Plug Power raises $150m in equity, in talks for debt deal

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’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.