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Sustainable Aviation Buyers Alliance to purchase SAF certificates at scale

A consortium of financial and strategic entities are purchasing SAF certificates linked to 850,000 gallons of SAF being used to fuel JetBlue flights this year.

Bank of America, Boom Supersonic, Boston Consulting Group, JPMorgan Chase & Co., Meta and clean energy nonprofit RMI are joining together through the Sustainable Aviation Buyers Alliance to purchase SAF certificates at scale, according to a news release.

“This leap forward from previous individual SAF certificate purchases by corporations dramatically strengthens the demand signal aviation customers are sending to the SAF market,” the release states.

The SAF involved in the SABA transaction is produced by World Energy and reduces lifecycle carbon emissions by 84% compared to conventional jet fuel. SABA members are purchasing SAF certificates linked to 850,000 gallons of this high-integrity SAF, which is being used to fuel JetBlue flights this year.

The competitive procurement process that led to the purchase, open to major US and international air carriers, required proposals demonstrate that fuel met key sustainability criteria. ENGIE Impact provided expert support in managing the process and the final selection of the winning bid.

Corporations purchasing SAF certificates pay some or all of the premium associated with SAF, pursuing decarbonization efforts that directly reduce emissions in the aviation sector.

Following the successful completion of this first joint procurement, SABA is launching its second procurement process where it seeks to procure SAF certificates across a five-year timeframe.

“This second process will be open to all airlines and fuel providers,” the release states. “SABA expects to increase its annual collective demand by more than 10 times compared to this first process.”

SABA was formed by the Environmental Defense Fund (EDF) and RMI.

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Ontario Teachers’ Pension Plan acquires RNG firm Sevana Bioenergy

Ontario Teachers has acquired a majority stake in the RNG developer and made a capital commitment of $250m.

Ontario Teachers’ Pension Plan Board has entered into a strategic partnership with Sevana Bioenergy that will see it acquire a majority stake in the business and make a capital commitment of $250m to develop renewable natural gas (RNG) projects across North America, according to a press release.

Sevana is a pioneer in the RNG industry, developing and upgrading large-scale biogas projects to increase the production and use of RNG through the reduction of organic waste.  Sevana has successfully executed dairy and organics projects which include more than 20 state-of-the-art digester tanks across agricultural regions such as Oregon, Idaho and South Dakota since its founding by CEO John McKinney in 2017.

Sevana led these innovative projects to deploy more than $350m under construction and worked closely with farmers to form long-term beneficial partnerships as part of its strategy to own and operate reliable digester facilities. Sevana’s team of in-house experts has over 150 years of combined experience designing, operating, and maximizing performance of anaerobic digesters with projects worldwide.

“We are pleased to partner with John and the Sevana team to help accelerate their efforts to develop advanced digester facilities that produce RNG and electricity for transportation fuel, EV charging and other forms of energy,” said Zvi Orvitz, senior managing director, Sustainability & Energy Transition, Private Capital at Ontario Teachers’ Pension Plan. “Sevana has a demonstrated track record of success in the implementation of cutting edge RNG facilities, and we are excited by the opportunity to further scale the company as it enters its next chapter of growth.”

RNG is an important tool in the decarbonization of transportation, heating and industrial energy consumption and Sevana is a market leader entering new markets with RNG related products. Sevana’s projects capture fugitive methane emissions from farm animal and other organic waste streams that contribute to climate change and use this waste to produce low-carbon renewable power and RNG to replace fossil fuel-based energy sources. The company boasts a deep pipeline of future development opportunities and is also actively considering acquisition opportunities across the U.S.

“We welcome Ontario Teachers’ and look forward to our partnership as we work toward our objective of providing decarbonization solutions from RNG and continuing to enter new markets with related products” said Steve Compton, president at Sevana Bioenergy. “This commitment accelerates development of our industry leading projects that contribute direct economic and sustainable benefits to local communities and reduce greenhouse gases.”

Sevana is the latest investment by Ontario Teachers’ Pension Plan in the Sustainability and Energy Transition sector and will serve to advance the organization’s commitment to achieve net-zero greenhouse gas emissions by 2050.

Kirkland & Ellis LLP served as legal counsel to Ontario Teachers’ on the transaction. Fredrickson and Byron served as legal counsel to Sevana.

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Woodside’s H2OK green hydrogen project on hold for final 45V rules

Australia-based Woodside’s Oklahoma green hydrogen project has been unable to secure offtake and is on hold until final rules are issued on 45V tax credits.

Woodside is engaging with the US federal government in an effort to make 45V tax credit rules for green hydrogen more accessible.

The Australian energy company’s green hydrogen project in Oklahoma, known as H2OK, is fully permitted and technically ready for a final investment decision, amounting to Woodside’s most advanced project currently in its development pipeline.

“H2OK is the most advanced project, and we’re technically ready to take an investment decision, but because we were unable to secure sufficient customer offtake, we paused that decision,” CEO Meg O’Neill said in a presentation this week.

H2OK is a liquid hydrogen production facility proposed for the Westport Industrial Park in Ardmore, Oklahoma. Phase 1 involves the construction of a 290 MW facility, producing up to 60 tonnes per day of liquid hydrogen through electrolysis, targeting the heavy transport sector.

“The reason we weren’t able to secure offtake was because of some complexities around how the IRA is being implemented and we’re engaged in conversations with the US government on levers they can pull to make those tax credits more accessible, which will bring prices down, which will bring customers to the table,” said O’Neill.

Woodside has already made financial commitments for critical path activities and electrolyzers are being manufactured for the project, she added.

In early 2024, Woodside reached a water deal with the city of Ardmore, Oklahoma. Subject to Woodside taking a final investment decision on the project, Ardmore would construct a transmission line to Woodside’s delivery location by January 1, 2026.

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Analysis: Aligning US and EU incentives for clean fuels just got even harder

Tight deadlines to bring projects online before exemptions expire. No grandfather clause for hourly matching in the US. Differences in carbon intensity measurements. Outstanding questions about geographic matching requirements.

US clean fuels developers eyeing exports to Europe were already facing a complicated regulatory gauntlet to qualify for incentives on both sides of the Atlantic, but it may have just gotten harder.

The European Commission’s recent update to its “union database” (UDB) system could reshape the landscape for renewable energy quotas, potentially imposing restrictions on certain clean fuels products from the US. This development emerges from the European Union’s ambitious agenda to bolster its renewable energy sector and ensure a more sustainable and traceable supply chain for renewable gasses and fuels, including renewable natural gas (RNG) and green hydrogen.

But it could also exacerbate the emerging trend of US clean fuels developers turning to what they perceive as more favorable markets in Asia in the face of European rules that are increasingly more difficult to follow.

And comments from at least one major future importer of green hydrogen and ammonia make it clear that the onus is on the developer to comply with the regulations.

German multinational energy company E.ON has made arrangements with project developers to serve as the prospective offtaker for hydrogen or ammonia produced in North America. When asked to clarify how it plans to ensure its project partners would receive both 45V and RFNBO incentives, a spokesperson stated that it is important that they get hydrogen that complies with all existing and future laws, and added that, “We have this contractually secured. Please contact the project developer/producer directly to ask how he implements this.”

Mass balance

Under the new guidelines, which were released in January and expected to take effect later this year, only products registered within the UDB will be recognized towards the EU’s renewable energy targets. This system is designed to enhance transparency and verify the sustainability credentials of renewable fuels used within the EU. However, a critical aspect of the revised scheme is its stringent requirement for the physical traceability of gases through some kind of mass balance system, which could exclude products transported through non-European Economic Area (EEA) gas grids from qualifying for renewable quotas – at least until those gases can be traced to EU standards.

The EU’s mass balance system is a sustainability certification method that allows for mixing of sustainable and non-sustainable materials in the supply chain, provided that the quantity of sustainable product sold does not exceed the quantity produced. The EC’s updated certification scheme essentially requires “complete regulatory equivalence” for the fuels coming from non-EEA countries, according to Fred Lazell, a London-based lawyer at King & Spalding.

“In brief, the EC has proposed that there must be system-wide mass balance for the entire interconnected gas grid in such countries that are covered by the UDB,” Lazell and the King & Spalding team wrote in a client note last week. “Only then can RNG or green hydrogen product that has been transported using the gas grid be certified for the purposes of RED and, therefore, be registered in the UDB for counting towards the EU’s renewable energy quotas.”

The change applies to RNG and green hydrogen projects or facilities that use, or are planning to use, interconnected gas grids. It also applies to developers seeking to use biomethane to make ammonia or e-fuels such as e-kerosene or e-methanol.

“The whole biomethane and RNG supply chain, to the point of producing CO2 emissions that are captured, needs to comply with the EU rules for biogas,” Lazell said in an interview.

The implications of this policy adjustment are far-reaching. For certain US exporters of RNG- and green hydrogen-based products, it could mean exclusion from qualifying for renewable energy incentives in the EU until a system comes into effect that can physically trace the products from their origin to the EU.

Moreover, the policy could produce broader geopolitical and economic consequences on the harmonization of sustainability standards for the global trade of renewable energies, potentially in the form of a new trade agreement between the US and the EU. Lazell calls it “another example of the increasing internationalization of EU energy and climate regulation.”

“Europe is a very attractive destination market for these fuels, but it is in global competition,” Lazell said. “And yet the European Commission policy officers are pursuing a level of regulatory purity that sometimes, as in this scenario, when looked at from the private sector lens, defies any laws of commerciality or pragmatism.”

Aligning US and EU

US clean fuels producers seeking to “gold-plate” their projects by qualifying for incentives in both the US and the EU were already facing steep challenges.

To begin with, US green hydrogen project developers are contending with a tight timeframe to bring their projects online before the European Union’s rules against state aid for renewables kick in on January 1, 2028. Under the EU rules, projects that come online before that date are exempt from the provision –which disallows RFNBO status for projects tied to renewables that receive state aid, including tax credits – until 2038.

US RNG projects qualify for investment tax credits under section 48 for projects that begin construction before 2025, and can also receive section 45Q credits on the CO2 captured in the biogas refinement process.

The timelines have set off a rush of projects seeking to get built before the provision takes effect, causing further tightness in the supply chain and dynamics that favor EPC providers and original equipment manufacturers.

Meanwhile, most of the attention of US renewable energy players is on the lobbying effort for a “grandfather” clause in 45V rules for clean hydrogen, which would allow early-mover projects to qualify for US tax credits without having to adhere to hourly time-matching requirements. This grandfather clause was included in the EU rules, as it was viewed as a necessary provision to protect first movers, especially those that have already spent development capital.

Furthermore, now that guidance for 45V tax credits has been issued by the IRS, experts have pointed out two additional policy differences that augment compliance challenges for US clean hydrogen projects.

The first is US section 45V’s “well-to-gate” approach for calculating carbon emissions for clean hydrogen production. This method focuses on the emissions from the production process up to the point of exiting the production gate, excluding downstream emissions related to transportation or further processing of the hydrogen product. The carbon intensity threshold set by the proposed 45V regulations demands that for a facility to qualify for the full $3/kg credit, the hydrogen produced must not exceed 0.45kg CO2e per kg of hydrogen, assuming certain labor requirements are met.

Conversely, the EU’s RFNBO standards adopt a “well-to-wheel” or “well-to-wake” approach, encompassing the entire lifecycle emissions of hydrogen, including production, transportation, and any downstream processing. This broader scope aims to ensure that the hydrogen’s entire value chain contributes minimally to greenhouse gas emissions, a crucial factor for projects in the US considering export to the EU. The RFNBO rules require a 70% reduction in carbon emissions against fossil fuels, translating to approximately 3.38kg CO2e per kg of hydrogen at the point of production. However, to qualify as RFNBO, the actual carbon intensity will need to be significantly lower when considering the full supply chain emissions.

“At present, only the EU counts full-life-cycle emissions from converting, compressing, transporting and reconverting hydrogen,” Wood Mackenzie analysts wrote in a report last week. “This creates additional challenges for hydrogen project developers seeking to export hydrogen to the bloc.” Further, those seeking to export hydrogen in the form of ammonia “must manage emissions from ammonia synthesis and transportation to ensure they do not breach the EU’s threshold, while also being subject to Carbon Border Adjustment Mechanism (CBAM) rules.”

Another pivotal difference between the two regulatory schemes lies in the geographical requirements linked to the energy supply for hydrogen production. In the US, the 45V guidance identifies regions based on relevant balancing authority areas. This geographic correlation aims to ensure that the energy used in hydrogen production is traceable and meets the standards for clean or renewable energy within a defined area.

Meanwhile, the EU’s concept of “bidding zones” for RFNBO production could introduce a unique challenge for US producers aiming to align with both standards. A bidding zone is a market mechanism designed to manage congestion in the electricity grid and ensure efficient electricity trading within the EU. 

For a hydrogen production facility to qualify under RFNBO standards, both the renewable power generation and hydrogen production facilities must be located within the same bidding zone. But it’s not clear how bidding zones will be defined in the US, opening the possibility that the area for US projects will be even more circumscribed than the balancing authority regions, due to zonal and nodal power pricing structures in US electricity markets.

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Analysis: Premium for clean hydrogen unlikely

A group of hydrogen offtakers say they have every intention of decarbonizing their fuel intake, but barring the implementation of a carbon-pricing mechanism, paying a premium for it is unrealistic.

Passage of the Inflation Reduction Act ignited investor interest in the global market for clean hydrogen and derivatives like ammonia and methanol, but offtake demand would be better characterized as a flicker.

And while many questions about the nascent market for green hydrogen remain unanswered, one thing is clear: offtakers seem uninterested in paying a “green premium” for clean fuels.

That doesn’t mean offtakers aren’t interested in using clean fuels – quite the opposite. As many large industrial players worldwide consider decarbonization strategies, hydrogen and its derivatives must play a significant role.

Carbon pricing tools such as the Carbon Border Adjustment Mechanism in Europe could introduce a structural pricing premium for clean products. And industry participants have called for carbon levies to boost clean fuels, most recently Trafigura, which released a white paper today advocating for a carbon tax on fossil-based shipping fuels.

But the business case for clean fuels by itself presents an element of sales risk for potential offtakers, who would have to try to pass on higher costs to customers. Even so, there is an opportunity for offtakers to make additional sales and gain market share using decarbonization as a competitive advantage while seeking to share costs and risks along the value chain.

“It’s a very difficult sell internally to say we’re going to stop using natural gas and pay more for a different fuel,” said Jared Elvin, renewable energy lead at consumer goods company Kimberly-Clark. “That is a pickle.”

Needing clean fuels to reach net zero

Heavy-duty and long-haul transportation is viewed as a clear use case for clean fuels, but customers for those fuels are highly sensitive to price.

“We’re very demand focused, very customer focused,” said Ashish Bhakta, zero emission business development manager at Trillium, a company that owns the Love’s Travel Shop brand gas stations. “That leads us to be fuel-agnostic.”

Trillium is essentially an EPC for fueling stations with an O&M staff for maintenance, Bhakta said.

As many customers consider their own transitions to zero-emissions, they are thinking through EV as well as hydrogen, he said. Hydrogen is considered better for range, fueling speed and net-payload for mobility, all of which bodes well for the clean fuels industry.

One sticking point is price, he said. Shippers are highly sensitive to changes in fuel cost – and asking them to pay a premium doesn’t go far.

Alessandra Klockner, manager of decarbonization and energy solutions manager at Brazilian mining giant Vale, said her employer is seeking partnerships with manufacturers, particularly in steel, to decarbonize its component chain.

In May Vale and French direct reduced iron (DRI) producer GravitHy signed an MoU to jointly evaluate the construction of a DRI production plant using hydrogen as a feedstock in Fos-sur-Mer, France. The company also has steel decarbonization agreements in Saudi Arabia, the UAE and Oman.

In the near term, 60% of Vale’s carbon reductions will come from prioritizing natural gas, Klockner said. But to reach net zero, the company will need clean hydrogen.

“There’s not many options for this route, to reach net zero,” she said. “Clean hydrogen is pretty much the only solution that we see.”

Elvin, of Kimberly-Clark, noted that his company is developing its own three green hydrogen projects in the UK, meant to supply for local use at the source.

“We’re currently design-building our third hydrogen fueling facility for public transit,” he said. “We’re basically growing and learning and getting ready for this transition.”

The difficulty of a “green premium

The question of affordability persists in the clean fuels space.

“There are still significant cost barriers,” said Cihang Yuan, a senior program officer for the World Wildlife Fund, an NGO that has taken an active role in promoting clean fuels. “We need more demand-side support to really overcome that barrier and help users to switch to green hydrogen.”

Certain markets will have to act as incubators for the sector, and cross-collaboration from production to offtake can help bring prices down, according to Elvin. Upstream developers should try to collaborate early on with downstream users to “get the best bang for your buck” upstream, as has been happening thus far, he added.

Risk is prevalently implied in the space and must be shared equitably between developers, producers and offtakers, he said.

“We’ve all got to hold hands and move forward in this, because if one party is not willing to budge on any risk and not able to look at the mitigation options then they will fail,” he said. “We all have to share some sort of risk in these negotiations.”

The mining and steel industries have been discussing the concept of a green premium, Klockner said. Green premiums have actually been applied in some instances, but in very niche markets and small volumes.

“Who is going to absorb these extra costs?” she said. “Because we know that to decarbonize, we are going to have an extra cost.”

The final clients are not going to accept a green premium, she said. To overcome this, Vale plans to work alongside developers to move past the traditional buyer-and-seller model and into a co-investment strategy.

“We know those developers have a lot of challenges,” she said. “I think we need to exchange those challenges and build the business case together. That’s the only way that I see for us to overcome this cost issue.”

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RNG developer selling landfill gas portfolio

A Texas-based renewable natural gas developer has tapped an advisor and is selling a portfolio of waste-to-energy projects.

Morrow Energy, an RNG developer based in Midland, Texas, is working with a financial advisor to sell off a portfolio of waste-to-energy projects.

Sparkstone Capital Advisors, a boutique advisory firm based in Virginia, is the sellside advisor on the sale, according to three sources familiar with the matter.

Morrow and Sparkstone did not respond to requests for comment.

The Morrow portfolio in the US consists of 12 projects in Texas, Louisiana, Arkansas, Kansas, and Washington, according to its website.

Of note, Morrow has developed the Blue Ridge Landfill High BTU project, which is designed for up to 13,000 SCFM of raw landfill gas and can be expanded to up to 30,000 SCFM. Gas from the facility is sold and delivered to vehicle fuel markets in the US.

The company is led by Paul Morrow, its founder and president, who has worked in the RNG industry for over 20 years. Morrow Energy built its first renewable gas facility in the year 2000.

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California renewables firm in talks for green fuel co-development

A utility-scale solar and storage developer based in California has started outreach and discussions to have green fuels projects co-developed at some of its larger sites in the western US.

RAI Energy, the California-based solar and storage developer, has started to engage with other companies about developing green fuels along with its utility-scale projects, CEO and owner Mohammed S. Alrai said in an interview.

RAI recently took a development loan from Leyline Renewable Capital. That transaction ends a process launched by Keybanc first reported by The Hydrogen Source.

Alrai remains the 100% equity owner, he said. The liquidity from Leyline will last about two years.

The company’s most impending projects are in Colorado and California, Alrai said. Discussions around green fuels envision a partner coming in as a co-developer and customer for RAI’s renewable power.

“We’re definitely open to entering into conversations with all stakeholders,” Alrai said, adding that the effort could require capital raising. “We will be coming to the market to potentially raise equity.”

RAI is moving toward long-term ownership and operation of projects, he said. The company could also sell projects to raise capital.

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