Renewable Hydrogen Projects - Recommendations
This is the third in a three-part series about the potential and challenges in bringing hydrogen projects to market. Read the first installment here and the second installment here.
Conclusion and Recommendations
At TritenIAG, we have seen many novel technology projects over the years, and we have learned that there are commonalities that can impede success. While not all inclusive, the path for project success includes the following:
Thorough Project Basis
Often performed in tandem with technology selection, the project basis and economics must be tested to ensure they meet project goals. The basis must consider capacity, energy cost and availability, labor, ease of sale, location, feedstock supply, and offtake agreements.
Select Technology
Make a thoughtful technology choice that manages risk, considers variable power supply, renewable power availability and in the case of blue hydrogen, CO2 sequestration well availability.
Determine Financing
Financing and equity need to be set up front and synced with project spend schedule to avoid costly delays in the engineering and procurement processes. Mis-sequenced release of financing means that contractors and vendors cannot be paid when needed, will not perform work at planned times, and will create costly delays that ripple exponentially through remainder of project.
Calculate Risk Landscape
Understand and mitigate project risks (hydrogen projects may use mature technology but are now using it in new applications and with new power).
Build Experienced Owners’ Team
An owner’s operations team should be involved from the beginning of a project. Ideally project teams will have expertise in the technology subject matter, operations, and each stage of a project.
Retain an experienced primary contractor or contractors
The ideal contractor is not necessarily the lowest cost contractor. Experienced contractors will lower the overall cost of a project, but inexperienced contractors can cause time delays and ballooning costs. Follow the gated work process and perform a pass gate review at the end of each phase to determine if the project is ready to move to the next phase, e.g. from conceptual engineering (FEL-2) to basic engineering (FEL-3). Let the engineering progress to get good scope definition and total installed cost estimates at the end of each engineering phase. Taking shortcuts often result in poorly defined scope and low-ball cost estimates. Many developers attempt to move from FEL2 straight to a FEED/EPC fixed price contract. This approach is fraught with challenges as the definitions aren’t set and change is inevitable.
Be willing to stop when project economics, schedule, and costs are out of line.
Calculate Regulatory Cost and Benefits
Establish an intimate understanding of the regulatory and carbon credits landscape. This is where much of the project’s revenue is derived. Assess the economic equation to determine what you’re looking for – which specific agency or company is paying money for carbon credits and what are the criteria to earn those credits. TritenIAG has been working with various governmental agencies and we understand how these credit programs work and more specifically what criteria need to be met to qualify for them.
Establish Wrap Terms
Wrap agreements are quite challenging to obtain in today’s market. Most major EPC firms have had lopsided financial results because of agreeing to Lump Sum EPC contracts with performance guarantees. There are segments of the market where these contracts have proven successful – Gas Fired Power Plants, LNG facilities, etc. In these markets the technologies are well understood, and the companies have broad experience with the construction landscape in the area they intend to work. The technologies employed for the Energy Transition aren’t as broadly adopted, yet the financing structure needed to fund the project requires a complete risk backstop. There are EPC firms that have their own technology but may not possess the regional construction capability to be capable of offering a wrap. There are EPC firms that have regional construction capability but don’t possess the technology and therefore are reticent to trust it’s performance enough to offer a wrap. At TritenIAG we have worked to solve this equation. We have developed an approach that provides the owner an investment grade contract, while simultaneously creating a risk distribution model that allows two parties (EPC with Technology and EPC with Construction) to partner yet not share the risk for those things outside their control.
Contractor Selection – Labor Management and Apprenticeship Experience
Chose contractors with experience managing labor and wage standards according to IRA standards. If major contractors do not have this program in house, hire consultants that can help build a system of classification, adherence incentives, and reporting. The contractor must also have experience with apprenticeship programs or be willing to build a program that complies with state or federal systems. We understand these requirements and can help shape your program for compliance.
