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Vertex Energy staring down debt maturity amid renewable diesel pause

Vertex Energy is transitioning its Mobile hydrocracker facility to fossil fuels amid losses for renewable diesel. The company is in the middle of a strategic review process with BofA as financial advisor, and issued a going concern warning in its 10Q related to a term loan maturity next year.

Vertex Energy will convert its Mobile refinery to produce conventional fuels amid macroeconomic headwinds that have led to weaker results for renewable diesel produced at the plant.

“Due to the significant macroeconomic headwinds over the past 12 months, many of which we believe will continue to occur over the next 18 months and potentially beyond, we have decided to strategically pause our renewable diesel business and pivot to producing conventional fuels from the hydrocracker unit,” Vertex CEO Ben Cowart said in a statement.

Vertex announced last year that it is pursuing strategic alternatives with BofA as financial advisor. The company is staring down a term loan debt maturity in 11 months, and is focused on refinancing the facility, executives said on a 1Q24 earnings call.

A going concern warning was issued in Vertex’s 10Q filing in relation to the $195m term loan debt maturity, they added.

“We’re very much still in our process with BofA,” Cowart said on the call. “We’ve got good outcomes that we’re working through.”

Vertex Refining Alabama last year sold its first 110, 000 barrels of renewable diesel from the Mobile plant to Idemitsu Apollo Renewable Corp., the California-based subsidiary of Japan’s Idemitsu Kosan Co.

Idemitsu Apollo Renewable committed to purchasing all of the Mobile refinery’s renewable diesel production up to a maximum volume of 14,000 b/d. The contract flexes with production at the plant, so Vertex is under no obligation to Idemitsu under the offtake agreement, executives said on the call.

Vertex will transition the Mobile refinery in conjunction with a planned catalyst change, and outlined the economics for moving back to conventional fuels:

“When modeling the unit in conventional service against first quarter 2024 historical data, we estimate the unit could have significantly improved our results providing an additional fuel gross margin contribution of roughly $40m on conventional fuels,” Cowart said in his statement.

Dough Haugh, the company’s chief commercial officer, noted the macroeconomic outlook for renewable diesel, saying he didn’t see a reason to continue to persist in those losses.

“The forward curve on feedstocks is flat, so there’s no implied benefit coming in terms of feedstock costs,” he said. “RINs have collapsed materially from where they were last year, which was already down substantially from the previous year. LCFS has been bouncing a little bit but it’s substantially below where it commands production.”

He added: “So when you look at those, it doesn’t look like there’s a combination that would provide positive margins for the next several quarters.”

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FuelCell Energy reaches COD on Connecticut fuel cell plant

The 7.4 MW project on the U.S. Navy Submarine Base is financed in part through a previously announced tax equity financing transaction with East West Bank.

FuelCell Energy, Inc. completed site construction and commencement of commercial operations (COD) for its project on the U.S. Navy Submarine Base in Groton, Connecticut on December 16, 2022, according to a news release.

Achieving commercial operations of this project adds 7.4 MW to the company’s generation operating portfolio, bringing the total to 43.7 MW, although the project will operate at approximately 6 MW during the first year of operation.

“We are excited to announce COD of our grid resiliency and micro-grid ready clean energy project at the U.S. Navy Submarine Base, bringing cleantech innovation to our country’s most critical infrastructure,” said Jason Few, president and chief executive officer, FuelCell Energy. “FuelCell Energy is proud to deliver a solution that supports the Navy’s decarbonization goals while encouraging clean energy partnerships and policies that enable the deployment of crucial grid modernization technology needed for the electrical grid in Connecticut and around the world.”

The project is financed in part through a previously announced tax equity financing transaction with East West Bank for $15m contributed to the project over three years.

This milestone partnership is East West Bank’s first fuel cell project, a testament to the value proposition of FuelCell Energy’s differentiated clean energy platforms.

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Gevo: Net Zero 1 facility to reach late stages this year

Executives for the Colorado-based company said its first alcohol-to-jet fuel facility in South Dakota will be financed late this year or early next.

Gevo’s Lake Preston alcohol-to-jet fuel facility in Lake Preston, South Dakota will be financeable this year and reach financial close late this year or early next, executives for the Colorado-based company said on an earnings call Thursday.

The company is working on a DOE loan guarantee for the project, dubbed Net Zero 1.

“Our work on the Department of Energy loan guarantee is going well, but as anyone who has worked on one of these knows, there’s a lot of engineering and upfront risk mitigation required much more than a typical balance sheet finance project,” President and COO Chris Ryan said on the call. “Our EPC partners are busy working with us to mitigate execution risk and ensure our contracts fit the DOE’s loan guarantee requirements.”

Finalizing the DOE loan done, raising the equity, and reaching financial close is expected to be achieved by late 4Q24 or early 1Q25, CEO Patrick Gruber said on the call.

“We want to see the CO2 pipeline in South Dakota move forward to keep Lake Preston as our most attractive site for producing sustainable aviation fuel,” Ryan said. “But we’ve developed a slate of potential sites that we’ve prequalified for future Net-Zero projects.”

Offtake partners are working to ensure that the contracted demand fits with the requirements of a DOE loan guarantee to finance the construction phase, Ryan said. Lake Preston is more than twice the size of the plant’s footprint, leaving room for future bolt-on projects.

“It’s in a location where many of the surrounding farms in the region already use climate smart agricultural practices, which reduces carbon footprint of the corn feedstock we plan to use there,” Ryan said.

The location is also near the wholly-owned RNG business in Northwest Iowa.

The company has targeted several sites for Net-Zero 2, Gruber said.

“They could be brought on pretty quickly, and all of it is done with partners,” he said. “All of this financing would be done at a project finance level, not at a Gevo level.”

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Electric Hydrogen agrees 1 GW electrolyzer supply with AES

The supply reservation agreement includes commercial requirements for AES to order up to 1  GW of 100 MW electrolyzer plants from Electric Hydrogen.

Electric Hydrogen has reached a comprehensive framework supply agreement with The AES Corporation for up to 1 GW of large-scale electrolyzer plants to produce low-cost, green hydrogen from renewable energy, according to a news release.

This supply reservation agreement includes commercial requirements for AES to order up to 1  GW of fully integrated, low-cost 100 MW electrolyzer plants from Electric Hydrogen.

“AES’ expertise in power markets, project development and new technology integration are best-in-class,” said Raffi Garabedian, CEO of Electric Hydrogen. “We’re excited to help AES deliver on the promise of green hydrogen and look forward to partnering with them on their future hydrogen projects.”

Electric Hydrogen’s 100 MW high-tech electrolyzer plants feature the capability to follow variable renewable energy resources allowing customers to optimize energy use and maximize project returns, the release says. The plants are designed and manufactured in the US, and the company is presently pre-fabricating its first customer-sited plant in Texas and has two operating plants in California.

“Electric Hydrogen’s innovative technology and large-scale product enables AES to offer cost effective decarbonization solutions for our customers in the most difficult to decarbonize sectors,” said Ashley Smith, Chief Innovation Officer, AES. “AES is taking steps to secure our supply chain proactively as we strategically grow our green hydrogen business.”

Electric Hydrogen’s roadmap to scale high-rate manufacturing in the US is intended to make green hydrogen competitive with fossil fuel resources by 2030. That roadmap also will allow US electrolyzer manufacturing to outstrip low-tech electrolyzer alternatives, such as alkaline products currently mass-produced in China.

The procurement reservation agreement enables AES to develop additional green hydrogen projects, capitalizing on EH2’s project scale, efficiency and low capital costs.

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Exclusive: Pattern Energy developing $9bn Texas green ammonia project

One of the largest operators of renewable energy in the Americas, San Francisco-based Pattern is advancing a 1-million-ton-per-year green ammonia project in Texas.

Pattern Energy knows a thing or two about large renewable energy projects.

It built Western Spirit Wind, a 1,050 MW project in New Mexico representing the largest wind power resource ever constructed in a single phase in the Americas. And it has broken ground on SunZia, a 3.5 GW wind project in the same state – the largest of its kind in the Western Hemisphere.

Now it is pursuing a 1-million-ton-per-year green ammonia project in Corpus Christi, Texas, at an expected cost of $9bn, according to Erika Taugher, a director at Pattern.

The facility is projected to come online in 2028, and is just one of four green hydrogen projects the company is developing. The Argentia Renewables project in Newfoundland and Labrador, Canada is marching toward the start of construction next year, and Pattern is also pursuing two earlier-stage projects in Texas, Taugher said in an interview.

The Corpus Christi project consists of a new renewables project, electrolyzers, storage, and a pipeline, because the electrolyzer site is away from the seaport. It also includes a marine fuels terminal and an ammonia synthesis plant.

Pattern has renewable assets in West and South Texas and is acquiring additional land to build new renewables that would allow for tax incentives that require additionality, Taugher said.

Financing for the project is still coming together, with JV partners and prospective offtakers likely to take project equity stakes along with potential outside equity investors. No bank has been mandated yet for the financing.

Argentia

At the Argentia project, Pattern is building 300 MW of wind power to produce 90 tons per day of green hydrogen, which will be used to make approximately 400 tons per day of green ammonia. The ammonia will be shipped to counterparties in Europe, offtake contracts for which are still under negotiation.

“The Canadian project is particularly exciting because we’re not waiting on policy to determine how it’s being built,” Taugher said. “The wind is directly powering our electrolyzers there, and any additional grid power that we need from the utility is coming from a clean grid, comprised of hydropower.“

“We don’t need to wait for rules on time-matching and additionality,” she added, but noted the renewables will likely benefit from Canada’s investment tax credits, which would mean the resulting ammonia may not qualify under Europe’s rules for renewable fuels of non-biological origin (RFNBO) as recently enacted.

Many of the potential offtakers are similarly considering taking equity stakes in the Argentia project, Taugher added.

Domestic offtake

Pattern is also pursuing two early-stage projects in Texas that would seek to provide green hydrogen to the domestic offtake market.

In the Texas Panhandle, Pattern is looking to repower existing wind assets and add more wind and solar capacity that would power green hydrogen production.

In the Permian Basin, the company has optioned land and is conducting environmental and water feasibility studies to prove out the case for green hydrogen. Pattern is considering local offtake and is also in discussions to tie into a pipeline that would transport the hydrogen to the Gulf Coast.

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exclusive

Exclusive: Midwest renewables developer launches capital raise

A Midwest renewables developer has launched a $340m capital raise for a wind-to-hydrogen operation in the US heartland.

Zero6, the Minneapolis-based renewables developer, owner and operator, recently launched a process to raise $340m in project capital for its portion of the Lake Preston Biofuels Project in South Dakota, senior managing director Howard Stern said in an interview. The company, previously known as Juhl Energy, is partnered with Colorado-based Gevo, which plans to produce SAF on 240 acres at Lake Preston in a project dubbed Net-Zero 1. Zero6 will develop 20 MW of green hydrogen production adjacent to Net-Zero 1 powered by a 99 MW wind farm located 10 miles from the SAF site, Stern said. Plans call for FID late this year, he said. Zero6 met with several financial advisors for the raise, but decided to try and conduct it in-house, Stern said. The company has not ruled out help from an advisor for this raise and could need those services in the future. The goal is to have an anchor investor in place by May, Stern said. The company is open to strategic or financial investors. Zero6’s strategy is akin to a traditional private equity play, holding a project for five to ten years of operation, Stern said. That could change depending on new investors’ outlook. According to the ReSource database, Gevo has additional projects in Illinois, Iowa and Nebraska. Stern said Zero6 sees opportunities to replicate the Lake Preston strategy in other parts of the country. The Lake Preston project has been tied to the development of carbon capture pipelines through South Dakota, namely the Summit Carbon Solutions CO2 pipeline. Gevo officials have made public comments noting that if the Summit pipeline does not get built, it would disadvantage the Lake Preston project on the basis of its carbon intensity score, and the company may seek options elsewhere.
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Exclusive: New sustainability hedge fund to raise up to $2bn

A new hedge fund founded by a clean fuels industry veteran is gathering partners to raise up to $2bn initially for deployment into ammonia and other climate-transition technologies.

New Waters Capital, an emerging hedge fund based in New York City, is gathering its primary partners for its first fundraise of between $1bn and $2bn, founder Bill Brown said in an interview.

Brown formerly spent 15 years at North Carolina-based 8 Rivers Capital, which recently announced an ammonia project in Texas. Brown, a co-founder, sold his shares to South Korea’s SK, Inc. in that company’s majority takeover of 8 Rivers last year.

Brown recently created New Waters as a multi-strategy fund manager to invest in publicly traded companies in sustainability, AI, and clean fuels.

“The molecule-based economy is really important, and there’s some companies that have been in the molecule-based economy that are not really sure what they’re doing,” Brown said.

This creates an environment ripe for disruption, he said.

The firm is in the process of selecting its prime brokers, which will help determine the size of New Waters’ fundraises, Brown said. The first raise will be conducted in the next six months, and likely not be larger than $2bn to start.

New Waters’ law firm is Seward & Kissel.
The Wild West of molecules

Of all hydrogen produced in the US, about 65% is used for fertilizer production, Brown said. In Japan, where hydrogen is being co-fired with coal, replacing all coal-fired generation with ammonia would require 10 times the current ammonia production of the US.

“The market for molecules is so big, and yet the largest producer in the US of ammonia is CF Industries.” That company has one plant in Louisiana that represents roughly one third of total US ammonia production. “So CF is tiny compared to the opportunities out there.”

Brown said he is looking for the companies that are going to be the Valero and Phillips 66 of ammonia refining. He believes 8 Rivers is on track for something like that.

“We look at companies like that,” he said. “I think that entire market is up for grabs right now; it’s a whole new market.”

 Companies that can seize that market are the companies that are going to be part of the energy system of the future.

“In many respects right now, we’re in the Wild West, if you will, of the molecules of the future,” Brown said.

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