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SoCal Gas pledges funding to NOx burner project

Phase two of the project from ClearSign Technologies will scale the size of the burner up to 8 MMBtu per hour and deploy it in commercial industrial settings where high heat is required.

ClearSign Technologies Corporation has received a collaboration commitment and additional pledged funding for its 100% Hydrogen Ultra Low NOx burner project from Southern California Gas Co., according to a news release.

SoCalGas has pledged financial support on top of the SBIR program Phase 2 Award for $1.6m from the DOE.

“Their support will provide additional funding to the project which is designed to help decarbonize hard-to-electrify industries and is entering the commercialization phase,” the release states.  “[It] will include $500,000 to promote the introduction and field demonstration of our hydrogen capable ClearSign Core burner technology in Southern California.”

The goal of the project is to develop NOx hydrogen burner technology, which the company believes will enable the adoption of hydrogen fuel for industrial heating.

Phase One saw the completion and deployment of a prototype process burner that successfully integrated hydrogen and hydrogen blending while maintaining NOx below 5 ppm. Phase Two will entail scaling up the size of the burner from 2 MMBtu per hour up to 8 MMBtu per hour and deploying it in real-world, commercial industrial settings where high heat is required, over the next two years.

SoCalGas is also working to help the state of California develop a hydrogen blending standard through pilot projects, to help better understand how clean fuels like renewable hydrogen could be delivered at scale through California’s existing natural gas system and to help drive down costs of hydrogen by scaling up use and building a hydrogen market.

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Largest NorthAm SAF producer on IPO path

Montana Renewables, now the largest producer of SAF in North America, is talking to bulge-bracket banks about a public listing that could occur within one year.

Montana Renewables, a subsidiary of Calumet Specialty Products Partners and now the largest producer of sustainable aviation fuel in North America, is on a path to list publicly through an IPO that could occur within one year.

The company as of last year was working with Lazard to review strategic options after receiving inbound interest from strategic players, a process that amounts to “an abundance of riches,” Bruce Fleming, CEO of Montana Renewables, said this morning.

The Montana Renewables facility is a SAF, renewable diesel, and renewable hydrogen platform producing an initial run-rate of 30 million gallons of SAF per year, ramping up to 60 million gallons into 2024 and a potential further expansion to 230 million gallons. The complex completed its startup in late April.

A key financial pivot point for Montana Renewables will be the outcome of its loan guarantee application with the Department of Energy, Fleming said. As of March, the subsidiary had been invited to submit a Part II application for a $600m loan guarantee through the Title XVII Innovative Clean Energy Loan Guarantee Program.

“That is a material strategic anchor,” Fleming said. “With a clean balance sheet, the IPO is enabled; the over-under from the bulge bracket banks that we’re talking to is centered on nine months.

The process could unfold more quickly, he said, noting that future speculation depends on market conditions in which to execute on an IPO.

“Knock on wood, if the world economy is going to be on a stable footing, then we’re going to have a pretty compelling pure-play energy transition offering,” he said. “It’s not a small thing to suddenly be the biggest SAF producer in North America that nobody ever heard of.”

Balance sheet

On April 19, MRL closed a $75 million bridge loan with I Squared Capital. The bridge loan bears a variable rate of interest at SOFR plus 6.0 to 7.3% per annum and we have the flexibility to prepay 50% of principal under the bridge loan from free cash flow by the end of 2024.

In August, 2022, Warburg Pincus agreed to invest $250m in MRL in the form of a participating preferred equity security, which values MRL at a pre-commissioning enterprise value of $2.25bn.

Stonebriar Commercial Finance invested an additional $350m through a pair of sale and leaseback contracts on top of its existing $50m commitment to MRL. The sale and leaseback transactions carry an approximate 12.3% cost of capital and offer certain strategic early termination options. Concurrent with those transactions, the $300m convertible investment from Oaktree Capital Management L.P. in MRL was retired.

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Former thyssenkrupp nucera CEO to lead Canadian electrolyzer startup

Canadian electrolyzer startup Hydrogen Optimized has hired Denis Krupe as CEO.

Hydrogen Optimized Inc., a subsidiary of Key DH Technologies Inc. (KEY), today announced that Denis Krude, former CEO of green hydrogen technology company thyssenkrupp nucera, will be appointed President and CEO starting April 8, 2024.

Company Co-Founder Andrew Stuart will continue to play an active leadership role at Hydrogen Optimized as Executive Chair, according to a news release.

Krude joined the thyssenkrupp Group, one of Germany’s largest industrial companies, in 1998. At thyssenkrupp Uhde, a chemical plant manufacturer, he held a series of progressively senior management positions. From 2016 to 2023, he served as CEO and a Member of the Executive Board at thyssenkrupp nucera, a leading technology and plant engineering company specializing in water electrolysis and green hydrogen. Among his accomplishments there, in 2021-2022 Krude and his team prepared the company for an IPO, leading investor meetings and other activities that set the stage for its successful 2023 public listing.

“The unique focus of Hydrogen Optimized on large-scale water electrolysis solutions for major, hard-to-abate industries aligns with my view that this market segment offers the most significant opportunity in clean hydrogen,” Denis Krude said. “With a strong foundation built on the Stuart family’s 120-year legacy in high-power water electrolysis, I see enormous opportunity for Hydrogen Optimized to become a world leader in clean hydrogen.”

The company’s patented RuggedCell™ system enables clean hydrogen plants up to gigawatt scale. The RuggedCell™ is a precious metal-free, high power alkaline water electrolyzer with a 0-100% dynamic range. Through a strategic relationship with ABB, an investor in KEY, Hydrogen Optimized has strengthened the RuggedCell™ offering through access to ABB’s world-leading power and automation technologies.

Krude, a 54-year-old German national, was born in Spain.

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Ares SPAC in merger with modular reactor developer X-energy

X-energy is cultivating advanced small modular reactor technology and proprietary fuel that can be used in applications that currently rely on fossil fuels to produce steam and heat for processes like manufacturing, petroleum refining and hydrogen production.

X Energy Reactor Company, LLC, a developer of small modular nuclear reactors and fuel technology for clean energy generation, and Ares Acquisition Corporation, a publicly-traded special purpose acquisition company, have entered into a definitive business combination agreement, according to a news release.

The combination will establish X-energy as a publicly-traded, developer of a more advanced small modular reactor (SMR) and proprietary fuel that supports the transition to clean, affordable energy through enhanced safety, lower cost, scalability and broader industrial applications. X-energy’s entry into the public markets is expected to accelerate its growth strategy through additional investment opportunities and financial flexibility as well as differentiated sponsorship by Ares, a leading global alternative investment manager.

The business combination ascribes a pre-money equity value of approximately $2bn to X-energy. Existing X-energy equity holders will roll 100% of their existing equity interests into the combined company. In addition, the combined company will receive approximately $1bn of cash held in AAC’s trust account, assuming no redemptions by AAC shareholders.

Institutional and strategic investors have also invested or committed $120m in financing. This includes an invested private round of financing, which comprises $30m from Ares and $45m from OPG and Segra Capital Management, a leading nuclear energy-focused hedge fund, as well as an additional commitment of $45m from Ares to be invested concurrent with the closing of the transaction. X-energy also received approximately $58m of interim financing throughout 2022 from existing strategic investors, including Dow and Curtiss-Wright Corporation.

X-energy is advancing nuclear energy generation through its latest-generation high-temperature gas-cooled reactor, the Xe-100, and its proprietary tri-structural isotropic (TRISO) encapsulated particle fuel, TRISO-X. Representing the next stage in the evolution of nuclear energy technology, the pioneering design of the Xe-100 couples its scalability, innovative modularity, enhanced safety and higher temperature capabilities with decades of HTGR research and operating experience. The Xe-100 can also uniquely address a broader range of uses and applications compared with conventional nuclear reactors. This specifically includes applications that currently rely on fossil fuels to produce steam and heat for processes like manufacturing, petroleum refining and hydrogen production.

The Xe-100 is engineered to operate as a single 80-megawatt (MWe) unit and is optimized as a four-unit plant delivering 320 MWe. With load-following capabilities, the Xe-100 can support intermittent renewable (solar and wind) and other clean energy options with reliable baseload generation.

Guggenheim Securities, LLC is acting as financial advisor and Latham & Watkins LLP is acting as legal advisor to X-energy.

Moelis & Company LLC is acting as financial advisor and Kirkland & Ellis LLP is acting as legal advisor to AAC.

Ocean Tomo, a part of J.S. Held, acted as financial advisor to the Special Committee of the Board of Directors of AAC.

UBS Securities LLC and Citigroup Global Markets Inc. are serving as capital markets advisors to AAC and Ropes & Gray LLP is acting as legal advisor to the capital markets advisors.

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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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Green hydrogen developer in active discussions for California FID this year

A green hydrogen developer is in active discussions with counterparties as it pursues a final investment decision for its first project.

Houston-based green hydrogen developer Element Resources is in active discussions to reach FID this year on its first green hydrogen project slated for Lancaster, California.

The company had engaged Houlihan Lokey in recent months to lead a capital raise for the project, according to two sources familiar with the matter. The Houlihan mandate had involved raising non-dilutive debt, a process that is believed to have been shelved, said one of the sources.

“We are steadily working our way to an FID this year and are pulling together all parts of the project,” Element CFO Avery Barnebey said via email in response to inquiries. He declined to comment further.

A Houlihan representative did not respond to an email seeking comment.

The Lancaster facility, which is targeted to begin commercial operations in early 2025, will be built on 1,165 acres and consist of 135 MW of solar-powered electrolysis capacity, according to the company’s website. At full capacity, the 18,750 mt per annum of hydrogen produced by the facility will serve the growing demand for clean mobility fuels as well as clean energy for manufacturing.

Element is led by founder and CEO Steve Meheen, an oil & gas industry veteran. Barnebey is a former director of corporate development at California Resources Corporation.

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US hydrogen and LNG developer raising capital

A Texas-based project developer is conducting a development capital raise for a flagship LNG and green hydrogen project in the Northeast.

New Energy Development Company, a Katy, Texas-based developer with offices in Boston, Texas, is raising between $5m and $8m for an LNG liquefaction, storage and re-gasification facility with additional green hydrogen production and storage, Partner Scott Shields said in an interview.

The company is not using a financial advisor, Shields said, noting that a larger second round capital raise will likely start near the beginning of 2024.

New Energy has secured a brownfield site for a peak-shaving LNG facility in New England with 2 billion cubic feet of storage capacity and 50 MW of solar pv, Shields said. Also planned is an expandable 40 MW PEM electrolyzer line.

He declined to name the state in which the project is located, adding that the company is trying to put a strong support system and marketing plan in place before the location is made public.

The proceeds of the capital raise will go in part to hiring local lawyers and engineering and design work (pre-FEED and FEED), through to FID, Shields said. The project will be built in two phases, Phase 1 being the LNG component and Phase 2 focusing on green hydrogen.

The LNG facility will be the offtaker for the hydrogen, which will run the plant when the solar is insufficient. Through an open season process New Energy has identified five investment grade offtakers for the LNG.

Ramping capex

“We’ve been self-funding up until now,” Shields said of New Energy, which has also put capital and development resources into half-a-dozen other projects around the country.

It’s time for a ramp up in capital expenditures and New Energy is in discussions with strategic and private equity providers, Shields said, noting that the company would prefer the former. Discussions include options to fund just the flagship project, as well as platform equity.

Shields noted that he has investment banking experience and that New Energy Managing Partner Alexander “Hap” Ellis serves as chairman of Old Westbury Funds and the George and Barbara Bush Foundation.

New Energy has partnered with McDermott International to develop patented GreenER hydrogen facilities, a modular, expandable hydrogen facility that can produce 24,000 kg per day (2,760 MMBtu) of renewable hydrogen. The companies in 2021 completed engineering deliverables for multiple designs which are marketed as ideal for grid-scale blending with natural gas pipelines, blending for existing or new power generating facilities and storage injection into salt caverns and above ground storage tanks.

The company has also combined GreenER LNG and hydrogen production and storage plants into an integrated energy hub, capable of producing an additional 200,000 MMBtu of LNG.

New Energy recently hired Chico DaFonte, formerly a vice president at Liberty Utilities, a subsidiary of Algonquin Power, as executive vice president working on LNG and hydrogen projects.

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