🌎 Final hydrogen tax credits get greenlight #228

Happy Monday!

Hope you’ve made it through your inbox backlog by now, because we’re back to regularly scheduled programming over here at CTVC — featuring an explanation of the long-awaited Hydrogen 45V tax credit guidance.

In case our last newsletter slipped through the cracks, check out our most recent report: our deep dive into 2024 investment trends. You can also sign up for our public webinar on January 23rd, to hear us discuss the Climate Capital Stack & Investment Trends of 2024, here.

In deals, $512 in renewable energy project development across two deals, $144m in crop yields innovation, and the largest acquisition in electricity generation yet.

In other news, Earth’s average annual temperatures breached 1.5°C for the first time, China’s new clean(ish) energy law, and horrific wildfires are ripping through Southern California.

We want to acknowledge our readers affected by the tragic fires in Los Angeles. We’re thinking of you.

Thanks for reading!

Not a subscriber yet?

Subscribe Now

📩 Submit deals and announcements for the newsletter at [email protected].

💼 Find or share roles on our job board here.

Tax Day comes early

Last week, the US Treasury and IRS released final rules for the 45V Clean Hydrogen Production Tax Credit. Introduced in the 2022 Inflation Reduction Act (IRA), after two years of volatile debate, these new rules bring a more stable element to the industry, and much-needed certainty for investors and project developers.

What happened

The IRA established tons of new climate-related tax credits, including 45V, which aims to catalyze the emerging clean hydrogen sector. They offer a jackpot of up to $3 in tax credits for every kilogram of hydrogen, so long as production methods substantially lower the total greenhouse gas emissions throughout the process. Now, ahead of the presidential transition, the Biden administration finalized these 45V rules, addressing concerns from industry stakeholders.

How they work

The devil’s in the details: GHG emissions reductions are calculated by a new 45VH2-GREET model, with the credit value determined by lifecycle emissions reductions. Credits are technology-agnostic, meaning that the production of hydrogen from natural gas and RNG will be eligible, in addition to renewables. Producers must meet thresholds of 4, 2.5, 1.5, or 0.45 kg CO2e per kg H2 for partial or full credits. They must follow the (updated) “three pillars” approach:

Clean power additionality: Eligible energy sources include at-risk nuclear facilities, clean power in states like California and Washington, or facilities installing CCS within 36 months of hydrogen commissioning. Outside of these cases, for full credits, new renewable energy projects must be built within this timeframe.
Hourly temporal matching: Now starting in 2030, renewable energy used must align hourly with hydrogen production, transitioning from annual matching requirements.
Geographic matching: Flexibility for interregional power trade is included, but now recognizes transmission constraints. In those cases, the transmission must be tracked and “verified on a granular basis” to be applicable, and this extends to power imports from Canada and Mexico.

Why it matters

These new rules spin the hydrogen color wheel and make certain types of hydrogen projects more investable than before. They open the door for green (renewable) and pink (nuclear) hydrogen, and leave it open for blue (CCS).

Green hydrogen has a few more doors than anticipated thanks to additionality exceptions. New nuclear does not get built very often, and so allowing for facilities to qualify if they would otherwise retire is a powerful loophole to allow for pink hydrogen, as long as operators can document and verify that there are financial or operational risks that would lead to retirement without the revenue from low-carbon hydrogen. Additionally, allowing for power produced in states with a qualifying GHG LCFS program will give a significant boost for projects in California or Washington, the only two states currently eligible.

Prospects for blue hydrogen also look better compared to green hydrogen powered by carbon-free electricity. It may still be impossible for a blue hydrogen project to meet the threshold for full credits, because of upstream methane emissions, but they could still be eligible for 33.4% of the credit value or ~$1/kg H2. With grey hydrogen prices around $1/kg and blue hydrogen rapidly approaching $2/kg in the United States, this may still tip the scales in its favor. (Blue hydrogen projects that use CCS are also eligible for 45Q credits, but these don’t stack, and now, some CCS projects could opt for hydrogen production to maximize credit value.)

Regardless, industry stakeholders have been waiting for these rules for years — and with their release, there’s a collective sigh of relief, although there’s still the possibility that someone could take it to court or that the Trump administration could scrap the rules or change implementation.

Key takeaways

New hydrogen projects getting unstuck and reaching FID? Producers are likely to wait for some signals about the Trump administration’s priorities before pursuing new projects, but there could be some movement for projects announced in the immediate aftermath of the IRA that were waiting for this guidance, like the paused $900m Constellation Energy pink hydrogen project. However, many hydrogen projects are associated with federal hydrogen hubs, which are still very dependent on the $7bn allowance from OCED (which has come under direct fire from the Trump administration).
The looming question of demand. The rules still fail to address one of the fundamental problems plaguing hydrogen: demand, as the market for hydrogen has largely not materialized yet. However, recent Section 48 tax credit guidance makes energy storage now ITC-eligible for any use, enabling integrated value chains in methanol, ammonia, and hydrogen production — which could open up the value chain. Still, these rules don’t put in place protections for a domestic value chain, a challenge seen in solar manufacturing, and if the market opens up, possibly for electrolyzers.
Expect more tax credit guidance ASAP. The Biden administration is pushing to get all of their final IRA-related rules out the door. It also put out guidance on the Clean Fuels Production Credit (Section 45Z), which incentivizes producing low-GHG transportation fuels, including sustainable aviation fuel (SAF) and other transportation fuels, starting in 2025, on Friday.

Special thanks to James Prussing from Boundary Stone Partners for his guidance on this piece.

Deals of the Week (1/06 - 1/12)

Late-Stage / Growth

🌾 Inari, a Cambridge, MA-based increasing seed technology and gene editing platform, raised $144m in Growth funding from Abu Dhabi Investment Authority, Flagship Pioneering, Hanwha, NGS Super, and State of Michigan Retirement System.

🚢 XOcean, a Carlingford, Ireland-based ocean data platform, raised $119m in Growth funding from CC Industries, Climate Investment, Morgan Stanley - 1GT Fund, and S2G Ventures.

🏠 Qvantum, a Malmö, Sweden-based electric heat pumps developer, raised $112m in Series C funding from Climentum Capital, DIG Investment, IMAS Foundation, Munters, and other investors.

🛵 BluSmart, an Ahmedabad, India-based electric ride manufacturer, raised $50m in Series B funding from 100Unicorns, Green Frontier Capital, JITO Angel Network, MS Dhoni Family Office, Mayfield India Fund, and other investors.

🛰️ Parsyl, a Denver, CO-based supply chain insurance platform, raised $20m in Series C funding from The Lightsmith Group, HSCM, GLP Capital Partners, Lineage Ventures and FirstTracks Ventures.

Early-Stage

⚡ Gridware, a San Francisco, CA-based grid inspection technology provider, raised $26m in Series A funding from Sequoia Capital.

🏭 RoboForce, a Milpitas, CA-based automation of workforce manufacturer, raised $10m in funding from Carnegie Mellon University, Gary Rieschel, and Myron Scholes.

🌾 Fermata, a Tel Aviv, Israel-based computer vision-based agriculture solutions platform, raised $10m in Series A funding from Raw Ventures.

🏭 Karman Industries, a Los Angeles, CA-based industrial heat solutions platform, raised an additional $8m funding from 8090 Industries, Riot Ventures, Space VC, and Wonder Ventures.

⚡ Advanced Ionics, a New Berlin, WI-based green hydrogen electrolyzers developer, raised $7m in funding from Argosy Foundation, Clean Energy Venture Group, JERA, Lummus Technology, and bp Ventures.

🔋 EMO Energy, a Bangalore Urban, India-based electric micromobility components platform, raised $6m in Series A funding from Subhkam Ventures and Transition Venture Capital.

🛵 Oben Electric, a Bangalore Urban, India-based electric 2-wheeler manufacturer, raised $6m in Series A funding from Ambis Holding, Karimjee Group, Kubera Venture Capital, Mission Vertical, Pravek Kalp Family Office, and other investors.

🥩 Lypid, a San Francisco, CA-based alternative fat solutions manufacturer, raised $4m in Seed funding from Green Generation Fund, Big Idea Ventures, and SOSV.

Other

🏭 Brimstone Energy, a Berkeley, CA-based green cement company, closed an up to $189m federal award from the US Department of Energy Office of Clean Energy Demonstrations.

💨 Afryen Neoxy, a Saint-Avold, France-based biorefinery for biobased acids developer, raised $10m in Debt funding from BNP Paribas, Banque Populaire Auvergne Rhône Alpes, and Société Générale.

Exits

⚡ Calpine, a Houston, TX-based power generation platform and services provider, was acquired by Constellation Energy for a net purchase price of $26.6bn.

♻️ GFL Environmental, a Vaughan, Canada-based waste management service, was acquired by Apollo Global Management and Bernhard Capital Partners (BCP) in a PE Buyout deal for $5.6bn.

⚡ Kinectrics, a Toronto, Canada-based energy life cycle management platform, was acquired by BWX Technologies (BWXT) for $525m.

⚡ Scale Microgrids, a Ridgewood, NJ-based microgrid developer, was acquired by EQT in a PE Buyout deal for an undisclosed amount.

New Funds

Unless Ventures, a Boulder, CO-based investment firm, raised $91m in funding for its new fund that will invest across manufacturing, shipping, and transportation.

Can’t get enough deals? See full listings and deal analytics on Sightline Climate

Request a Sightline Climate demo

In the News

Earth's average temperature exceeded 1.5°C above pre-industrial levels for the first time in 2024, surpassing the threshold set by the Paris Agreement to prevent severe climate impacts. While this breach is currently a one-year event, scientists warn it signals accelerated climate change, as the 2024 temperature of 1.55°C represents a sharp increase over 2023, which also set heat records. Despite growing clean energy adoption, carbon emissions hit record highs in 2023, meaning that far more climate action is urgently needed.

Devastating wildfires in Los Angeles' Palisades region have displaced hundreds of thousands and raised fresh concerns about California's insurance crisis. The state's FAIR Plan, intended as a last-resort insurer, now covers over 3.5m properties as major carriers retreat from the market. This comes as Trump campaign messaging shifts blame to California's forest management practices, while avoiding discussion of climate change's role in extending fire seasons, extending the tensions between federal and state approaches to climate resilience just days before the presidential transition.

China's new comprehensive energy law sent mixed signals to climate tech investors. While reaffirming coal's role in energy security, the legislation also mandates significant clean energy deployment and grid modernization. This could have significant implications on climate tech, as Chinese investment in investment ramps up, potentially reshaping global investment dynamics.

In the EU, new emissions rules coming into effect are opening up emissions trading opportunities for EV companies including Tesla. Tesla could receive up to $1bn as Stellantis, Toyota, Ford, Mazda, and Subaru plan to purchase credits together to meet new regulations. This development strengthens Tesla's position in the European market while highlighting the growing financial impact of emissions regulations on traditional automakers.

New research shows Lithium Americas' Thacker Pass mine holds the world’s largest lithium reserve, with proven and probable reserves quadrupling to 14.3 m tonnes of lithium carbonate equivalent since its November 2022 Feasibility Study. This expansion supports plans for up to five development phases, extending the mine's life to 85 years. The updated estimate strengthens the business case for financial investments and signifies a potential boost to U.S. lithium production, reinforcing the domestic energy supply chain and creating new jobs.

Microsoft plans to invest $80bn in data centers to meet growing demands for AI and data-intensive applications. Similarly, Emirati billionaire Hussain Sajwani will invest $20bn in US data centers to support similar technological needs. Both initiatives highlight the global push to enhance data infrastructure, which is crucial for AI and other technologies. Their energy consumption will drive demand for more energy solutions in data infrastructure, creating opportunities in the clean energy sector.

China has approved the construction of the world’s largest hydropower dam on the Yarlung Zangbo River in Tibet, targeting 300bn kilowatt-hours annually. The project aligns with China’s carbon neutrality goals and aims to boost Tibet’s economy. While India and Bangladesh have raised concerns about downstream impacts, China claims minimal environmental effects. The dam is set to drive innovation in clean energy and water management technologies.

Mombak has launched the Amazon’s largest reforestation project, securing $120m to plant native trees on degraded pasturelands. Supported by investors like The Rockefeller Foundation, Bain Capital, and AXA, with carbon contracts from companies like Microsoft and Google, the initiative aims to restore biodiversity, strengthen carbon markets, and support local communities.

Pop-up

Oil companies are ‘too cool’ for arctic refuge drilling rights, offering zero bids at auction.

Power up! Renewables generated more electricity than coal through most of 2024.

Biden declared two new national monuments in California, protecting 848,000 acres of land.

Sightline Climate’s line of sight into 2025 climate tech investment trends in this Financial Times article.

Indonesia is digging into a groundbreaking new initiative, an international Carbon Market.

Good, clean fun news: In 2024, renewables supplied 59% of German and 71% of Portuguese electricity.

But the US’ dirty secret: surges in power demand short-circuited US efforts to cut emissions last year.

A New York Times op-ed asks: Could Musk offer a new high-risk, high-reward perspective to federal investment programs?

LEGO enthusiasts unite! DACVAC is offering a direct air capture vacuum Lego kit.

Nearly 50 nations chart a course for a global maritime carbon tax, but navigating the fine print may still rock the boat

Isometric rocks the carbon market with the first verified enhanced weathering credits.

Opportunities & Events

📅 How to attract climate tech investment: Join us on Thursday, January 16, 2025, from 4:45 PM - 7:45 PM at Sustainable Ventures, in London, to explore the trends shaping the green economy with Rishi Khosla, CEO and co-founder of OakNorth, the UK’s leading digital bank for green and high-growth businesses.

📅 BLKxClimate: Join us on Wednesday, January 15, from 6:00 PM - 8:30 PM PST at Yes SF Headquarters, San Francisco, California to focus on climate innovation and industry advancement, uniting Black professionals, students, and aspirants in the climate space.

📅 Carbon Removal Tour @ Charm Industrial: Join us on Wednesday, January 22, from 5:30 PM - 6:30 PM PST in San Francisco, California to explore the journey of Charm Industrial, the first company to permanently sequester carbon in 2021.

💡 Massachusetts Climatetech Studio: Apply by February 28, 2025, to join this 16-week program starting April 2, 2025, designed for entrepreneurs looking to launch climate tech ventures. Benefits include expert mentorship, $15,000 stipends, access to cutting-edge technologies, and a $250,000 prize pool.

💡 Techstars Accelerator: Apply now to join a transformative three-month program designed to help entrepreneurs succeed, with funding opportunities, workshops, and curated resources.