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The small hydrogen plant at the Port of Stockton illustrates a key challenge for the energy transition.
Officials at the Port of Stockton, an inland port in the Central Valley of California, were facing a problem. Under pressure from California regulators to convert all port vehicles to zero-emissions models over the next decade or so, they had made some progress, but had hit a wall.
“Right now we only have one tool, and that is to electrify everything,” Jeff Wingfield, the port’s deputy director, told me. The Port of Stockton has actually been something of a national leader in electrifying its vehicles, having converted about 40% of its cargo-handling equipment from diesel-powered to battery-electric machines to date. But there aren’t electric alternatives available for everything yet, and the electric machines they’ve purchased have come with challenges. Sensors have malfunctioned due to colder weather or moisture in the air. Maintenance can’t be done by just any mechanic; the equipment is computerized and requires knowledge of the underlying code. “We’ve had a lot of downtime with the equipment unnecessarily. And so when we’re trying to sell that culture change, you know, these things can set back the mindset and just the overall momentum,” said Wingfield.
The port also needs its tenant companies to make the switch, but according to Wingfield, they are hesitant to invest in the electric truck models available today. They’re more interested in hydrogen fuel-cell trucks, he said, which are also zero-emissions, and there’s even a vendor selling them right down the street. The problem was there was no source of hydrogen within an hour and a half of the port.
It was these conditions that got Wingfield and his colleagues excited about BayoTech, a company that wanted to build a new hydrogen plant there — even though BayoTech was going to make hydrogen from methane, the main component of natural gas, in a carbon emissions-intensive process. Hydrogen fuel-cell powered trucks don’t release any of the carbon or toxic pollutants that diesel trucks release, but the process of making the hydrogen fuel can still be dirty.
While the port was considering BayoTech’s proposal, California leadership was committing the state to building out a climate-friendly hydrogen industry. In July, the Biden administration awarded California $1.2 billion for a $12.6 billion plan to build new, zero-emissions hydrogen supply chains. “California is revolutionizing how a major world economy can clean up its biggest industries,” Governor Gavin Newsom said. “We’re going to use clean, renewable hydrogen to power our ports and public transportation – getting people and goods where they need to go, just without the local air pollution.”
Nonetheless, the port approved the fossil fuel-based hydrogen plant in August.
The case illustrates the complexities of this moment in the energy transition. At its center is a question: Should we gamble with higher emissions today on the premise that it could help lower emissions in the future? It’s a gamble that many climate advocates, guided by warnings from scientists about the consequences of continued fossil fuel use, fear will do more harm than good.
The port, which was the lead agency for the environmental review process, estimated that if all of the fuel BayoTech produced was used as a replacement for diesel, it would result in a net decrease in emissions of 4,317 metric tons of CO2 per year, which is like taking 1,000 cars off the road. Still, the plant will emit about 18 kilograms of carbon for every kilogram of hydrogen it produces — more than four times higher than the Department of Energy’s standard for “clean” hydrogen.
Climate and environmental groups in Stockton oppose the project. They’ve raised a number of concerns about it and the conditions under which it was approved, but one is the missed opportunity. “At a time when incentives are lining up for cleaner production methods,” Davis Harper, the carbon and energy program manager at the local group Restore the Delta, told me, “and at a time when the state in particular is really trying to transition away from methane, to approve a new steam methane reforming project in a community that’s already suffering from so many cumulative impacts of industrial pollution — it’s a major regression.”
Between operations at the port, highways, warehouses, and other industrial activity, Stockton ranks in the 96th percentile for pollution burden in California, and in the 100th percentile for cases of asthma. In addition to carbon dioxide, the BayoTech plant will release nitrogen oxides, carbon monoxide, and particulate matter. Harper and other local advocates want the community to have more of a say in shaping regional economic development and defining what its hydrogen future looks like. “I think it puts a stain on what the opportunity for hydrogen might be in the community,” he said.
But Wingfield told me it wasn’t an either/or scenario. “I mean, nobody was approaching us with a green hydrogen project,” he said. Even if someone was, Wingfield said green hydrogen was still too expensive and that no one would buy it. The port is supporting state-wide efforts to develop a more sustainable supply of hydrogen in the future, he said, “but it is slow, and for us, we need something now.”
There’s a chicken-and-egg challenge to getting a clean hydrogen economy going. In addition to a new supply of fuel, it will require investments in new vehicles, fueling stations, and modes of delivering the gas — and that’s just for trucking. Decarbonization experts also see potential to use hydrogen for cargo ships, steelmaking, and aviation. “I agree, you know, don’t wait around for the green projects that are being planned to come online,” Lew Fulton, the director of the energy futures research program at the U.C. Davis Institute of Transportation Studies, told me. “There’s a whole bunch of things we need to learn by doing. And so from that point of view, you could argue, well, in the first few years, it doesn’t matter that much what kind of hydrogen it is.”
When I asked Catharine Reid, BayoTech’s chief marketing officer, what brought the company to Stockton, she told me California is a key market and the San Joaquin Valley is currently a dead-zone for the fuel. The Regional Transit District recently purchased five new fuel-cell buses, but to fuel them, it will have to truck in hydrogen from other parts of the state. BayoTech’s business model is designed to address this kind of local need. The company builds small, modular plants and sites them as close to the point of consumption as possible to avoid the cost and emissions associated with transporting the fuel. The project in Stockton will produce just 2 tons of hydrogen per day, or enough to fill the tanks of about 50 trucks. By contrast, the average hydrogen plant in California, which mostly delivers the gas to oil refineries and fertilizer plants, produces closer to 200 tons per day. “We anticipate that that demand will be snapped up quickly,” said Reid.
The port approved the plant using an abbreviated environmental review process — another aspect that troubled the advocates I spoke to — which required BayoTech to mitigate some of its most significant impacts. To reduce pollution, the company will install equipment that cuts the plant’s nitrogen oxide emissions. It has also committed to using zero-emissions vehicles for at least 50% of deliveries. But the biggest pollutant that will come out of the plant is carbon dioxide — just over 12,000 metric tons of it per year. That’s not much compared to the average hydrogen plant. The smallest existing hydrogen plant in California, Air Products’ Sacramento facility, has the capacity to produce more than twice as much hydrogen as BayoTech will, but emitted nearly four times as much carbon in 2021, according to state data. One of BayoTech’s selling points is its technology’s efficiency.
The company has also committed to developing a community benefits plan, which is still in the works, though BayoTech has already signed an agreement to use local union labor and committed to donate $200,000 over the next four years to the community.
Part of BayoTech’s agreement with the port is that it will lower its emissions by purchasing carbon credits from producers of so-called “renewable natural gas,” or RNG, which can mean methane captured from landfills or from cow manure pits. It’s considered low-carbon because the methane would otherwise be released into the atmosphere, where it would warm the planet far more than carbon dioxide. In theory, credit sales help finance systems to capture the gas and use it for energy instead.
I asked Reid why, when there was so much focus on and funding available for clean hydrogen, like California’s $12.6 billion initiative and lucrative new federal tax credits, the company was investing in the fossil-fueled kind. She suggested that once the federal tax credit rules are finalized, the plant may in fact be eligible for the subsidies. That’s because the guidelines might allow hydrogen plants that buy RNG credits to qualify. “It’s a well established system that’s validated,” Reid said of the credits, “and the environmental benefits are there.”
It’s true that this system of RNG credits is well-established. It’s already written into California climate policy. The state has a low carbon fuel standard designed to drive down the average carbon intensity of transportation fuels over time. When it comes to calculating the carbon intensity of hydrogen for the regulations, there’s a workaround. If the hydrogen is made from natural gas, but the supplier purchases RNG credits, they can report their hydrogen as having a very low or even negative carbon intensity.
But the environmental benefits of these credits are the subject of much debate. Notably, fuel producers can buy credits from all over the country, and they don’t have to prove that their purchase had an additional effect on emissions beyond what might have happened otherwise. Though these credits may have some environmental benefit, they are certainly not causing carbon to be removed from the atmosphere, as implied by a negative carbon intensity. In an op-ed for Heatmap, scholars Emily Grubert and Danny Cullenward urged the Treasury Department not to adopt this same carbon accounting scheme for the federal tax credit, writing that it “would undermine the tax credit’s entire purpose.” They estimate that a fossil hydrogen project could qualify as zero-emissions by offsetting just 25% of its natural gas use. This could make it much harder for truly green hydrogen — like the kind made from electricity and water — to compete.
Interestingly, California’s new $12.6 billion clean hydrogen initiative appears to renounce RNG credits. A frequently asked questions page for the plan says that it “will not include the use of plastics, dairy biogas, or fossil methane paired with biomethane credits.”
Still, the California Governor’s Office of Business and Economic Development praised the BayoTech project in public comments, writing that it would “contribute to achieving California’s ambitious climate and pollution reduction goals.”
The letter seemed to be mistaken about what it was supporting, however, noting that the facility would “utilize woody biomass, helping to address two needs — utilization of a waste stream and production of renewable hydrogen.” When I reached out to the governor’s office, spokesperson Willie Rudman told me the reference to woody biomass was an accident, “resulting from a mix-up with another project.” Still, the office supports the project, he said, due to “commitments made by the developer to utilize renewable natural gas as the feedstock, which can be transported to the production facility via existing natural gas pipelines.”
When I noted that this, too, was a mix-up, and that BayoTech would be buying RNG credits, not using the fuel directly, Rudman responded that this was a cost-effective and perfectly acceptable practice under California’s low-carbon fuel standard.
If you view BayoTech’s plant as a bridge to get the hydrogen economy underway, Ethan Elkind, director of the climate program at the University of California, Berkeley’s Center for Law, Energy and the Environment, told me, it’s important to know how to get to the other side. “Is this just a lifeline for the oil and gas industry, to give them another product that they can sell, which those profits then go back into drilling more oil and gas?” He said he wasn’t categorically opposed to the idea of using natural gas to produce hydrogen for now, as long as there were built-in mechanisms to convert the facility to zero-emissions down the line.
Wingfield of the Port of Stockton asserted that BayoTech’s plant would become cleaner over time, but the port has no such commitment in writing, and it’s also not entirely clear how. BayoTech’s Reid was not sure whether the Stockton plant would find a local source of RNG. She said the company was looking, but that it was rare to find alignment between BayoTech’s business model — putting hydrogen production very close to demand — and RNG suppliers. The only other route to cleaner production, other than completely replacing the plant with one that runs on electricity, would be to install carbon capture equipment. But Reid said the amount of carbon the plant produces will be so small that it may not justify the expense. “We continue to talk to players in the industry and evaluate what they’re bringing out commercially to see if there’s a match with our production units,” she said.
Construction on the plant will begin in a few months, Reid told me, and won’t take long. BayoTech expects to be delivering hydrogen in 2025.
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Renewable energy just became a much more enticing investment.
That’s thanks to the Federal Reserve, which announced today that it would reduce the benchmark federal funds rate by half a percentage point, from just over 5% to just below. It’s the beginning of an unwinding of years of high interest rates that have weighed on the global economy and especially renewable energy.
The Federal Reserve’s economic projections also indicated that the federal funds rate could fall another half point by the end of the year and a full point in 2025. The Federal Reserve began hiking interest rates from their near-zero levels in March 2022 in response to high inflation.
High interest rates, which drive up the cost of borrowing money, have an outsize effect on renewable energy projects. That’s because the cost of building and operating a renewable energy generator like a wind farm is highly concentrated in its construction, as opposed to operations, thanks to the fact that it doesn’t have to pay for fuel in the same way that a natural gas or coal-fired power plant does. This leaves developers highly exposed to the cost of borrowing money, which is directly tied to interest rates. “Our fuel is free, we say, but our fuel is really the cost of capital because we put so much capital out upfront,” Orsted Americas chief executive David Hardy said in June.
So what does that mean in practice? Let’s look at some numbers.
Wood Mackenzie estimates that a 2% increase in interest rates pushes up the cost of energy produced by a renewables project by around 20%, compared to just over 10% for conventional power plants.
Meanwhile the investment bank Lazard estimates that reducing the cost of capital (the combined cost of borrowing money and selling equity in a project, both of which can be affected by interest rates) from 7.7% — the bank’s rough assumption over the summer — to 5.4% would lower the levelized cost of energy for an offshore wind system from $118 to $97 — around 17% — and for a utility solar project from $76 to $54 — roughly 28%. While there's not a one-to-one relationship between interest rates and the cost of capital, they move in the same direction.
Reductions in cost of capital also make more renewables project viable to finance. According to a model developed by the Center for Public Enterprise, a typical renewable energy project with a weighted average cost of capital of 7.75% will have a debt service coverage ratio (a project’s cash flow compared to its loan payments)of 1.16. Investors consider projects to be roughly viable at 1.25.
So at the cost of capital assumed by Lazard, many projects will not get funded because investors don't see them as viable. If the weighted average cost of capital were to fall one percentage point to 6.75%, a project’s debt service coverage ratio would rise to 1.28, just above the viability threshold. If it fell by another percentage point, the debt ratio would hit a likely compelling 1.43.
“As rates fall, projects become increasingly financially viable,” Advait Arun, senior associate of energy finance at the Center for Public Enterprise and Heatmap contributor, told me matter-of-factly.
Why farmers are becoming the new nemeses of the solar and wind industries
Farms are fast becoming one of the most powerful opponents to renewable energy in the United States, second perhaps only to the fossil fuel industry. And it’s frighteningly unclear how developers will resolve this problem – or if they even can.
As solar and wind has grown rapidly across the country, so too have protests against solar and wind power on “prime farmland,” a loose term used by industry and government officials to describe property best suited for growing lots of crops. Towns and counties are banning the construction of solar and wind farms on prime farmland. State regulators – including those run by Democrats – are restricting renewable development on prime farmland, and members of Congress are looking at cutting off or restricting federal funds to projects on prime farmland.
In theory, meeting our country’s climate goals and industry needs should require very little farmland. But those same wide expanses flush with sunlight and gusts of wind sought after by developers happen to often be used by farmers: A USDA study released this year found more than 90% of wind turbines and 70% of solar farms in rural areas were sited on agricultural land.
It would be easy for an activist or energy nerd to presume this farmland free-for-all is being driven by outside actors or adverse incentives (and there’s a little bit of that going on, as we’ll get to).
However, weeks of reporting – and internal Heatmap News datasets – have revealed to me that farmland opposition actually has a devilishly simple explanation: many large farm owners are just plain hostile to land use changes that could potentially, or even just hypothetically, impact their capacity to grow more crops.
This means there is no easy solution and as I’ll explain, it is unclear whether the renewables sector’s efforts to appear more accommodating to agricultural businesses – most notably agri-voltaics – will stem the tide of local complaints from rural farmers.
“This is a new land use that is very quickly accelerating across the country and one of the major reactions is just to that fact,” Ethan Winter of American Farmland Trust, a nonprofit promoting solar education in farm communities, told me. “These are people who’ve been farming this land for generations in some instances. The idea of doing anything to take it out of agricultural production is just hard for them, for their community, and it’s about the culture of their community, and if solar is something that can be considered compatible with agriculture.”
Over 40% of all restrictive ordinances and moratoriums in Heatmap Pro's database are occurring in counties with large agricultural workforces.
In fact, our internal data via Heatmap Pro has found that agricultural employment can be a useful predictor of whether a community will oppose the deployment of renewables. It's particularly salient where there's large-scale, capital-intensive farming, likely because the kind of agriculture requiring expensive machinery, costly chemicals, and physical and financial infrastructure — think insurance and loans — indicates that farming is the economic cornerstone of that entire community.
Resentment against renewables is pronounced in the Corn Belt, but it’s also happening even in the bluest of states like Connecticut, where state environmental regulators have recommended against developing on prime farmland and require additional permits to build on preferred fertile soils. Or New York, where under pressure from farming groups including the state Farm Bureau, the state legislature last year included language in a new permitting authority law limiting the New York Power Authority from approving solar and wind on “land used in agricultural production” unless the project was agrivoltaics, which means it allows simultaneous farming of the property. The state legislature is now looking at additional curbs on siting projects in farmland as it considers new permitting legislation.
Deanna Fox, head of the New York Farm Bureau, explained to me that her organization’s bottom-up structure essentially means its positions are a consensus of its grassroots farm worker membership. And those members really don’t trust renewables to be safe for farmland.
“What happens when those solar arrays no longer work, or they become antiquated? Or farmland loses its agricultural designation and becomes zoned commercial? How does that impact ag districting in general? Does that land just become commercial? Can it go back to being agricultural land?” Fox asked. “If you were to talk to a group of farmers about solar, I would guarantee none of them would say anything about the emotional aspect of it. I don’t think that's what it really is for them. [And] if it’s emotional, it’s wrapped around the economics of it.”
Surveys of farmers have hinted that fears could be assuaged if developers took steps to make their projects more harmonious with agricultural work. As we reported last week, a survey by the independent research arm of the Solar Energy Industries Association found up to 70% of farmers they spoke with said they were “open to large-scale solar” but many sought stipulations for dual usage of the land for farming – a practice known as agrivoltaics.
Clearly, agrivoltaics and other simultaneous use strategies are what the industry wants to promote. As we hit send on last week’s newsletter, I was strolling around RE+, renewable energy’s largest U.S. industry conference. Everywhere I turned, I found publicity around solar and farming.
The Department of Energy even got in on the action. At the same time as the conference, the department chose to announce a new wave of financial prizes for companies piloting simultaneous solar energy and farming techniques.
“In areas where there has been a lot of loss of farmland to development, solar is one more factor that I think has worried folks in some communities,” Becca Jones-Albertus, director of DOE’s solar energy technologies office, told me during an interview at the conference. However agri-voltaics offer “a really exciting strategy because it doesn’t make this an either or. It’s a yes and.”
It remains to be seen whether these attempts at harmony will resolve any of the discord.
One industry practice being marketed to farm communities that folks hope will soften opposition is sheep grazing at solar farms. At RE+, The American Solar Grazing Association, an advocacy group, debuted a documentary about the practice at the conference and had an outdoor site outside the showroom with sheep chilling underneath solar panel frames. The sheep display had a sign thanking sponsors including AES, Arevon, BP, EDF Renewables, and Pivot Energy.
Some developers like Avangrid have found grazing to be a useful way to mitigate physical project risks at solar farms in the Pacific Northwest. Out in rural Oregon and Washington, unkempt grasslands can present a serious fire risk. So after trying other methods, Avangrid partnered with an Oregon rancher, Cameron Krebs, who told me he understands why some farmers are skeptical about developers coming into their neck of the woods.
“Culturally speaking, this is agricultural land. These are communities that grow wheat and raise cattle. So my peers, when they put in the solar farms and they see it going out of production, that really bothers the community in general,” he said.
But Krebs doesn’t see solar farms with grazing the same way.
“It’s a retooling. It may not be corn production anymore. But we’re still going to need a lot of resources. We’re still going to need tire shops. I think there is a big fear that the solar companies will take the land out of production and then the meat shops and the food production would suffer because we don’t have that available on the landscape, but I think we can have utility scale solar that is healthy for our communities. And that really in my mind means honoring that soil with good vegetation.”
It’s important to note, however, that grazing can’t really solve renewables’ farmland problem. Often grazing is most helpful in dry Western desert. Not to mention sheep aren’t representative of all livestock – they’re a small percentage. And Heatmap Pro’s database has found an important distinction between farms focused on crops versus livestock — the latter isn’t as predisposed to oppose renewable energy.
Ground zero for the future of renewables on farmland is Savion's proposed Oak Run project in Ohio, which at up to 800 megawatts of generation capacity would be the state’s largest solar farm. The developer also plans to let farmers plant and harvest crops in between the solar arrays, making it the nation’s largest agri-voltaics site if completed.
But Oak Run is still being opposed by nearby landowners and local officials citing impacts to farmland. At Oak Run’s proposed site, neighboring township governments have passed resolutions opposing construction, as has the county board of commissioners, and town and county officials sued to undo Oak Run’s approval at the Ohio Power Siting Board. Although that lawsuit was unsuccessful, its backers want to take the matter to the state Supreme Court.
Some of this might be tied to the pure fact Ohio is super hostile to renewables right now. Over a third of counties in the state have restricted or outright banned solar and wind projects, according to Heatmap Pro’s database.
But there’s more at play here. The attorney representing town and county officials is Jack Van Kley, a lawyer and former state government official who remains based in Ohio and who has represented many farms in court for myriad reasons. I talked to Van Kley last week for an hour about why he opposes renewables projects (“they’re anything but clean in my opinion”), his views on global warming (“I don’t get involved in the dispute over climate change”) and a crucial fact that might sting: He says at least roughly two thirds of his clientele are farmers or communities reliant on agricultural businesses.
“It’s neighbor against neighbor in these communities,” he told me. “You’ve got a relatively low number of farmers who want to lease their land so that the solar companies can put solar panels on them for thirty or forty years, and it’s just a few landowners that are profiting from these projects.”
Van Kley spoke to a concern voiced by his clients I haven’t really heard addressed by solar developers much: overall impacts to irrigation. Specifically, he said an outsized concern among farmers is simply how putting a solar or wind farm adjacent or close to their property will impact how groundwater and surface water moves in the area, which can impact somebody’s existing agricultural drainage infrastructure.
“If you do that next to another property that is being farmed, you’ll kill the crop because you’ll flood the crop,” he claimed. “This is turning out to be a big issue for farmers who are opposing these facilities.”
Some have tried to paint Van Kley as funded or assisted by the fossil fuel lobby or shadowy actors. Van Kley has denied any involvement in those kinds of backroom dealings. While there’s glimpses of evidence gas and coal money plays at least a minor role with other characters fomenting opposition in the state, I really have no evidence of him being one of these people right now. It’s much easier and simpler to reason that he’s being paid by another influential sect – large landowners, many of whom work in agriculture.
That’s the same conclusion John Boeckl reached. Boeckl, an Army engineer, is one of the property owners leasing land for construction of the Oak Run project. He supports Oak Run being built and has submitted testimony in the legal challenge over its approvals. Though Boeckl certainly wants to know more about who is funding the opposition and has his gripes with neighbors who keep putting signs on his property that say “no solar on prime farmland,” he hasn’t witnessed any corporate skullduggery from shadowy outside entities.
“I think it’s just farmers being farmers,” he said. “They don’t want to be told what to do with their land.”
A look at the conflicts around renewable energy projects over the past week
1. Newport County, Rhode Island – I’ve learned that climate activists in Rhode Island are now using local protests to oppose NIMBYs who are challenging renewables projects.
2. Coos County, Oregon – The Confederated Tribes of the Coos, Lower Umpqua, and Siuslaw Indians have sued the Bureau of Ocean Energy Management requesting it delay an offshore wind lease sale scheduled on Oct. 15.
3. Polk County, Iowa – Landowners have sued the Iowa Utilities Commission over permitting the Summit Carbon Solutions CO2 pipeline and providing eminent domain authority, the latest in a string of setbacks that has galvanized local opposition from the midwest to the Dakotas.
4. Houston County, Georgia – One of Georgia’s largest proposed solar projects has been rejected by a potential host county over its potential impacts to bear habitat and property values.
Here’s what else I’m watching…