Renewable Power to Fuels Symposium - May 20 2019 Policy Panel Renewable Power to Fuels Symposium - May 20 2019 A completed project will either be a pilot project (a small project to prove the concept sufficiently to enable a commercial project to be financed) Or it will be a commercial scale project. Pilot projects generally lose money. The usually are not developed unless there is insufficient confidence in the commercial scale project by the project financiers. Pilot projects are not financed in the commercial market, but by strategic investors, family or friends. A commercial scale project needs to be “bankable” to raise most of its equity and all of its debt capital.

Bankability Bankability generally requires each of the following elements: A customer with recognized credit who agrees to purchase all or almost all the output for several years. Equipment purchased from a recognized supplier who give strong and long warranties of equipment performance. A construction contract from a recognized general contractor backed by well respected engineering who issues a performance guarantee and who agrees to a multi-year maintenance contract. A contract with an experienced facility operator that cannot be terminated for several years except for cause.

Bankability, continued 5. Land use approvals confirmed by legal review; good and unencumbered title to the property or a good and unencumbered leasehold estate, either qualified for extended coverage title insurance. 6. Broad form all risk insurance coverage of the property and of the revenue stream, in addition to general liability insurance covering accidents. 7. A good story. Why does this project make sense and why will it be successful for the long term? If the project is not bankable on a project basis, it will likely need some sort of large company guaranty to gain access to the financial markets.

Other strategies to help bankability 1. Are there grant subsidies or loan guarantees available for the project? 2. Can you locate your project in an Opportunity Zone? (IRC Section 1400Z) Can you issue Qualified Small Business Stock? (IRC Section 1202) 3. Are there subsidies available for the hydrogen product? “Green tags” of various types? (Federal or state or both) 4. Are there customers who will simply pay more to have renewable or “green” hydrogen? (As a feedstock for corn ethanol fertilizer? The California low carbon fuel standard? A utility needing to reach certain lower carbon standards in absolute terms or to avoid purchasing allowances.) Early adopters and early movers? 5. Are there state exemptions or allowances on sales and use taxes? On property taxes? On income taxes?

Other barriers to development Authorities having jurisdiction hesitate over anything and everything new. There is very little precedent. Expect a worse case what-if analysis applied to process elements like “hydrogen,” “ammonia,” “electricity,” and “electrolyte.” There are always NIMBYs, and now they are always armed with who knows what from the internet.

Early Success? If you are using an electrolyzer technology, one path to early success will likely involve a captive need: supplying hydrogen to a customer willing to pay enough to cover the actual costs (for example, on site production of hydrogen for a customer who can use it immediately). A common example of this is hydrogen supplied from natural gas for fertilizer feedstock. Another path to success will be to supply hydrogen into a higher priced market, while making it in (or from) a lower priced market. An example of this is making hydrogen from lower-cost low carbon electricity and supplying it to motor vehicle fueling stations in California. (Douglas County PUD comes to mind.) It is difficult to transport hydrogen very far. (Compression does not help all that much.) Early success will likely find short supply lines or very efficient means for making and moving ammonia.

Uncertainty means opportunity for entrepreneurs! Hydrogen development is wide, wide open and likely will be for a few years at least. There is good reason to expect prices for electrolyzers to decline sharply as volume increases, and there is good reason to expect some improvement in technology and efficiency. Financing will become available with experience in the market. Authorities having jurisdiction will get comfortable. Multiple markets for hydrogen will develop. Multiple strategies to access lower cost electricity will develop.