Arizona’s largest utility wants state permission to sell cheap electricity to Nikola Corp. (NASDAQ: NKLA) so the startup electric truck maker can build hydrogen fuel stations for its Class 8 fuel cell trucks.
Massive amounts of electricity are required to make hydrogen through electrolysis. It is a process that breaks down water into oxygen and hydrogen gas. Nikola plans to break ground on its first hydrogen station between Arizona and California next year. It ultimately plans a network of 700 stations. Each would cost about $17 million, the company told investors.
Hydrogen is critical to Nikola’s fuel cell truck ambitions. It plans to bundle the cost of its truck, maintenance and fuel for 1 million miles of driving into a seven-year lease. Fuel cell truck production is scheduled for 2023 at a plant under construction midway between Phoenix and Tucson.
This Nikola’s for Bud
Nikola’s first contract for fuel cell trucks is with Anheuser-Busch Inbev S.A. (NYSE: BUD). The beverage maker ordered up to 800 Nikola trucks in 2018. Nikola plans to have Budweiser test a couple of pre-production fuel cell trucks by the end of 2021.
Cheap electricity is critical to making Nikola’s business model work. The company sought a rate of 2.5 to 3.5 cents per kilowatt (kW) with Arizona Public Service (APS), according to a person with knowledge of the negotiations. Bloomberg reported Wednesday the rate is 2.7 cents per kW.
“How and when this electricity is used could provide operational, environmental and economic benefits that include helping manage costs for all APS customers,” the utility said in a statement.
State may vote on rate deal by January
APS redacted the rate in its filing with the Arizona Corporation Commission. The application is under review and could be ready for January’s open meeting, Commission spokeswoman Nicole Capone told FreightWaves.
“Approval of this agreement advances the decarbonization of the transportation sector and is also anticipated to result in economic development opportunities as hydrogen-based energy solutions grow in importance,” Nikola said in a statement.
The company has said it needs to be able to sell hydrogen for about $2.50 per kilogram to be competitive with diesel fuel and battery-powered electric trucks. According to the California Fuel Cell Partnership, Hydrogen sold for $16.51 a kilogram in 2019 in the state where the majority of stations operate.
Even with good pricing for electricity, Nikola needs partners for its station network, CEO Mark Russell said on the company’s third quarter earnings call.
“We would like to have a collaboration on the station and infrastructure hydrogen side announced by the end of the year,” he said. “The different players we’ve talked to bring different things to the table.”
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