STAFF REPORT
City of Lancaster
CC 23
5/28/2024
JC
Date: May 28, 2024
To: Mayor Parris and City Council Members
From: Jason Caudle, City Manager
Subject: Clean Hydrogen Purchase Agreement Non-Binding Term Sheet – Element Resources, Inc.
Recommendation:
It is recommended that the City Council:
1. Approve the Non-Binding Term Sheet with Element Resources, Inc. for the purchase of hydrogen, with an estimated maximum contract amount of $68,200,000 and a minimum contract amount of $54,135,000 per year. Authorize the City Manager, or his designee, to execute and sign all documents; and
2. Find that this item is not a project pursuant to the California Environmental Quality Act.
Fiscal Impact:
The Term Sheet outlines the prospective purchase of green hydrogen at prices of $8.50 per kilogram for liquefied hydrogen and $6.75 per kilogram for gaseous hydrogen at 350 BAR. The agreement anticipates purchasing an average of 22,000 kilograms per day. The minimum volume cost per year would be $54,135,000, and the maximum volume cost would be $68,200,000.
However, no funding has been identified yet, and this will need to be secured before entering into a binding agreement.
Background:
In 2020, the City of Lancaster announced its intention to become the first renewable Hydrogen City. Lancaster is working with several organizations to increase the production and use of renewable hydrogen and other sources of clean energy. The City Manager’s Office is requesting to enter into a Non-Binding Term Purchase Agreement and determine Element Resources as a Sole Source vendor.
1 5
6 1
Element Resources, Inc. is a Delaware corporation specializing in green hydrogen production, with offices in Houston, TX, and San Diego, CA. The company is at the forefront of developing sustainable hydrogen solutions to support the growing demand for clean energy.
In March 2024, the Lancaster Planning Commission approved Element Resources’ Lancaster Clean Energy Center—a renewable hydrogen production facility utilizing photovoltaic (PV) solar for its power supply. This facility is part of a broader strategy to develop Lancaster’s renewable hydrogen infrastructure, supplying hydrogen locally and expanding the broader hydrogen supply chain.
The Lancaster Clean Energy Center will be divided into two sites, totaling approximately 1,338 acres, and powered by 650 megawatts (MW) of ground-mounted PV solar arrays. It will also incorporate 330 MWh of long-duration battery energy storage to provide power during times of low solar output. The facility will include 400 MWe of hydrogen production capacity and both liquefied and gaseous hydrogen storage.
In 2023, the City of Lancaster and Element Resources formalized their partnership through a Memorandum of Understanding (MOU). This collaboration aims to develop hydrogen infrastructure projects, enhance local job opportunities, and support California’s ambitious emissions targets. The energy center is expected to bring about 35 new high-paying, permanent jobs and hundreds of highly skilled union positions during the construction phase.
The City of Lancaster and Element Resources, Inc. are now discussing a business relationship to purchase green hydrogen produced at this new facility. The Non-Binding Term Sheet outlines the principal terms of this prospective relationship, including the purchase of hydrogen at competitive prices and a long-term commitment to support Lancaster's energy needs.
The Hydrogen Purchase Agreement (HPA) will have an initial term of ten (10) years from the commercial operations date (COD) of the Facility (the “Initial Term”). Buyer may renew the HPA for two (2) successive five (5) year terms (each a “Renewal Term”) by providing written notice to Seller not less than twelve (12) Contract Months prior to the expiration of the Initial Term or the first Renewal Term, as applicable. The Initial Term and any Renewal Term together constitute the “Term”.
This agreement aims to secure a reliable supply of green hydrogen for the City of Lancaster, enhancing its clean energy portfolio and supporting its environmental goals. The collaboration with Element Resources is expected to provide substantial benefits in terms of sustainability, cost savings, and energy security.
Attachment:
Non-Binding Purchase Agreement
Sole Source Memo