essentially works as a conversion catalyst applying heat to CO2 and methane to create hydrogen and carbon monoxide, the building blocks of virtually all petrochemical and carbon-based downstream products.

The company built a pilot facility in Houston two years ago, and has been characterizing the catalyst with 10,000 hours of uptime operation and data on how it works, Brimhall said.

As it was advancing the CUBE characterization process, the founders found they could shape the syngas ratio on the fly, moving it from 1-to-1 to above 3-to-1, he added.

“And because we’ve done the 1-to-1 all the way up to 3.5+-to-1, we also know we can produce pure CO by essentially taking the hydrogen off and using it as part of the endotherm that we need to make the reaction work,” he said. “So we could produce anywhere from pure CO to effectively pure hydrogen.”

That level of flexibility with a “single plant, single process, single catalyst” has never been done before, according to Brimhall, and it gives the company “immense capabilities to go into virtually any situation and solve for decarbonization and at the same time make high value products downstream.”

He added, “When we talk to people that really know the space and know industrial gases, they’re like, ‘Wait a minute, you can do that?’”

Methanol efficiencies

HYCO1 is currently in talks with six super major methanol producers about using the company’s technology for methanol supply, Brimhall said.

“Every one of them immediately went to diligence on our technology,” he said, noting that HYCO1 has promised to make natural gas-based methanol production more efficient, requiring only 27 MMBtu of natural gas per ton of methanol versus the typical 35 MMBtu of natural gas. 

“The difference between 35 MMBtu and 27 or 25 is a massive change in a commodity market,” Brimand said, “and whoever owns that technology is going to have a competitive advantage.

The methanol majors are evaluating how to use the technology to their benefit, which, according to Brimhall, might require them to make an investment in HYCO1 along with the first plant. 

“We’ve spent the last three or four months driving the technical diligence part with a team of 15 engineer PhDs to basically come back and say to them, ‘Here’s the proof, here’s the number.’”

HYCO1 plans to offer it concurrently to all of the methanol producers in order to extract the best terms on the first projects, he said.

Project developer or licensor?

HYCO1’s business model comes down to whether they are a project developer or a licensor of technology. According to Brimhall, they are a project developer first and a technology licensor second.

“We have to be project development oriented in our minds across multiple verticals in order to get traction and proof, viability, efficacy,” he said. “So we’re acting in a kind of a super-project developer mode to ultimately get the attention of big offtakers, strategic partners, and potential licensors downstream.”

However, a large licensor will not likely step in to provide a multi-project license until they see the product working at scale given the breakthrough nature of the technology, Brimhall said, and the economics that flow from it.

Take syngas for example, a market dominated by a few large players like Air Liquide, Air Products, and Linde. HYCO1 wants to position its first project in that sector and then start having licensing discussions with those big firms, or additional engineering firms like Technip, Fleur, or Bechtel.

The large firms could provide an initial “bolus” of capital to HYCO1 for having developed the technology “and getting a license that means something, whether it’s geographic or it’s exclusive worldwide or it’s bi-vertical,” Brimhall said.

“There’s an initial payment that commensurates with what the market opportunity is. And then there’s a minimum they’re going to have to step up to in order to keep us satisfied that they’re really a licensor that is going to ultimately realize value to the Topco or HYCO1 as a TechCo.”

“So it’s really project development first, licensing second kind of business model,” he added. “And it’s on multiple verticals. That’s what happens when you have, you know, potent technology.”

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