DOE unveils $1B loan for hydrogen plant. But is it ‘clean’?

Source: By David Iaconangelo, E&E News • Posted: Monday, January 3, 2022

A depiction of Monolith Nebraska LLC’s hydrogen facility in Hallam, Neb. Monolith

The Energy Department’s loan office rolled out its first new award in years in the waning days of 2021, jump-starting a program seen as pivotal to President Biden’s climate agenda as legislation remains stalled in Congress.

On Dec. 23, the office announced it would guarantee up to $1.04 billion in loans for Monolith Nebraska LLC to scale up production of “clean” hydrogen, provided the company meets unspecified conditions.

The company will use a rare technique for producing its hydrogen from natural gas, known as methane pyrolysis.

Pyrolysis has been seen among some federal researchers as a promising way of making a low-carbon type of hydrogen that could one day be sold for prices rivaling that of traditional, emissions-intensive hydrogen. The low-carbon hydrogen could then serve as an alternative to fossil fuels in transportation and manufacturing, among other sectors.

When pyrolysis is applied to natural gas, it creates both hydrogen as well as a second byproduct known as carbon black — a kind of soot that is widely used in tires and other commercial products.

Monolith says it can create both products while vastly shrinking the CO2 emissions of their manufacturing, while still earning a profit.

The company is planning to use DOE’s backing to finance a massive expansion of its existing Hallam, Neb., plant that produces hydrogen and carbon black.

The hydrogen made there will be turned into ammonia, a popular fertilizer, and sold to agricultural buyers in the Corn Belt, according to the company. Major tire makers like Michelin and Goodyear are pledging to cut their own emissions footprints by buying carbon black from Monolith.

Rob Hanson, Monolith’s co-founder and CEO, said the loan guarantee arrived after “several years of due diligence” and called it a “significant milestone” for the company.

In a statement, Energy Secretary Jennifer Granholm said “advanced, clean production technology like Monolith’s are the types of impactful projects that support not just sustainability, but economic growth and clean energy jobs for the American people.”

‘Clean’ credentials?

The award is the first made by the Biden administration from a roughly $40 billion source of loan authority controlled by the Loan Programs Office, which was mostly inactive during the Trump years. The last of LPO’s awards, to the Vogtle nuclear plant in Georgia, was finalized in 2016.

The guarantee to Monolith was from the office’s Title XVII program, which backs “innovative” energy projects that cut greenhouse gas emissions.

It is likely to be the first of many such awards in 2022, according to the DOE announcement, which said the office was “poised for additional investments” this year. LPO’s director, Jigar Shah, recently said the office has received some 66 completed applications from energy companies, representing about $53.6 billion in loans and loan guarantees (Energywire, Dec. 8, 2021).

DOE’s selection of Monolith’s project adds to the debate about whether hydrogen produced with natural gas can fully be “clean” — a concept that many environmentalists have opposed in the past.

Pyrolysis is similar to the widely used process called steam methane reforming (SMR), insofar as both of the processes involve natural gas as a feedstock.

Unlike SMR, pyrolysis doesn’t inherently give off large volumes of carbon in order to make hydrogen because it uses high temperatures to separate the carbon in an environment that doesn’t contain oxygen, which means the natural gas isn’t being burned.

Spokespeople from Monolith told E&E News that its pyrolysis process could reduce carbon emissions to about 0.45 kilogram, for every 1 kilogram of hydrogen — assuming it was all powered by 100 percent renewable electricity.

That’s within the definition for “clean” hydrogen established by the bipartisan infrastructure law, which sets a 2-kilogram CO2 limit.

Monolith did not provide an estimate, however, of how much nitrogen oxides and other local pollutants would be emitted through its hydrogen and carbon black production. Carbon black companies have long been major emitters of NOx, sulfur oxides and particulate matter.

DOE told E&E News that NOx and other emissions from Monolith’s existing facility in Nebraska would be regulated by the state and county, as the plant was not considered a major source of hazardous emissions under the Clean Air Act.

Although the plant, known as Olive Creek, is already pumping out hydrogen and carbon black, Monolith says it plans to use the DOE loan to ramp up production from its current level of 14,000 metric tons of carbon black to about 194,000 metric tons. Production of hydrogen — currently about 5,500 metric tons — would grow to produce about 275,000 metric tons of ammonia.

The process of turning hydrogen into ammonia wouldn’t produce CO2 emissions, according to the company.

Monolith, first formed in California in 2012, has backing from other energy companies, including NextEra Energy Inc. and Mitsubishi Heavy Industries America Inc.

It has previously tried and failed to market hydrogen from its Nebraska plant, however. Last year, it gave up on its plans to supply a local utility with hydrogen as a substitute for coal power, saying it wasn’t financially feasible.

Dan Levy, Monolith’s communications director, said in an email that the company and its utility partner backed off those plans “after several years and millions of dollars invested in engineering studies” led them to believe “that there were better and higher impact uses for our clean hydrogen.”

“Instead, we’ll use the hydrogen from our expansion plant to produce clean ammonia,” he added.

LPO’s return

The use of methane pyrolysis to make what’s sometimes dubbed “turquoise” hydrogen has gotten support from other branches of DOE and high-profile investors.

One company headquartered in California, C-Zero Inc., developed its own pyrolysis system with grants from DOE’s Advanced Research Projects Agency-Energy (ARPA-E). Last year, it raised $11.5 million in an initial fundraising round from backers that included Bill Gates’ clean energy investor group, Breakthrough Energy Ventures (Energywire, Feb. 10, 2021).

The loan office’s awards, too, are intended largely to encourage private investors to get off the sidelines. With the Democrats’ reconciliation measure facing an uncertain fate in Congress, the office’s work stands to be a significant piece of the administration’s legacy on climate.

Innovation advocates and global institutions like the International Energy Agency have said that many less-proven forms of clean energy will have to emerge at scale in order to effectively address climate change.

David Hart, a senior fellow at the Information Technology and Innovation Foundation, gave the example of nascent technologies like affordable round-the-clock sources of clean electricity, or low-carbon fuels for manufacturing.

Those types of technologies, he said, could be important for meeting Biden’s climate goals, which include a carbon-free grid by 2035 and net-zero emissions by 2050.

Under the Obama administration, he noted, DOE’s loan office helped finance the first utility-scale solar projects in the U.S., stoking that industry’s rise to prominence.

“A vibrant LPO is essential for the administration’s clean energy innovation policy to be fully effective,” he wrote in an email.

The loan office’s lack of activity under former President Trump paralleled criticism from many conservatives, who pilloried its work during the Obama administration following the high-profile bankruptcy of Solyndra, a solar manufacturer that received a half-billion-dollar loan guarantee.

The office’s advocates defend its track record, noting that despite incidents like Solyndra, its portfolio is operating in the black. DOE’s announcement of the guarantee to Monolith contained an implicit defense of the office’s work, noting that just 3.3 percent of its investments had turned to losses.

Shah has previously suggested that hydrogen projects could be a focus of his office’s financing.

But longer-term policy supports, like the tax credits enjoyed by wind and solar, might be needed if a new clean hydrogen industry is to emerge, according to researchers (Energywire, Dec. 20, 2021).

That points back to the importance of Congress. Both existing versions of the Senate and House versions of the reconciliation package would create a production tax credit for hydrogen, similar to what has sustained renewable growth. Yet Sen. Joe Manchin (D-W.Va.), chair of the Senate Energy and Natural Resources Committee and a key Democratic swing vote, has objected to the measure in existing form.

Barbara de Marigny, an energy tax expert at Baker Botts LLP, said the reconciliation bill “would really provide a sort of sea change in the tax landscape for hydrogen,” during a Dec. 22 panel held by the U.S. Energy Association.

“There’s nothing like it right now for hydrogen,” she added.