Nearly a year after Alcoa Corporation announced an agreement to sell its closed Intalco Works aluminum smelter to a Canadian energy company, the prospective buyer continues to hold its cards close to the vest. Executives with Calgary-based AltaGas Ltd. are now offering a few more clues about their plans to redevelop the sprawling complex near Ferndale to produce “green” hydrogen, a fuel the federal government is willing to generously subsidize if the production process is truly clean.
A rebirth of the former smelter site as a big hydrogen factory could hinge on finding an affordable, high-volume supplier of renewable electricity. That echoes the challenge faced by a prior suitor for the Alcoa property. Blue Wolf Capital had plans to make “green” aluminum there with cut-rate hydropower, but faltered in 2022 when the requisite power could not be procured.
AltaGas struck an upbeat tone about its hydrogen play during a recent presentation to Canadian stock analysts. The natural gas-focused company celebrated its inclusion in the Pacific Northwest Hydrogen Hub initiative to catalyze production and uses for the zero-carbon fuel. But notably, a company leader chose the words “potential project” to describe the Alcoa smelter redevelopment.
“These are early days,” AltaGas Executive Vice President Randy Toone said during an investor day presentation in Toronto in December. “We have access to renewable power, the land is industrially zoned, and it has existing infrastructure that can be repurposed.”
Toone showed a slide that said “early-stage conceptual work” is progressing to evaluate a 100-metric-ton-per-day hydrogen production plant near Ferndale. That volume qualifies as large on the current scale of green hydrogen facilities, but is well shy of the largest under construction overseas in Asia and the Middle East.
Despite the scarcity of details, residents of Whatcom County and the wider Northwest are finding lots of reasons to care about what AltaGas does. From an economic development perspective, the hydrogen plant could bloom into a billion-dollar investment. People who want to see a clean energy transition tout low-emissions hydrogen as a necessary component, specifically to decarbonize sectors like shipping and steelmaking that are proving difficult to convert directly to clean electric power. Labor unions want to recover some of the high-paying jobs once provided by Alcoa’s aluminum smelter. And if you pay federal taxes, a slice of your money is set to incentivize this new industry’s growth.
‘Not an easy lift’
Local, state and federal elected officials are enthusiastic about Whatcom County and Washington state getting in on the ground floor for a fuel of the future. A few local and tribal officials have been briefed by AltaGas about the company’s intentions. It was at one of those meetings that Port of Bellingham Commissioner Ken Bell picked up the $1 billion figure for how much the smelter-to-hydrogen factory redevelopment could cost.
“Hydrogen power is not an easy lift,” Bell said during January’s port commission meeting. “Right now, it’s going to require a ton of subsidies just to get through the first years. And when the subsidies run out, I don’t know what kind of future there is.”
“The best thing we can do is make sure the state is aware of how big this project is and what it means to us,” Bell continued. “They need to support it.”
To that end, the port commission this month tasked its lobbyist in Olympia to try to recapture and reallocate a lapsed $10 million budget earmark, which was originally tucked in the state construction budget in 2022 to subsidize the restart of the Alcoa smelter near Ferndale. That $10 million was never disbursed when it became clear the “green aluminum” dreams were going kaput.
“I’m excited about the potential for green energy jobs,” state Sen. Sharon Shewmake (D-Bellingham) said in a prepared statement Monday that didn’t address the specifics of what entity might receive renewed incentive money under what conditions. State budget writers will weigh in next month.
What can hydrogen be used for?
According to a newly published report to the Legislature from the state Department of Commerce, Washington’s five oil refineries are the dominant in-state consumers of hydrogen today. Oil refineries employ hydrogen to remove sulfur from fuel. Right now, industrial hydrogen is most commonly derived from natural gas on-site through a process that releases lots of climate-warming carbon dioxide. Converting the refineries from fossil fuel-derived hydrogen (aka “gray hydrogen”) to green hydrogen would make a meaningful reduction in their carbon emissions.
So, the closed Alcoa smelter in many ways is an ideal place to redevelop to make green hydrogen because it neighbors two obvious customers: the large BP Cherry Point oil refinery to the immediate north and the Phillips 66 refinery on the south side. The proximity mitigates a downside of hydrogen in that the colorless, odorless and flammable gas is cumbersome to transport.
Green hydrogen can also be converted in a refinery into clean transportation fuel such as synthetic jet fuel or “green methanol” to drive next-generation cargo and cruise ships. According to industry trade journals, BP Cherry Point refinery managers were considering opportunities in this sector even before AltaGas hatched its hydrogen production plans for the property next door.
Energy-intensive
AltaGas and other potential producers of green hydrogen in the Northwest propose to make the gas by splitting water molecules with an electric current on a grand scale. The energy-intensive process is known as electrolysis. For the resulting hydrogen to be considered green, the producer must use renewable electricity exclusively, such as wind, solar or hydropower.
That new report from the state Department of Commerce about green hydrogen deployment in Washington identified renewable energy supply as a constraint that could stymie the emergence of this new industry.
The report authors recommended that the Legislature and state government take further actions to streamline siting and permitting of new solar and wind farms. A half-dozen proposed utility-scale solar farms and a new wind farm in south central Washington are bogged down in the state permitting process after encountering local opposition.
“We are in discussions with potential renewable energy providers to source the energy needed to make green hydrogen and we are working with the local Public Utility District (PUD) to determine how to bring renewable power to a potential project site,” said Andrea Doyle, manager of Washington external affairs and tribal relations for AltaGas, in an emailed statement this week.
AltaGas estimates it needs about 265 megawatts of electricity to achieve its maximum production target. That’s considerably less than the Alcoa smelter consumed at peak aluminum production, but it’s still a LOT of juice — roughly the same demand as all the households in Whatcom and Skagit counties combined.
AltaGas is not alone on the hunt for clean electricity. Other potential green hydrogen producers involved in the Pacific Northwest Hydrogen Hub project are also scrounging for high-capacity power suppliers. Fortescue Future Industries and Atlas Agro, to name two, have yet to announce firm contracts for their planned factories near Centralia and Richland, respectively.
The Bonneville Power Administration was the target of concerted lobbying two years ago to provide below-market-rate hydropower to the previous effort to revive the Ferndale smelter. A BPA spokesperson last week said the power wholesaler has not received requests for service from AltaGas or the other prospective green hydrogen producers who are part of the hydrogen hub project.
Last fall, the Washington State Department of Commerce said no new wind and solar projects were specified in the region’s winning bid to secure federal hydrogen hub funding. The Pacific Northwest hub partners include more than a dozen potential producers, distributors and end-users spread across Oregon, Washington and western Montana. The participants are in line to split around $1 billion from the federal government, doled out over many years to subsidize planning, construction and startup costs.
Devilish details
Nationally, the nascent industry and its supporters in Congress are concerned about strings attached to crucial clean hydrogen production tax credits. The Treasury Department recently released fairly stringent draft rules based on a framework laid out in the massive Inflation Reduction Act passed by Congress in 2022.
Treasury said producers who make green hydrogen through electrolysis — as contemplated by all the potential Northwest projects — need to avoid cannibalizing renewable electric supply that would otherwise be used to help other industries transition to clean power. In regulator-speak, this is called insisting on “additionality,” or expecting the energy-hungry hydrogen producers to bring new renewable energy onto the regional grid to serve their needs and avoid competing with other consumers.
“Without safeguards, [the production tax credit] risks creating a shell game in power markets, where existing clean generation gets nominally claimed by hydrogen electrolyzers but the resulting gap in grid capacity is backfilled by fossil fuel generation,” wrote Oregon Democratic Sen. Jeff Merkley in a joint letter with seven other senators to the Treasury Department urging a careful approach.
But other senators from the Northwest are urging the Biden administration to be more flexible. At a minimum, they want Treasury to recognize that the hydropower-dominated Pacific Northwest grid has low emissions to begin with, which are getting lower with each passing year.
“Overly prescriptive guidance could prevent the growth and certainty needed for clean hydrogen to provide meaningful alternatives for difficult to decarbonize sectors, reach competitive hydrogen market prices, and realize the more than 100,000 new jobs the Energy Department projects the clean hydrogen industry could create by 2030,” said a rebuttal letter signed by Washington Democratic Sens. Maria Cantwell and Patty Murray.
AltaGas and its peers are monitoring the hydrogen incentive rule drafting closely. Doyle said her company reserved judgment at this stage and would seek to enlist Washington Gov. Jay Inslee’s office to help get to a workable solution.
The Biden administration’s draft rules for the lucrative tax credits are currently out for public comment and are set to be finalized later this spring or summer.
Tribal consultation
The Cherry Point Industrial Zone where AltaGas wants to expand is part of the ancestral lands of the Lummi Nation. Despite more than 70 years of industrial development, the area continues to have strong cultural and natural resource significance to the tribe.
Lummi Nation Chairman Tony Hillaire said the tribe had not yet formulated a position on the potential redevelopment of the closed Alcoa smelter. AltaGas, the Pacific Northwest Hydrogen Hub leadership and the Biden administration have all pledged to consult Indigenous groups and ensure the nascent clean hydrogen industry brings community benefits.
In a short interview with the Salish Current, Hillaire sounded wary. He said he’s all for a green energy transition and acknowledged the Alcoa smelter site is already industrialized. He said the Lummis would need assurances that the green hydrogen project had a sustainable water and electricity supply. He said his tribe opposes additional tanker traffic on the Salish Sea.
“There needs to be consultation,” Hillaire said. “When these new ideas come up, usually we have to give things up,” and he doesn’t want that to happen again.
Companies and states that are participants in the federally funded Regional Clean Hydrogen Hubs program have been discouraged by the U.S. Department of Energy from discussing their plans in public until the agency finalizes its grant agreements with each regional hub. Pacific Northwest Hydrogen Hub Co-Chair Chris Green said he expected to have the sign offs by the end of this winter. After that, he said the partners will have much more freedom to provide details and engage with their communities.
The Salish Current is a nonpartisan, nonprofit, online local news organization serving Whatcom, San Juan and Skagit counties. Based in Bellingham, the publication serves 400,000 residents and tens of thousands of annual visitors to the three-county area.
