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Southwest Gas (SWX) Seeks Approval for Truckee Hydrogen Project

Southwest Gas Holdings Inc. SWX recently filed a Truckee Hydrogen Project proposal for hydrogen blending with the California Public Utilities Commission (“CPUC”) in collaboration with Southern California Gas Company, San Diego Gas and Electric Company.

The project, if approved, will deliver a hydrogen-natural gas blend in extreme cold weather and high-elevation conditions to commercial customers in Truckee, CA. The project will help meet Truckee Town Council's goal of an 80% reduction in greenhouse gas emissions by 2040 and further contribute to SWX’s larger efforts and integral role in supporting economy-wide climate and environmental goals.

Motive of the Truckee Hydrogen Project

Southwest Gas is seeking the CPUC approval to carry out the project, which aims to provide critical data that will assist in the creation of the nation's first hydrogen-injection standard for natural gas operators.

Over the 18-month period, the project will examine the blending of low-carbon hydrogen at high concentrations of up to 5%-20% hydrogen with natural gas flowing through plastic and steel pipelines.

As part of the project, Southwest Gas will assist in determining the ideal hydrogen-blend percentages in extremely cold areas. Further, the company will help meet the higher heating demands by using various end-use appliances, such as generators, radiant heaters and boilers, given the extreme weather spectrum throughout California.

Peer Moves

Hydrogen has evolved as a means to promote clean energy and reduce greenhouse gas emissions. Gas utilities are increasingly focusing on the strategy of blending hydrogen with natural gas in the existing pipeline to continue the smooth flow of their operations while meeting the green energy standard.

Like Southwest Gas, utilities, particularly those in the natural gas industry, are expanding their footprint in the hydrogen market.

In February 2022, Chesapeake Utilities Corporation CPK announced that it blended hydrogen with natural gas to power its Eight Flags Energy Combined Heat and Power (“CHP”) plant in Nassau County, FL. The Eight Flags CHP hydrogen test program was intended to refine operational practices and requirements for the safe transportation and injection of hydrogen into a distribution system.

In March 2022, National Fuel Gas Company’s NFG utility segment, National Fuel Gas Distribution Corporation, announced that it joined a newly formed consortium, Building the Clean Hydrogen Economy.

The consortium’s working groups are preparing to execute at least three hydrogen pilot projects. These include heavy-duty transport in the Southwest U.S., green ammonia production in New York and integrated blue and green hydrogen for industrial, peaking power and heavy transport applications in the Gulf.

In March 2022, Centrica plc. CPYYY announced that it is set to support National Grid to establish methods for injecting green hydrogen into the National Transmission System. The project, if successful, will enable excess renewable electricity to be used to create hydrogen, which can then be injected into the gas network.

The Zacks Consensus Estimate for CPK, NFG and CPYYY’s 2022 earnings implies year-over-year growth of 6.6%, 37.5% and 252.2%, respectively.

Zacks Rank & Price Performance

Currently, Southwest Gas carries a Zacks Rank #4 (Sell). In the past month, shares of SWX have rallied 3.3% compared with the industry’s growth of 1.3%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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