Clean-energy crunch

Beginning in early 2020, a series of high-profile announcements by a trio of companies appeared to put the Rochester area at the forefront of the emerging clean-energy sector. With government loans and incentives lined up to help fuel their growth, Li-Cycle Holdings Corp., Plug Power Inc. and Hyzon Motors Inc. together promised to generate thousands of jobs in this region.

Today, all three are facing strong headwinds, with the future of their local operations—and the companies themselves—cloudy at best. Like other capital-intensive ventures working to develop clean-energy solutions, they are struggling with rising costs driven by higher interest rates and other factors that are causing them to burn through cash on hand.

On Oct. 23, Toronto-based Li-Cycle said it had put construction of its Rochester Hub on hold pending a comprehensive review of the project’s strategy. The company later said construction cost estimates had jumped from less than $600 million to as much as $1 billion, and it faces litigation and contractor liens.

Roughly three weeks later, Plug Power of Latham, near Albany, disclosed in its third-quarter earnings report that it currently lacked the capital to fund its operations through the next 12 months and that there was “substantial doubt about the company’s ability to continue as a going concern.” Plug Power operates a fuel cell and electrolyzer innovation center in Rochester and is building a nearly $700 million “green hydrogen” complex in Genesee County.

On Nov. 14, Honeoye Falls-based Hyzon released its latest results. The report highlighted the “lowest quarterly cash burn over the last eight quarters,” but its three-month net loss of $44 million—with zero revenue—was nearly twice as high as it reported in the same period a year earlier.

All three companies are publicly traded—and the stock price for each is down more than 80 percent compared with two years ago, when interest in clean-energy investments spiked after passage of the Biden administration’s Inflation Reduction Act. Yet the leaders of Li-Cycle, Plug Power and Hyzon continue to voice optimism about the future, saying they have strategies in place to surmount their current difficulties.

Clean-energy challenges

As in other sectors, success in clean energy requires the ability to take an idea to scale. However, these companies—in addition to needing large amounts of capital—are working in uncharted territory with new raw materials and a shift away from reliance on traditional infrastructure.

“These are companies that are building a product or a service with new materials,” notes Jim Senall, president of NextCorps. “Those are obviously more difficult to scale up than a software company. So, you’ve got all challenges just inherent with, ‘OK, this thing worked at the benchtop. And it worked at the small scale. But now I’ve got to go build up Li-Cycle. That’s a $600 million factory.”

NextCorps administers Venture for ClimateTech, a nonprofit global venture studio and accelerator program, and Scale for Climate Tech, which aims to help companies reduce the risk, waste, and cost associated with getting a hardware product to market.

In April, a Brookings Institution paper noted that the anticipated pace and scale of building energy infrastructure over the next two decades is much greater than anything the U.S. has experienced since at least the 1970s. While the paper discusses electricity, the challenges hold true for the transition away from fossil fuels, whether it is fuel-cell technology or recycling batteries.

“For example, if I say I’ve got the best new rechargeable battery for automobiles, that’s great. If there’s a charging infrastructure out in the world for vehicles, right?” Senall says. “Or if I have the great new technology to put energy in or take energy off the grid, that’s great, if the regulatory bodies allow you to even do that. So, (it’s) a lot more complicated playing field than, you know, in some older industries.”

Spoke-and-hub strategy

A challenge for companies looking to pioneer new frontiers in clean energy is access to infrastructure and undeveloped land to site projects. Eastman Business Park offered access to both, prompting Li-Cycle to consider Rochester.

In September 2020, Li-Cycle said it planned to invest $175 million in its first commercial lithium-ion battery recycling hub at EBP. The hub would refine battery-grade materials from “black mass” generated from pre-processing spent lithium-ion batteries.

“As part of Li-Cycle’s global roll-out strategy, the planned facilities in EBP will enable us to leverage this industry-leading technology to foster the development of a closed loop within the robust lithium-ion battery supply chain in the U.S and globally,” said Ajay Kochhar, CEO of Li-Cycle, at the time. “Our team is excited to be at the vanguard of one of the last and important segments of the electric vehicle and battery supply chains that requires significant development—specifically, how to sustainably handle the incoming ‘tsunami’ of spent lithium-ion batteries.”

Kochhar co-founded Li-Cycle with Executive Chairman Tim Johnston. Among their goals: to enable the adoption of electric vehicles and reduce the cost of batteries, which are used in several industries and in households.

The company had vetted its hub-and-spoke technologies through a demonstration hub in Kingston, Ont. An integrated, two-step lithium-ion battery recycling and resource recovery process, the hub-and-spoke model supports the building of localized supply chains for battery-grade materials. Li-Cycle’s technologies enable the return of battery materials to the domestic supply chain for reuse by battery manufacturers and electric vehicle and energy storage producers.

The spokes, including one at EBP, use Li-Cycle’s technology to recycle end-of-life battery materials and manufacture scrap, processing full electric vehicle and energy storage battery packs through a submerged shredding process without discharging or dismantling.

Earlier this year, Li-Cycle saw reason to boost its commitment to the Rochester Hub. It had received a $375 million loan commitment from the U.S. Department of Energy. The funds would help the company to create 269 new positions, in addition to 1,000 construction jobs.

The loan, with a term of up to 12 years, marked the first conditional commitment from the department’s Advanced Technology Vehicles Manufacturing program, supporting a national move to onshore and re-shore electric vehicle and critical mineral supply chains.

While it was a big step forward, the loan was subject to documentation of long-form agreements and certain conditions—expected to be satisfied before closing. Roughly eight months after the announcement and after construction had gathered steam, Li-Cycle said it needed to put the project on hold to conduct a comprehensive review. The review would examine the strategy for the project, including scope, budget and construction. Some 20 local employees were furloughed or laid off. (In February, Li-Cycle said it employed 200 here.)

When Li-Cycle reported its third-quarter earnings on Nov. 13, company officials said the Rochester Hub’s construction costs had nearly doubled from its earlier estimate of less than $600 million. The cost pressure was exacerbated by the timing of nearly $4 billion in other major construction projects in the region, driving general contractors to draw workers from the larger regional area, Kochhar said during the third-quarter conference call.

He and other executives voiced optimism in working with DOE officials and better phasing the project. A phased approach may include the ability to produce intermediate battery metal products and improve project economics. Now, the estimated cost for the project, based on initial analysis and several assumptions, lies in the range of $850 million to $1 billion, depending on the option Li-Cycle decides to pursue.

Cautioned Chief Financial Officer Debbie Simpson: “With current cash on hand, our spend cuts and cost-saving initiatives underway, we anticipate needing additional funding, in addition to the DOE loan, before restarting the Rochester Hub project.”

In the third quarter, Li-Cycle generated $4.7 million in revenues, versus $2.8 million a year ago. Its net loss was $130.5 million, compared with a loss of $20.6 million in the same period a year ago. The reasons cited for the increased net loss: higher expenses from the expansion of the company’s global network, which more than offset the increase in revenue. As of Nov. 10, Li-Cycle had $100 million in cash. Its long-term debt stood at $352.5 million versus $47 million two years earlier.

In a letter to the Rochester community, Kochhar and Johnston reiterated their gratitude for support and patience and their relationships with vendors and contractors.

“With favorable supply and demand dynamics driving the need for domestic sources of battery material, we continue to see significant benefits for Li-Cycle’s Spoke & Hub network, and in particular, the market need for the Rochester Hub,” the letter reads.

Fuel cells and green hydrogen

Shortly after Li-Cycle’s Spoke 2 lithium-ion battery recycling facility at EBP became fully operational in December 2020, Plug Power made the first of two major announcements for the Rochester region. On Jan. 19, 2021, the company said it had selected Rochester as the location for its Innovation Center, a move that marked “a significant expansion (its) production and manufacturing capabilities for fuel cells and electrolyzers.” The firm’s gigafactory would serve as a “world-class technology research and development center, supported by collaborations with local universities.”

Plug Power said the expansion here would invest $125 million into the local economy and create 375 jobs.

Greater Rochester Chamber of Commerce President and CEO Bob Duffy said of the announcement: “We are thrilled that Plug Power has chosen Rochester. … The 375 new clean energy jobs created will help energize our local economy, while state-of-the-art sustainable technology solutions will help further our region’s reputation as a center of technology and innovation.”

A little more than a month later, Plug Power had more big news for the region: It had decided to build the largest green hydrogen fuel production facility in North America at the 1,250-acre Western New York Science, Technology and Advanced Manufacturing Park in the town of Alabama in Genesee County.

The company would employ 68 at the $290 million facility and electric substation, which was expected to produce 45 tons of green hydrogen daily. The plan again was lauded by local and state officials including then Gov. Andrew Cuomo, who said, “New York State is committed to establishing itself as the leader in the national effort toward a more renewable future focused on green energy excellence.”

In autumn 2021, the Plug Power Innovation Center in Henrietta opened and construction began on the Genesee County project.

Last May, Plug Power quietly expanded its plans for the $290 million facility at the STAMP complex. A $387 million expansion, nearly doubling the green hydrogen produced daily to 74 tons, it would bring the total project investment to $678 million.

Given these aggressive growth plans, the warning in Plug Power’s third-quarter earnings report seemingly came out of the blue. But risk factors have long been evident to investors.

Founded in 1997, the company went public in 1999 during the dot-com boom. A producer of fuel cells, it was among the alternative energy companies whose shares surged in the hot stock market; in little time, its share price rocketed to nearly $1,500. But Plug Power never became profitable, and its stock plummeted to the single digits, though its shift in focus to green hydrogen gave the stock a temporary lift starting in early 2021.

In the third quarter, Plug Power logged $199 million in revenues, up from $189 million a year earlier, but its gross margin was negative 69 percent, compared to negative 24 percent for the third quarter of 2022. Its net loss jumped to $283 million from $171 million.

In the quarterly conference call with analysts, CEO Andy Marsh said the period ended Sept. 30 was “a difficult quarter, driven primarily by the availability of hydrogen.” Many days, demand outstripped supply and hydrogen cost roughly twice the normal price. But the hydrogen supply picture was brightening, he said, and Plug Power’s difficulties were just “a bump in the road.”

In its quarterly shareholder letter, Plug Power said it aims to achieve the full 74 tons-per-day capacity at its STAMP facility in the first half of 2025. But as with Li-Cycle, a big factor in reaching that goal is an anticipated financial boost from the federal government. The company has been working with the DOE officials to receive a $1.5 billion loan. It expects approval next year, perhaps as early as the end of the first quarter.

Marsh and Chief Financial Officer Paul Middleton downplayed the warning about lacking sufficient capital to fund operations through the next 12 months and stay in business. Middleton said during the conference call that “the language that we’ve included is oftentimes driven by accounting standards … (and) it’s a lot more conservative, obviously, than what we feel like.” And unlike Li-Cycle, Plug Power has essentially no debt on its balance sheet.

In an interview with Yahoo Finance, Marsh said “we saw a gap probably somewhere around $500 million, but that’s $500 million if we do everything we say we’re going to do. …We have over $500 million of cash available to us. We have a balance sheet that has $1 billion of restricted cash (and) people who are willing to lend us money against our restricted cash.”

Added Marsh: “We feel pretty confident when we look at everything, when we look at our ability to manage through this, that we’re going to be fine.”

A hard road

For Hyzon, the road over the last few years has been filled with bumps and potholes. The maker of hydrogen fuel cell heavy-duty vehicles has lost more than $100 million on negligible revenue since its startup on Jan. 21, 2020; it has missed reporting deadlines and faced possible delisting from Nasdaq; and the company and former executives in September agreed to pay a total of $25.7 million to settle fraud charges leveled by the Securities and Exchange Commission.

Former CEO Craig Knight, ousted from his post in August 2022 after Hyzon admitted to accounting irregularities, was barred from serving as an officer or director of a publicly held company for five years. 

Profits are a distant prospect. As the company noted in its 2022 financial statement filed May 31, Hyzon is “an early-stage growth company (that) expects to continue to incur net losses in the near-term.”

Despite the $44 million third-quarter loss and zero revenues, CEO Parker Meeks termed the three-month period “remarkable.”

“We believe that Hyzon is at an inflection point as we recently made our first commercial delivery in the U.S., are advancing our customer pipeline, and expect less than $5 million in capital investments to reach start of production at our fuel cell manufacturing facility,” he said in a statement that accompanied the quarterly report. “All of this, combined with the significant tailwinds for the hydrogen ecosystem from recently advanced government subsidy programs, put Hyzon in a strong position to lead in the race to decarbonization.”

Government’s role

With these clean-energy ventures, the Rochester region has more than jobs at stake. New York State and local governments have backed their projects with financial assistance.

■ Empire State Development is supporting Li-Cycle’s Rochester Hub project with $13.5 million in Excelsior Jobs Program tax credits in exchange for the company’s job-creation commitments.

■ Plug Power’s Innovation Center is backed by up to $13 million in Excelsior Tax Credits, 5.1 megawatts of low-cost ReCharge NY power, and additional assistance from Monroe County, Rochester Gas and Electric, and Greater Rochester Enterprise. And ESD, with up to $2 million in Excelsior Tax Credits in exchange for job-creation commitments, and Genesee County are assisting Plug Power’s STAMP project.

■ Hyzon operates in Honeoye Falls at a former General Motors facility and its $8 million expansion there, announced in February 2021, was assisted by ESD, Monroe County and Greater Rochester Enterprise.

Industry watchers say the shift toward clean energy worldwide requires a helping hand from the public sector, in addition to steadfast private investors. Market forces alone are insufficient, a 2022 Ernst & Young report states.

For now, Rochester will need a healthy dose of patience, Senall says.

“Even if there are two or three examples of some things faltering when (a company is) at this growth stage, (it) doesn’t necessarily mean the entire industry is plagued with some problem at that stage,” he says. “There does have to be patience in when these things can really come to fruition because you’re putting them into these very complicated systems.”

He remains optimistic overall about the clean-energy sector’s early-stage ventures.

“Some of the companies that we’ve had through our programs, the last three years are just incredible,” he says. “Just doing really amazing things.”

Paul Ericson is Rochester Beacon executive editor. Smriti Jacob is Rochester Beacon managing editor. The Beacon welcomes comments and letters from readers who adhere to our comment policy including use of their full, real name. Submissions to the Letters page should be sent to [email protected].