Basic description

Founded in 2007, Ad Astra Energy and Environmental Services explores the application of green hydrogen and fuel cells in e-mobility. It builds on the expertise of its parent company, Ad Astra Rocket Company, in similar technologies for space applications.

Ad Astra’s first demonstration project, the “Costa Rica Hydrogen Transportation Ecosystem”, began operations in 2018 in the Guanacaste province. Green hydrogen was produced with electricity generated from its own solar farm (78 kW) and wind turbine (5 kW) and a 5.9 kW Proton Exchange Membrane (PEM) electrolyser. This green hydrogen was then used in a “Nyuti” bus, the first hydrogen-based transport unit in Costa Rica. The Nyuti bus runs on a hydrogen tank with a capacity of 38 kilograms (kg) of compressed hydrogen, can transport 35 passengers, has a 338 kilometers (km) range and a speed limit of 110 km per hour. Since 2019, the green hydrogen project has been feeding a fleet of four Toyota Mirai that operate in the tourist areas of Guanacaste.

The Costa Rica Hydrogen Transportation Ecosystem project was developed over the past 10 years with a total investment of USD 8.8 million (49% investment from Ad Astra, 35% from Costa Rica government, 9% from NGOs, 7% from other investments and sponsorships), including end-of-cycle electrolyser replacement and an H70 (for 70 megapascal) hydrogen dispenser in 2019. It is a small-scale pilot project built to test the technology and to learn by doing. Learnings from this project are fundamental in understanding how to operate green hydrogen infrastructure in tropical climates and to mitigate risks related to high temperatures.

Project rationale

Costa Rica’s power generation relies entirely on renewable electricity, with hydropower being the main energy source (70 to 75% of power generation), followed by wind and geothermal energy. Transport share in the total final energy consumption is just above 50% (80 petajoules (PJ) per year), and this sector consumes the lion’s share of the country’s fossil fuels. As Costa Rica depends highly on imported fossil fuels, developing local clean fuels will not only decarbonise the transport sector and achieve the country’s net-zero targets, but also improve its trade balance.

Governance

The Costa Rica Hydrogen Transportation Ecosystem project began in 2011 as a public-private partnership between Ad Astra and the state refinery Refinadora Costarricense de Petroleo (RECOPE) to understand the process of producing, compressing, and storing hydrogen at 700 bars.

Ad Astra is a technology integrator, which aims to integrate the engineering, equipment design and project development for green hydrogen infrastructure deployment across Latin America. For this initial pilot project, a public-private collaborative effort was led by Ad Astra and involved Air Liquide, Cummins Inc, Sistema de Banca para el Desarollo, Relaxury S.A., and US Hybrid Corporation. For instance, Cummins supported the process of integrating the renewable energy sources and the hydrogen bus into the Ecosystem, and Air Liquide provided the hydrogen fuelling equipment. 

In order to move from demonstration to commercial operations, Ad Astra launched a joint venture with a Latin American renewable energy investment firm called Mesoamerica. The joint venture, ProNova Energy, is positioned as a large-scale green hydrogen project developer for Latin American markets. Its first project will be developed in Costa Rica to expand the electrolyser capacity of the current pilot project to 1 MW through a special purpose vehicle (SPV). This project, expected to cost USD 6 million and become operational in 2024, will produce 450 kg of hydrogen per day and operate a fleet of around 10 buses or trucks. Future projects are also expected to be developed through SPVs.

Business model

As transport is the targeted market segment for the first project, the main challenge is to aggregate demand by identifying strategic areas to develop user recharging hubs. This will reduce infrastructure and distribution costs, which is especially important when the size of the project is around a few MW for the electrolysers, thus limiting economies of scale for green hydrogen production.

The first location was chosen strategically, at a convenient area for city buses and less than 10 km away from logistics centres to enable demand from trucks or on-site vehicle fleets.

Collection of letters of intent from potential off-takers secures demand for the first project(s), although it is complex to commit to long-standing contracts in the transport sector. Thus, under a pay-per-use model currently under discussion, Ad Astra / ProNova Energy plan to lease vehicles (including the fuel) at a given tariff per km.

On the supply side, Ad Astra plans to rely on grid electricity possibly with a minor share of on-site solar panels, as grid electricity is already fully decarbonised and Costa Rica has upside potential to build additional clean power generation capacity. Given the size of the project and the large share of dispatchable renewable energy in Costa Rica’s power mix, the project will not affect the grid’s operations. 

Fossil fuels are rather expensive in Costa Rica, hence the price gap between diesel and green hydrogen is not a barrier. This is especially so because some companies are ready to pay a small premium, as long as the pay-per-use price does not significantly affect their cost structures.

Enabling market conditions and investment de-risking

Costa Rica’s power market is dominated by the national power company (Instituto Costarricense De Electricidad). A new green hydrogen bill, currently under discussion, would offer a special electricity tariff and/or power purchase agreements at above-market conditions to green hydrogen producers. The allocation of carbon credits could also provide an additional revenue stream to de-risk the first green hydrogen projects.

The main risk for applications in trucks and buses is on the demand side. So far, there is no national policy or mandate that guarantees a sufficient market size. Aggregating demand, proposing an offtake guarantee, or setting vehicles emissions targets could thus mitigate the demand risk.

Financing

The Costa Rica Hydrogen Transportation Ecosystem project has been financed mostly through private equity, with an important share of public seed funding at the beginning. The project expansion to 1 MW electrolyser capacity with ProNova Energy will also rely on private equity, which has already been secured.

In addition, Ad Astra participates in a consortium sponsored by the government of Costa Rica for a grant from the Nationally Appropriate Mitigation Actions (NAMA) Facility. This Facility proposes a two-step approach over 5 years: (i) a pilot phase including a new transportation pilot project and an industrial demonstration; (ii) the design of a full-scale financial mechanism to make green hydrogen projects in Costa Rica economically viable.

Ad Astra has identified multilateral developments banks (MDBs), including the World Bank, and climate funds as key financiers for the next projects. The International Finance Corporation is in fact the key financial partner of Costa Rica's green-hydrogen NAMA proposal. The InterAmerican Development Bank will also play a key role through direct investment of credit lines for green hydrogen project developers and producers, as well as by supporting the country on policy development. Similarly, the Central American Bank for Economic Integration and the Climate Investment Funds will be privileged financing stakeholders.

While the company is currently focusing on the first project, scaling up in the future will require accessing the debt market, particularly with the use of green bonds. Financing from commercial banks will also be needed to increase leverage.