August 29, 2022 • Paul Rodden • Season: 2022 • Episode: 143
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In episode 143, Amazon and Plug Power signed a monster deal? And could us hydrogen projects start taking capital allocated for European hydrogen projects. All of this on today’s hydrogen podcast.
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Amazon and Plug Power signed a monster deal? And could us hydrogen projects start taking capital allocated for European hydrogen projects. All of this on today’s hydrogen podcast.
So the big questions in the energy industry today are, how is hydrogen the primary driving force behind the evolution of energy? Where is capital being deployed for hydrogen projects globally? And where are the best investment opportunities for early adopters who recognize the importance of hydrogen? I will address the critical issues and give you the information you need to deploy capital. Those are the questions that will unlock the potential of hydrogen, and this podcast will give you the answers. My name is Paul Rodden, and welcome to the hydrogen podcast.
In a press release on August 25, Amazon adopts green hydrogen to help decarbonize its operations. Amazon on August 25, announced that the company has signed an agreement with plug power to supply 10,950 tons per year of green hydrogen for its transportation and building operations. Starting in 2025. The company will start to use green hydrogen to replace grey hydrogen, diesel and other hydrocarbons as it works to decarbonize its operations. And this green hydrogen supply contract will provide enough annual power for 30,000 forklifts or 800 heavy duty trucks used in Long Haul transportation. In a quote from Kara Hurst, Vice President of Worldwide sustainability at Amazon. Amazon is proud to be an early adopter of green hydrogen given its potential to decarbonize hard to abate sectors like long haul trucking, steel manufacturing, aviation and ocean shipping. We are relentless in our pursuit to meet our climate pledge commitment to be net zero carbon across our operations by 2040.
And believe that scaling the supply and demand for green hydrogen, such as through this agreement with plug power, will play a key role in helping us achieve our goals. As the largest corporate purchaser of renewable energy. Amazon continues to invest in a range of technologies because no single solution can fully close the emissions gap to net zero carbon. When it comes to hydrogen. The challenge is that over 95% of supply is currently made from hydrocarbons. Amazon wants to help change that large purchase agreements like this one helped foster the growth of green hydrogen, which is produced through a zero carbon pathway using water and renewable electricity. And a quote from Dean Fullerton, Vice President of Global Engineering and security services at Amazon. We already have more than 70 fulfillment centers outfitted with hydrogen storage and dispensing systems, which allow us to start using green hydrogen to replace hydrocarbons. Today, we use that system to power over 15,000 Fuel Cell propelled forklifts with plants to grow that number to 20,000 across 100 fulfillment centers by 2025. And that’s just the start. Across Amazon’s operations. We’re exploring and testing the use of other hydrogen applications, such as fuel cell electric trucks and fuel cell power generation stations, providing electricity to Amazon buildings.
forklifts are just one case for scaling hydrogen, and many more potential uses are under development. Hydrogen can be used as a fuel similar to natural gas or diesel through a combustion process. It can also be used in fuel cells, where hydrogen and oxygen mix in a reaction that creates electricity with no direct emissions of pollutants or greenhouse gases at the point of views. However, to help power Amazon operations, and meet their net zero commitment, more hydrogen powered equipment needs to be made commercially available. There supply agreement for hydrogen not only reinforces Amazon’s commitment to urgent climate action, but signals to the industry a need to expand the hydrogen economy. In a quote from Andy Marsh, CEO of plug plug is fully committed to a green hydrogen future and we are building a complete hydrogen ecosystem for molecule to applications combined with a resilient network of green hydrogen plants around the world to make hydrogen adoption easy for companies looking to reach net zero carbon emissions. Securing this major green hydrogen supply deal with a customer like Amazon affirms our multi year investment and strategic expansion into green hydrogen. We are honored to help Amazon meet its ambitious sustainability goals and look forward to possibly expanding our relationship through the use of other hydrogen applications such as fuel cell electric trucks, and fuel cell power generation stations that could provide electricity to Amazon buildings and the deployment of electrolyzers and fulfillment centers.
Now in addition to the supply contract with plug power, Amazon recently announced that it has invested in two companies developing electrolyzer technology to increase green hydrogen production. The investment is part of the climate pledge fund Amazon’s $2 billion venture investment program that supports the development of sustainable technologies and services. Amazon co founded the climate pledge and 2019 committee to reach net zero carbon by 2040 10 years ahead of the Paris Agreement. The Pledge now has more than 306 signatories, including Best Buy IBM, Microsoft, PepsiCo, Siemens, Unilever, Verizon and visa to reach their goal, they’re going to continue to reduce emissions across their operations. By taking real business actions to decarbonize their operations, the company is already on a path to power their operations with 100% renewable energy by 2025. Five years ahead of the original target of 2030. Amazon is also delivering on its shipment zero vision to make all Amazon shipments net zero carbon with 50%, net zero carbon by 2030. And purchasing 100,000 electric delivery vehicles from Rivian. The largest order ever of electric delivery vehicles. Okay, so really a big announcement by Amazon and a huge step forward for plug power. And it’s announcements like this that continue to push the hydrogen market into the mainstream media attention. And with this announcement, it’s almost a guarantee that other large companies similar to Amazon will also start investing in hydrogen.
This news was also good for Plug Power stock as they saw a $2.50 cent price bump and their stock price after this deal was announced making their stock price nearly double than that from a month ago. So again, big news from Amazon and plug and news that I think we’ll see a lot more of in the near future. But I do know the question a lot of people are asking, and that is does this make green hydrogen economic? Probably not. And Amazon will be paying a premium to use this technology and this kind of hydrogen going forward. But one, Amazon can afford it. And two, they’re in a great position to reap benefits later on down the road from this kind of investment. And lastly, a note from the Motley Fool about the Amazon deal. Amazon received a warrant to purchase up to 16 million shares a plug power stock. Amazon has the right to buy 9 million of those shares with an exercise price of $22.98 per share, which is based on the stock’s average closing price over the 30 days ending on August 23. The exercise price of the remaining shares will be determined based on future trading prices should Amazon’s warrant vest in full to do so Amazon will need to spend $2.1 billion over the next seven year period on plug powers offerings.
Next in an article from the Financial Times, Neil human rights Europe risks losing green hydrogen funding to the United States industry leader says Europe will struggle to meet its ambitious targets for green hydrogen and reduce its dependence on Russian gas unless it can match the lead of the US set by its new climate subsidies package this according to the executive leading the clean energy business of Australian billionaire Andrew Forrest, Mark Hutchinson, the recently appointed head of Fortescue future industries and former head of GE Europe, the funds to finance large scale green hydrogen projects could bypass Europe and flow to the US to take advantage of tax credits offered in Joe Biden’s flagship climate tax and healthcare bill known as the inflation Reduction Act. And his first interview since starting in July, Hutchinson said that if Brussels was serious about replacing Russian gas, it would need to improve its incentives. Otherwise, he says what’s going to happen? All the Green Capital is going to be flowing into the US and you’re going to miss out. Fortescue stuck a non binding agreement in March to provide Germany with enough green hydrogen to replace about a third of its gas imports from Russia, or about 5 million tonnes a year by 2030. Fulfilling that agreement involving Germany energy company Eon is a priority after first cracking the task of making green hydrogen at scale this again according to Hutchison, under a new energy blueprint dubbed repower EU, Brussels plans to use 20 million tonnes of the clean burning fuel by 2030. That will be split between 10 million tonnes of domestic production and 10 million tonnes of imports from countries with the potential to produce cheap renewable power, such as Australia, the Democratic Republic of Congo and Brazil.
While there are many large hydrogen projects planned for Europe, final investment decisions have been taken on only a few and part that’s a reflection of the need for greater clarity on regulation and subsidies to make green hydrogen cost competitive, as well as a lack of committed customers. Although the EU has announced plans for green hydrogen subsidies based on Contracts for Difference, a mechanism that has been used to transport renewable energy generation by guaranteeing a minimum price, it has yet to outline all the details. Unlike Washington’s concession to the oil and gas industry that will allow for hydrogen to be produced using hydrocarbon sources of energy for the hydrolysis. Brussels favors renewable energy under the so called delegated acts by 2026. It will only be permissible to use electricity from new wind and solar plants to generate green hydrogen. The US rules are more flexible using a scale to determine the level of tax credit for hydrogen projects based on the amount of carbon equivalent emissions for each kilogram produced.
Starting at the basic rate of 60 seeds per kilogram. This scale means that the clean hydrogen producers can receive tax credits of up to $3 per kilogram. Experts say the measures will kickstart a US nascent green hydrogen industry, but making it one of the lowest cost producers in the world. The cost of producing hydrogen on the Gulf Coast was $6.55 per kilogram earlier this month. This according to s&p global commodity insights. It will also make green hydrogen more competitive with the so called gray hydrogen, the most common form of hydrogen production. This process involves natural gas VSD methane reformation without capturing the emissions. s&p says the cost reduction makes the cheapest clean hydrogen production immediately cost competitive. Over the past year, Fortescue has agreed billions of dollars of green hydrogen supply deals, but has yet to start commercial production on the fuel. The US has changed the game set Hutchinson, they have created an industry out of nowhere, the US presently produces around 11 million tons a year of hydrogen, from natural gas for use in oil refining and the production of chemicals. Again, according to Hutchison, that’s all going to be replaced now, global hydrogen demand and 2021 was 90 million tonnes, this according to the International Energy Agency.
Okay, so some very real possibilities outlined here in the Financial Times about more investment coming to the US and pulling that money away from possible projects in Europe. And I think, as it highlights in this article, a lot of that really does just boil down to the incentive structures, and how they differ between the United States and Europe, with the US focusing on carbon intensity, and Europe completely cutting out hydrocarbons.
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