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Hydro-Québec has dropped out of a proposed $1.2-billion clean hydrogen and biofuels project near Montreal, citing business reasons.
The Recyclage Carbone Varennes project would be one of the world’s first large-scale clean hydrogen and biofuels production facilities. It is also being closely watched as a potential model for hydrogen’s role in the energy transition.
To keep the project alive, Quebec’s ministry of economy and innovation announced Aug. 24 that it is investing an additional $284 million — bringing its total spend to $364 million — and that its strategic partners, Suncor Energy Inc., Shell Plc and Switzerland-based chemicals company Proman AG, would “contribute in an equivalent way to their current shareholding proportion.” Pierre Fitzgibbon, Quebec’s minister of economy and innovation, said he also expects the federal government to contribute several hundred million dollars to the project through the Canada Infrastructure Bank.
“The deal’s not closed,” Fitzgibbon said. “But everybody confirmed they want to do it. It just needs to be inked.”
Hydro-Québec made no official announcement about its exit, but a spokesperson said it came down to business and strategic priorities. Hydro-Québec only ever wanted to operate the hydrogen plant, slated to be built in in Varennes, Que., but for business reasons it made more sense to have a single operator responsible for both hydrogen and an adjacent biofuels plant.
The deal’s not closed
Pierre Fitzgibbon
“It was a combined decision of all the actors who were involved that it would make more sense as a business case for the project to go forward combined,” Caroline Des Rosiers, a spokesperson for Hydro-Québec, said. “In that sense, it didn’t make sense for us to be involved anymore and everyone was fine with that.”
Fitzgibbon said that since the project was announced in 2020, there have been cost overruns due to inflation and because the technology required to produce green hydrogen is new. Ultimately, it made sense for Hydro-Québec to provide electricity for the project, but not to build and operate the green hydrogen plant, he said.
“When Hydro-Québec decided they wouldn’t do it, because there was too much uncertainty, we could have decided we didn’t want to do it,” Fitzgibbon said. “But this never came to our mind.”
Instead, he said he took comfort in the fact that Suncor, Shell and Proman will cover 50 per cent of the investment cost.
Fitzgibbon said the project will help Quebec enter the green hydrogen market, which he added will be crucial to the energy transition.
The additional investments from Quebec come in the form of $161.85 million in loans and $122.6 million in preferred shares in Recyclage Carbone Varennes.
A spokesperson for Recyclage Carbone Varennes said via email that the economics have not changed. Combining the hydrogen production plant with the biofuels plant “helps us to align the pace of the two projects and remove complexity.”
Des Rosiers said Hydro-Québec remains interested in pursuing green hydrogen projects, just not this one.
The provincial utility operates approximately 60 hydroelectric generating stations with output of 37,000 megawatts, and currently has an excess of clean electricity that it is looking to monetize. In 2020, Hydro-Québec said it would sell the hydrogen produced in Varennes at an attractive price to a neighbouring biofuels plant that is also part of the project.
The federal government has touted hydrogen as a potential climate solution, saying it has the potential to deliver up to 30 per cent of Canada’s energy by 2050. It can be used as a fuel with no emissions, and advocates say it resembles a fossil fuel in that it can be stored and transported.
But it can only be as clean as the energy used to make it, and large energy losses associated with current production, storage and transportation methods have held back adoption.
Although Canada produces large quantities of hydrogen, it is produced from fossil fuels and mainly used to remove sulfur from fossil fuels and in fertilizer production. That means hydrogen production currently creates greenhouse-gas emissions.
The proposed project in Varennes is considered unprecedented because it would mark the first large-scale green hydrogen production facility in Canada. Hydro-Québec planned to use its vast hydro electric resources to build an electrolyzer with a capacity of 88 megawatts to produce 11,100 metric tonnes of hydrogen per year.
Under the plan, the hydrogen would be used at a neighbouring plant to transform non-recyclable waste into biofuels, keeping the waste out of landfills.
Part of the plan also includes using a chemical process developed by Montreal-based Enerkem — whose investors include Suncor, Investissement Québec and National Bank of Canada — to use the hydrogen to produce chemicals, such as biomethanol, which in turn could be used in paint, plastic, fibres, building materials and fuels.
In 2021, global methanol production was around 138 billion litres, of which only 200 million litres was biomethanol, according to Quebec’s Ministry of Economy and innovation. It said the plant, which is not expected to begin operating before 2024, could produce around 135 million litres of biomethanol.
“We are pleased the … project and the Quebec Government have reached an agreement and charted a path forward for this important project,” a spokesperson for Shell said via email.
Ross Marowits, a spokesperson for the Canada Infrastructure Bank, said he could not comment on the specific project, but that the bank was “working closely with a number of project owners across the country to help accelerate the energy transition and contribute to helping Canada be a leader in this space.”
Neither Enerkem, Suncor or Proman provided comment for this article.
• Email: [email protected] | Twitter: GabeFriedz
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