Commercial de-risking

What challenges did you face during the process of securing customer long-term commitment?

ACES: An important challenge to overcome, especially for large projects such as ours that require substantial upfront investment, is to acquire long-term binding off-take commitments from hydrogen consumers – "Hydrogen Production and Storage Agreements". It's the backbone of the project's de-risking architecture.

ZEV: One of the biggest challenges for us was the setup of a commercial structure to be able to procure the hydrogen refueling stations. Another challenge we currently face is the lack of commercially available light duty vehicles on the market. Our project intents to deploy 1,200 fuel cell vehicles in the region and although we have a lot of interest from different sides to procure hydrogen powered fleets, they are just not available.

CEOG: As for many aspiring green hydrogen production projects, binding supply and off-take commitments from green power suppliers and anchor-load consumers are major cornerstones to successfully de-risk the project's commercial structure. Our current major hurdle is the approval of a power purchase agreement (PPA).

What specific measures did you take to overcome these challenges?

ACES: We engaged with entities of different sizes and from different industries/sectors early on to develop a broad range of potential off-takers. This increased flexibility and shaped different forms of collaboration, as well as further increased the visibility of the specific project in various industries and in the general public. Specifically, we are currently engaging with a large hydrogen off-taker adjacent to our site (in our case the Intermountain Power Agency, a power-generating cooperative of 23 municipalities in Utah and six in California). Around it, we are developing "pooling arrangements" for hydrogen off-take, with consumers from energy, industry and heavy-duty mobility – reflecting our ambition to become a large-scale inter-regional green hydrogen supply and storage hub (eventually also including a new hydrogen pipeline network). This will also allow us to get to the economies of scale we need on the cost side. When reaching out to potential customers, we made sure to highlight the investments already undertaken to de-risk the project, the planning and engineering progress, as well as the advanced permitting stage of the project due in large to earlier development of other salt cavern storage projects at the multi-commodity energy hub site.

ZEV: To set up the commercial structure, we launched the project company HYmpulsion, a company that consists of several different shareholders – among them industrial players, banks as well as the region. The technical, economic and legal discussions took a long time and it proved to be absolutely essential to have the necessary human resources available from all sides to set up this structure.

Since the commercial setup, it has been of great importance to have a dedicated and agreed governance mechanism in place. It is vital that all shareholders commit to their respective responsibilities in the company. For this reason, we advise to put very clear and transparent governance rules in place from the very beginning to ensure successful cooperation.

Besides the procurement and deployment of refueling stations, the project involves the procurement of 1,200 vehicles (e.g. company cars, commercial vans etc.) to create sufficient demand for the hydrogen refueling stations. Due to the lack of availability to date of a variety of light fuel cell vehicles on the market, we are also working on the additional acquisition of heavy vehicles in the region (e.g. buses, trucks, road maintenance trucks, etc.). We are already in discussions with interested industries which plan to procure hydrogen trucks in the future and who would be willing to also cooperate on hydrogen refueling stations. That way, we can show that the refueling stations will be profitable in the future – an expansion in this direction was therefore the right step.

CEOG: Many decision-makers in the project have backgrounds and experience in financing renewable energy projects which proved to be a key success factor during the development of our project and especially during the de-risking and financing phases. Being able to understand both sides in a negotiation with all its cultural differences is important to come to an agreement that satisfies all involved parties.

What learnings can other projects take away from your experience?

ACES:Technical and economic credibility comes first. A full de-risking of a large-scale project which ultimately aims at securing binding off-take commitments requires first of all a convincing project development concept as an "entry ticket" to meaningful commercial discussions – such as front-end engineering work, site control at a strategic location, progress in permitting processes or testimonials of political and public support. In the case of the Advanced Clean Energy Storage project, the fact that the salt dome had been extensively explored and had five existing caverns provided very important and significant de-risking of the salt. This work also provided existing trusting relationships with the local energy community, as well as, city-, county-, state-, and federal-stakeholders. These accomplishments in project development have themselves attracted a growing number of interested customers. This approach required our companies to invest capital into the project prior to securing off-take commitments. Without this upfront investment to de-risk the project, advance development, and reduce costs, the ability to have meaningful dialogue with potential off-takers is reduced.

ZEV:Besides the above-mentioned governance mechanism, it is essential to have project leaders that can dedicate 100% of their time to set up and coordinate a project. Furthermore, for regional integration, we are working very closely with various industry clusters established by Auvergne-Rhône-Alpes – this has been a great success story so far, as the collaboration and engagement in these clusters is high. A close collaboration with all stakeholders from the early stages of project development is recommended.

Moreover, we are also working on developing a "Hydrogen Campus" in the region to provide the necessary education and training around hydrogen and fuel cells. Providing the necessary vocational training is essential to keep and create new jobs in the region, to deliver successful projects in the long run and to establish Auvergne-Rhône-Alpes as a lighthouse region for the sector.

HEAVENN: While the major problem for all hydrogen valley projects at the current stage is that green hydrogen is not yet price competitive to fossil fuels, it becomes increasingly important to ensure a closed eco-system of regional production and end use from the very beginning, and thus forming a "real hydrogen valley". Our key learning is to identify potential regional off-takers at the earliest project stage and in the following, include them in the project either as potential partners or as potential off-taker.

However, this requires the involved parties to be motivated and committed to the goal of becoming an integrated hydrogen valley. In this phase of the development it is about creating a joint approach instead of pursuing a sole (individual) commercial focus. The involvement of these motivated private and public parties will ultimately be the key to a project's success.

CEOG: The first learning we can share for privately funded projects is to find and include potential equity partners already at the development stage. Often, projects involving renewable energies fail, not because of technological issues, but rather because they never make it to a bankable stage. Thus, our key learning for other and future projects is to build up contracts that involve off-takers and counterparts that de-risk the commercial structure of the project; without them, bankability cannot be achieved, and private funding will be difficult.