Total Energies and Tree Energy Solutions are set to build a factory in the US that uses green hydrogen to produce a renewable alternative to natural gas.
The companies today announced plans for the scheme, which could produce 100,000-200,000 metric tonnes of e-natural gas each year. They would first produce green hydrogen by powering a 1GW electrolyser with 2GW of wind and solar power; and then combine the green hydrogen with carbon dioxide to produce the e-natural gas.
A final investment decision on the project is due in 2024.
EDF Renewables has entered a 50:50 joint venture with Simply Blue Group to develop two Irish offshore wind projects with total capacity of 2.65GW.
Shell pulled out of a joint venture to develop the 1.35GW Western Star and 1.3GW Emerald floating wind projects last September. The projects are off the coasts of Clare and Cork respectively.
Statkraft, Foresight Group and Progressive Energy have launched a joint venture company to develop green hydrogen projects in the UK.
Grenian Hydrogen has launched today with an initial 200MW development portfolio across seven projects, of which 100MW are currently in the engineering and consenting phase. The partners initially agreed to collaborate in October 2022.
Online retail giant Amazon has agreed to buy electricity produced by two Renantis wind farms in Finland with total capacity of 59MW.
The Mustalamminmäki and Koiramäki wind farms are set to produce a combined 174GWh of electricity annually. They are due to be commissioned in late 2023.
Australian utility AGL, Direct Infrastructure, Mainstream Renewable Power and Reventus Power have formed a joint venture to develop a 2.5GW wind farm off the coast of Victoria, Australia.
The consortium has submitted a feasibility licence application for a project in the Bass Strait off Gippsland, Victoria.
South African mining group Sibanye-Stillwater has agreed to buy power from the 89MW Castle wind farm in South Africa's Northern Cape region.
Castle wind farm is being developed by a consortium including African Infrastructure Investment Managers, African Clean Energy Developments and Reatile Renewables. The 15-year power purchase agreement with Sibanye-Stillwater has enabled the group to take the project to financial close.
Construction is due to start next month and commissioning is scheduled for early 2025.
Corio Generation and Portuguese developer Hyperion Renewables have formed a partnership to develop offshore wind projects in Portugal.
The companies have signed a memorandum of understanding to participate in Portugal's first offshore wind tender process, which is due to start later this year.
Separately, Corio won the offshore developer and equity deal awards at Tamarindo's Wind Investment Awards last Thursday (25th May); and its chief executive Jonathan Cole was named industry leader of the year.
Enel's outgoing chief executive Francesco Starace is set to join investor EQT Infrastructure as a partner in its infrastructure advisory team.
Starace's nine-year tenure as chief executive of Italian utility Enel ends this month. He has been with Enel and its subsidiary Enel Green Power since 2008.
The UK government's proposal for a levy on energy bills to support the installation of hydrogen infrastructure risks a backlash against the sector, critics have warned.
The UK is mulling a new hydrogen levy to support the industry
Critics warn this would raise energy bills and cause a backlash
Alternatives emerge to help fill a reported gap of £3.5bn a year
The UK government’s plan for a levy on energy users to help the country’s nascent hydrogen sector is unfair and puts the industry’s future in the UK at risk. That is the warning from UK think tank Onward about the plan in the government’s Energy Bill.
Onward has also warned that any backlash against the hydrogen levy is a threat to the UK’s net zero ambitions too. But is it right? And, if so, are there alternatives that the UK government could consider to support the commercialisation of hydrogen?
Levy concerns
There is no shortage of developer interest in the UK green hydrogen sector.
Last week, Carlton Power and Schroders Greencoat set up a joint venture to develop 500MW of green hydrogen projects in the UK by 2030; last month, Kellas Midstream teamed up with RWE for a gigawatt-scale green hydrogen project in Teesside in the northeast of the UK; and we have previously reported on UK tender winners.
However, the sector is looking for further government investment in infrastructure to help green hydrogen in the UK achieve commercial maturity. The government wants to do this via provisions in its Energy Bill, which has been progressing in the House of Commons. This aim of the bill is to create a “cleaner, more affordable and more secure energy system for the long term” by investing in UK energy production.
But the bill’s proposed levy on consumer energy bills to support the development of hydrogen infrastructure in the UK has been attracting criticism, from politicians, think tanks including Onward, and private companies investing in hydrogen in the UK.
The criticism goes as follows. The UK government has said that hydrogen, including green hydrogen, is an essential technology if the UK is to achieve its net-zero goals; and could play a key role in reducing emissions in the industrial, power and transport industries. But there is also scepticism among politicians and the industry about how big a role hydrogen could play in heating homes, for cost and technical reasons.
Critics have argued that charging domestic energy users a levy to support growth of green hydrogen, which would not directly benefit their homes, would risk a backlash against the technology. Onward has claimed the levy would add £118 annually to a typical dual-fuel home energy bill, which is politically and economically unattractive in an era of high inflation. We can already see a media backlash against the levy, which would be harmful for both the hydrogen sector and the UK’s wider net-zero plans.
The UK government is targeting 10GW of low-carbon hydrogen production by 2030, which means the hydrogen industry requires a reported £3.5bn of financial support each year. But where is that going to come from if not from a levy on energy bills?
Other options
Finding an alternative to the levy is not easy. Given the pressure on public finances, the Treasury is unwilling to make direct support available for the hydrogen industry from its own funds, even if this helps to unlock investment in the sector and create jobs, and will also be wary about mechanisms that increase costs for energy firms that are then reflected in higher energy bills. Indeed, some commentators say they are opposed to the idea of any support and say the market should take its course.
But potential alternatives are starting to emerge.
For example, Onward has made a proposal that the UK could cooperate with the European Union on the carbon border adjustment mechanism, which the EU is due to bring into effect in October 2023 and become fully operational from 2026. This is set to impose a carbon import levy on goods originating from countries that lack an equivalent carbon pricing regime. The goal is to reduce pollution on imports.
By doing this, the UK can align itself with the EU and phase out the free allowances that it offers to stop firms moving overseas to avoid pollution costs. The think tank argued that redirecting this money towards supporting the hydrogen industry would avoid an extra levy that pushes up energy bills, while also supporting the sector.
We would expect other options to become clear after discussions between energy firms and the government and opposition parties.
Equilibrium Energy and Hatch Renewables have agreed a partnership to manage utility-scale battery storage by pursuing tolling agreements with developers that have operating assets or projects with near-term commercial operation dates.
Under an energy storage tolling agreement, the developer of the energy storage system is responsible for obtaining site control, permits, interconnection rights, equipment, and construction contracts, as well as achieving agreed-upon milestones such as a target commercial operation date and a guaranteed commercial operation date. The buyer—often the utility company—pays for the electricity used to charge the energy storage system, and receives the right to charge/discharge the system for energy and ancillary services.
“Equilibrium and Hatch have been working closely together over the past year to formalize the partnership and screen an initial set of tolling opportunities in ERCOT [Electric Reliability Council of Texas],” a statement said.
The US Inflation Reduction Act 'opened the door' for tax equity investment in standalone storage, but exorbitant costs and a shortage of providers make it an unrealistic option for smaller developers
Inflation Reduction Act opened door for tax equity investment in standalone storage
But setting up tax equity deals can be expensive for small developers, costing up to $1m
Only a handful of tax equity investment providers operating in the market
Corporates may enter tax equity market via syndications
One of the benefits of the US Inflation Reduction Act (IRA) – which was introduced last year – was the creation of an investment tax credit (ITC) for standalone energy storage projects. Prior to the enactment of the IRA, the Section 48 investment tax credit (ITC) did not apply to standalone storage projects – storage projects could only claim the ITC if they were installed in connection with a new solar generation facility, and then only if the energy storage project was charged at least 80 per cent by the solar facility. The IRA changed the landscape, however, by extending the Section 48 ITC to standalone storage.
Storage market observers have lauded the legal change, saying it will provide a much-needed new source of capital for standalone storage projects in the form of the tax equity investor. What is a tax equity investor? They are usually large financial institutions – such as banks and insurance firms – that have substantial tax obligations and therefore want the tax credits, while also seeing the typical yield of 6% to 8% as an attractive return.
Tax equity investments: The lowdown
How exactly does a tax equity investment work? An investment of this type could be structured in one of a number of ways, but the most frequently used mechanism is the ‘partnership-flip’. This involves a tax equity investor investing capital into a special purpose vehicle (SPV), which is set up by the project developer and treated as a partnership for federal income tax purposes. The main objective of the SPV is developing, owning and operating one or more energy storage assets.
In return for making the investment, the tax equity investor is issued shares in the partnership that mean it is entitled to almost all of the partnerships tax items and an agreed proportion of its cash distributions. At some point in the future, the tax equity investor will have received enough tax items and cash to reach a negotiated internal rate of return on its investment, a time which is usually described as the ‘flip date’. Now, the percentage allocations of tax items and cash flow ‘flip’ with the result that most company tax items and cash flows are subsequently allocated and distributed to the developer rather than the investor.
Source: Freshfields Bruckhaus Deringer
Eolian: First beneficiary of tax equity investment in standalone storage
It's undoubtedly a handy new source of financing for some standalone storage projects and, in February this year, Eolian – a portfolio company of Global Infrastructure Partners – announced that it had closed what it described as a first-of-its-kind tax equity investment in two standalone utility-scale battery storage projects located in Mission, Texas. The Madero and Ignacio projects are interconnected battery storage facilities located on a single site with a combined operating capacity of 200MW. “This pioneering financing is the first use of the Investment Tax Credit (ITC) structure by a standalone utility-scale battery energy storage system and is possible due to passage of the Inflation Reduction Act of 2022,” an Eolian statement said. The tax equity investment in the projects was provided by a fund managed by Churchill Stateside Group, LLC.
Tax equity deals can cost $1 million
But there is scepticism about whether tax equity financing will be as widely used to fund standalone storage projects as is hoped. To begin with, the amount of tax equity investment available is limited. For example, during the period 2020 to 2021, more than 50 per cent of the $20 billion tax equity market’s investment supply came from just two large banks: JP Morgan and Bank of America. There are other major players – such as Wells Fargo, US Bank and Credit Suisse, but the field is small because participants not only must have big enough tax obligations to desire tax breaks, but also have the capacity to set up and manage what is an extremely complex instrument. Indeed, the fact that tax equity investment is so complex means that it also acts as a deterrent for smaller energy storage developers – senior executives at storage companies have lamented the fact that arranging tax equity financing is much more difficult than securing project finance. It’s also very expensive to arrange tax equity financing, which consequently puts it out of the reach of many storage developers. Such deals often incur costs exceeding $1 million, with even the simplest structures costing more than $250,000 to set up.
Will tax equity provide ESG boost?
Will the number of tax equity providers increase? Possibly – it’s been mooted that more corporates could enter the fray, particularly those already backing clean energy projects via power purchase agreements. For example, in March this year, Nestlé agreed a deal with Enel North America that saw the food and drink company become the sole tax equity investor in Enel's 208 MWdc Ganado solar-plus-storage project in Jackson County, Texas. Amazon, Google and Toyota are among other big-name corporates that have made tax equity investments in the renewable energy sector. Indeed, there is speculation that, with the pressure on corporates to minimise their carbon footprint increasing, from an environmental, social and governance (ESG) perspective, tax equity investment could be a way for companies to demonstrate ‘additionality’, that is, a positive impact or outcome that would not have otherwise occurred without additional resources or capital investment.
That said, there are doubts that the provision of tax equity investment by corporates – as opposed to large financial institutions – will take off in a big way. The plain truth is that only a handful of corporates have seen fit to get involved in tax equity deals up to now.
Tax equity investors will get more comfortable
Yet tax equity deals are expected to become a more prominent feature in the energy storage sector. A report published last week by the law firm Troutman Pepper – entitled Taking Charge: Inside the U.S. Battery Boom – highlighted that the biggest challenge for battery owners and tax equity investors is that standalone batteries are not generating assets like solar or wind farms, where tax equity is linked to project cashflow from energy production. “Batteries have different revenue streams that will pose a challenge for the market,” the report concluded. Yet the report said that it is anticipated that projects where the power output is fully sold will “get to a stage where tax equity investors are comfortable underwriting those projects using traditional tax equity structures”. However, merchant storage projects are more likely to use transfer mechanisms, as they rely more on fluctuating demand and pricing of energy. Troutman Pepper has also stated that developers now looking at standalone storage projects will have to find the right mix of merchant exposure and contracted offtake to attract tax equity investors without diminishing overall returns.
Credit transferability will entice more tax equity investors
At present, sources of tax equity investment are limited and consequently the number of storage projects that are financed using this mechanism in the short term will amount to a trickle rather than a flow. The cost of setting up tax equity structures can be prohibitive for developers of smaller storage projects and the fact that so few institutions are offering this type of investment means they will be very careful about which projects they choose to back.
But the outlook could change. With regard to certain clean energy tax credits, for tax years beginning after December 31, 2022, the IRA allows for transferability – wherein a tax credit can be transferred or sold to another taxpayer or tax-paying entity for cash, a mechanism often used to incentivise businesses to invest in a certain area or industry, like renewable energy. The expectation is that this will likely bring more tax equity investors into the market and increase competition. In addition, there is a view that more corporates will begin deploying tax equity investments via syndications, which Cohn Reznick Capital has highlighted as an “easy avenue for new entrants, particularly corporations”.
Alinta Energy has appointed UGL and the Shanghai Electric Power Design Institute Co and Monford Group Pty Ltd (SEPD Monford) to deliver its Port Hedland solar battery hybrid project in Australia.
UGL, a CIMIC Group company, has been appointed to deliver the 35 MW one-hour battery storage system and SEPD Monford to deliver an approximately 45 MW AC fixed-tilt solar array, for a total project cost of around $180 million.
The project is expected to create around 200 jobs and be operational by late 2024.
The project underpins a power purchase agreement with BHP that’s expected to halve emissions from the generation of electricity used to power BHP’s WA iron ore port facilities in Port Hedland.
Once completed, it’s expected that 100 per cent of the forecasted average daytime energy requirements for BHP’s port facilities will be powered by solar generation, with the remaining power requirements to be met via the battery and Alinta Energy’s existing gas-fired power station.
Alinta Energy, BHP, UGL and SEPD Monford are “committed to seeking opportunities to include local and indigenous content, including opportunities for local, Pilbara Aboriginal and Kariyarra Traditional Owner businesses,” a statement said.
German utility RWE has become sole owner of the 1.6GW Nordseecluster of German offshore wind projects after buying Northland Power's 49% stake for €35m.
The cluster is made up of four offshore wind projects in the German North Sea that were co-developed by RWE and the Canadian independent power producer Northland Power.
The Department of Energy has withdrawn a $200 million grant that had been awarded Microvast - a manufacturer of lithium-ion batteries for energy storage - amid allegations that the company has close ties with the Chinese government and Chinese Communist Party.
Microvast had previously announced plans to build a mass production facility in the US for its polyaramid separator, a high-temperature resistant, fire-retardant component used in lithium-ion batteries. The $200 million DOE grant had been part of a larger investment of $504 million.
US Senator John Barrasso (R-WY), a member of the Senate Committee on Energy and Natural Resources, said: “The Department of Energy has finally retreated from sending US taxpayer dollars to Microvast, an electric vehicle battery company with close ties to Communist China. I’m stunned it took the Biden Administration this long to admit the obvious: no company beholden to Communist China should be considered for US government grants or loans. The administration should immediately reject other applicants with similar ties. It should also overhaul its grant making process and conduct due diligence before issuing press releases.”
In response, Yang Wu, Microvast’s founder, chairman, president, and chief executive officer, said: “The company is surprised by the DOE’s decision to withdraw the grant, which was designed to help build a new facility in Kentucky that would employ hundreds of people. Microvast is based in Texas, its shares are traded on Nasdaq, and the operations for our global business are centralised in the US. Neither the Chinese government nor the Chinese Communist Party has any ownership in the company, nor do they control or influence company operations in any way. The company is therefore considering all of its options.”
BW Ideol and Elawan Energy have agreed to form a joint venture to develop a multi-gigawatt portfolio of floating offshore wind projects off the coast of Spain and Portugal.
The companies have agreed heads of terms for a deal but said the tie-up was still subject to further negotiations.
US energy storage technology Moxion Power is to build a 205,000 square foot gigafactory at Ford Point in Richmond, California to manufacture batteries for energy storage.
The facility - located next to Moxion’s existing factory at the Ford Point Assembly Plant, near the Rosie the Riveter/WWII Home Front National Park - will have more than 7GWh of annual battery manufacturing capacity.
Moxion said the gigafactory would create “hundreds of local manufacturing jobs”. The project is being developed at Terminal 3, an underutilized port terminal at The Port of Richmond, the third largest deepwater port by volume in the state. As production ramps up, Moxion projects its team to grow from 250 to over 1,000 employees, including hundreds of engineers and manufacturing professionals.
Centrica Energy Trading and Frankfurt Airport owner Fraport have agreed to buy electricity from a PNE wind farm in northern Germany.
The five-year power purchase agreement is due to start in July 2023. Centrica Energy Trading has agreed to buy the power produced by the wind farm, which is owned by PNE, and then provide Fraport with 63GWh annually.
Renewable Power Capital has signed a deal to supply vehicle group Forvia with power from its 146MW Klevberget onshore wind project in Sweden.
The firms have agreed a power purchase agreement for almost all of the electricity produced by the project, which is due to complete in November 2023. The deal is equivalent to around 40% of all of the electricity required by Forvia's European plants.
Ørsted has agreed to pay $625m for Eversource's 50% stake in a US seabed area with potential for up to 4GW of offshore wind. The zone, called Lease Area OCS-A 500, is currently jointly owned by the two companies.
UK renewable developer Clearstone Energy has sold two battery energy storage system (BESS) projects in southern England to Foresight Energy Infrastructure Partners.
The projects are: Sundon BESS, a 49.5MW project north of London that will connect with National Grid’s Energy Park initiative; and Warley BESS, a 57MW project in Essex. Both sites have grid connection dates in 2024.
The projects will be built on land owned by National Grid that is close to substations on its national high voltage transmission network. The National Grid Energy Park programme aims to work with developers to speed up the process of adding battery storage to the transmission network.
Energy storage platform provider Powin has selected manufacturing company Jabil Inc to accelerate the development and delivery of Powin’s ‘Stack 750’ product.
Powin said it had selected Jabil - based in St. Petersburg, Florida - due to a combination of the company’s “high-level assembly techniques, deep energy storage prowess, and commitment to environmental health, social equity and sustainable practices”.
Powin has over 6,000 MWh of energy storage systems that have been deployed or are under construction with an additional 11,000 MWh in contracting worldwide.
Norwegian utility Statkraft has committed to install 250MW of green hydrogen capacity in Germany by 2030.
The plan follows Statkraft's announcement last month that it would install a 10MW green hydrogen pilot project by 2025 at its existing power plant site. The capacity is set to be backed by 2GW of new wind and solar.
