Macquarie GIG executive discusses recent investment in GH2-based fertilizer platform
The green hydrogen space has drawn a fair deal of interest in the US with major developments expected to unfold in the second half of this year.
Macquarie Asset Management (MAM’s) Green Investment Group (GIG) has started committing capital into the nascent space, with its recent USD 325m investment in Atlas Agro.
Atlas Agro is developing its first North America plant, Pacific Green Fertilizer in Richland, Washington, whose main input will be green hydrogen as opposed to fossil fuel-based hydrogen. The main customers of the plant are farmers and large food distribution companies usually tied to long-term contracts.
“We are much more comfortable providing capital to those platforms,” said William Gerald Demas, senior managing director and Americas head for Macquarie GIG.
Nevertheless, Demas is excited about the possibilities offered in the IRA in terms of getting these projects to the table. Demas, who returned to Macquarie in July 2022, said the platform has been exploring green hydrogen for about 18 months, initially as an investment exercise.
However, the IRA offered up the opportunity for direct pay in those projects and tax credits that could cover up to 50% of the revenue via the section 45V tax credit. While formal guidance won’t be issued until the fall at the earliest, Demas is confident that this could effectively cut lead time down for these projects in half.
The Pacific Green Fertilizer plant is designed to produce 700,000 tons of zero-carbon nitrate fertilizer annually, primarily serving the Pacific Northwest region. The USD 1bn project is in the front-end engineering and design phase (FEED) with a final investment decision (FID) expected in early 1Q24 and full commercialization by 2027.
It is expected to anchor a wider expansion, which would include a pipeline of projects in the Midwest, and other expansion opportunities in the US and Brazil.
The plant offers an ecosystem which will curb carbon emissions on both generation of the product as well as distribution. The end use customers had primarily relied on major export markets from the likes of Russia and Trinidad & Tobago, so it was “tied to unreliability of supply and volatility in price,” said Demas.
Instead, the Pacific Northwest region will see reduced transportation costs and reliability.
The next steps…
Atlas Agro and others are awaiting formal guidance from the IRS which is being heavily watched at this point in terms of what type of hydrogen properly qualifies for the Clean Hydrogen Credit or Section 45V. The section allows you to claim up to USD 3/kg of qualified clean hydrogen if certain labor and wage requirements are satisfied.
However, an industry source said formal guidance might get delayed until later this year as the IRS works through what qualifies as clean hydrogen.
“They could do it one of three ways, something as easy as allowing RECs early on, requiring direct contract with generation (including geographic requirements) or providing true hourly matching,” added the source.
In a recent interview with Bloomberg, White House senior advisor for clean energy John Podesta talked about a phased in approach. The source interpreted Podesta’s comments as recognizing the need for a tiered approach which is less strict in the earlier years.
The other major development this fall will come when the US Department of Energy (DOE) awards USD 7bn in funding for the regional hydrogen production and distribution hubs. The federal grant will be an immediate catalyst for the space given the amount of developers who have bid projects into the process, with 6-to-10 hubs expected to be selected to provide for a government cost share of up to 50% of the capital costs of the project.
*This story was originally published exclusively for NPM subscribers in August.
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