February 13, 2023 • Paul Rodden • Season: 2023 • Episode: 189
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In episode 189, Forbes takes a deep dive into Linde. And Los Angeles decides they want all of the green hydrogen. All of this on today's hydrogen podcast.
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Forbes takes a deep dive into Linde. And Los Angeles decides they want all of the green hydrogen. 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's capital being deployed for hydrogen projects globally? 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 a cap. 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 an article in forbes.com, Guru focus writes Linde, a leading hydrogen growth stock Linde PLC, the world's largest producer of industrial gases, both by market cap and revenue is near or at the top of many of the markets in which it operates serving a wide variety of industries from healthcare to electronics, mining, and more. The industrial gas giant provides high purity and specialty gases, such as oxygen as well as state of the art gas processing solutions. The company's steady growth throughout its history has been due not only growth demand for its product, but also a superior business model. For large customers. Linde will build gas plants on site, which allows it to lock in contracts for 10 to 20 years that have built in rate increases, ensuring Predictable Revenue Streams. Nowadays, Linde is taking some of the profits from his solid business and ramping up investments and a new source of growth hydrogen, hydrogen has long been known as a promising source of alternative fuel.
But even though hydrogen fuel itself is clean burning, nearly all of it has historically been produced by light hydrocarbons via Steam methane reforming, that's set to change thanks to key technological advancements, which could make clean hydrogen viable at greater scale and more importantly, for Linde's investors produce the potential for double digit returns. Linde is investing in two main ways to reduce clean hydrogen. The first is by utilizing renewable hydro electricity to power electrolysis, while the second is via autothermal reforming with carbon capture. In 2025, the company plans to bring Niagara Falls hydrogen production plant online, the plant will use hydro electricity generated by the waterfall to produce hydrogen via electrolysis. The main drawback of this plant will be that it will be taking hydro electricity that could have been used for residential or other purposes. But even though the trade off will be too steep to implement this process on a large scale, it will be useful for producing zero emission hydrogen for smaller clients that Linde does not build for on site. Linde also has signed several long term agreements to produce hydrogen for large scale clients via autothermal reforming with carbon capture. Previously, competitor Air Liquide was the only company that had successfully combined these two processes.
Neither autothermal reforming nor carbon capture are new developments, but when successfully combined, they become one of the cheapest ways to produce low carbon hydrogen at scale. using renewable energy to produce hydrogen is overall an inefficient use of clean electricity with today's technology. So except in these cases where hydrogen is needed for industrial purposes, it is usually better to just use clean energy directly and save the unnecessary extra step. However, Linde happens to specialize in those limited use cases, where hydrogen is the preferred method of decarbonizing, like refining, steelmaking and fertilizer production. Approximately 24% of us co2 emissions came from industrial processes in 2020 is according to the EPA. So while industry is not the biggest market for clean energy, it is far from negligible. Using hydrogen power for things like transportation is less efficient than charging an electric vehicle on the grid from hydro electricity, wind or solar. But the appeal is its comparative off grid portability, and the natural abundance of hydrogen so hopefully, the conversion process can be made more efficient in the future. And so according to markets and markets research, the hydrogen generation market is expected to grow at a compound annual rate of 10 and a half percent through 2027.
Combined with incentives from the US inflation Reduction Act, which cuts the cost of green hydrogen in half, and brings the cost of blue hydrogen in parity with gray Linde has high hopes for its investment in hydrogen. Hydrogen currently makes up less than 10% of Linde's revenue. And while the company has not provided much concrete guidance on what it expects from hydrogen earnings growth, the company has reported it is allocating more than $33 billion to clean energy investments, most of which are related to hydrogen to provide scale on how huge These investments are. Linde's trailing 12 month revenue is $33.7 billion. The company insisted these are not speculative investments, and that it will only move forward with them if expected returns are in the double digits. And so with a price earnings ratio of 42, and with a gf value assessment of fairly valued, the stock does appear to have a valuation between fair and premium at the moment. However, the fundamentals are strong as shown by a GS score of 91 out of 100. According to a historical study by Guru focus, stocks with higher GS scores tend to outperform stocks with lower GF scores. Previously, Morningstar Analysts had expected the company to achieve a three to five year revenue growth rate of 9.44%. So it seems very possible the investments in hydrogen and other clean energy could push the revenue growth rate into the double digits. Alright, so a really good look at the behind the scenes of Linde and a little bit of their thought process in investing in hydrogen projects.
Now, I've had the pleasure of talking with Linde several times on the hydrogen landscape and have gotten a peek at some of their projects that they're looking into. And with everything that I know that they're going to be pursuing in the next few years, I think seeing double digit growth revenue is highly possible. Next, in an article in the LA Times Sammy Roth rights, LA is shutting down its largest gas plant and replacing it with an experimental hydrogen project. The Los Angeles City Council voted unanimously Wednesday to move forward with an $800 million plan to convert the city's largest gas fired power plant to green hydrogen, a first of its kind project that was hailed by supporters as an important step to solve the climate crisis but slammed by critics as greenwashing boondoggle that will harm vulnerable communities. Council President Paul Krekorian described hydrogen as crucial to meeting LA's goal of 100% clean electricity by 2035. He's quoted as saying it was widely seen as being an impossible goal.
And we're now on the precipice of achieving that. The vote authorized the L.A. Department of Water and Power to begin the contracting process for revamping Scattergood Generating Station, which sits along the coast near El Segundo. DWP plans to install turbines capable of burning large amounts of hydrogen, which was never before done on such a large scale. The fuel would be produced from water with renewable electricity from solar panels or wind turbines, for instance, splitting h2o molecules into hydrogen and oxygen atoms. The city utility hopes to ultimately convert its other gas plants to hydrogen as well. Harbor and Haines farther down the coast and valley generating station in Sun Valley. Those facilities wouldn't be fired up often, but they would help Los Angeles keep the lights on
during times when there's not enough solar power and wind power to go around, such as hot summer nights. The city's ultimate goal is burning 100% Green hydrogen, but DWP officials have acknowledged that the technology might not be ready right away. That means the initial fuel mix might include more planet warming natural gas than hydrogen. Jason Rondou DWP is director of resource planning told The Times that Scattergood should be able to burn at least 30% Green hydrogen on day one, the same percentage of the utility is targeting at its coal fired intermittent power plant in Utah. There's a lot of things that need to be figured out over the coming years. This is according to Rondou. That uncertainty helps explain why many climate and environmental justice activists opposed Wednesday's City Council motion and public comments before the vote critics from groups including Communities for a Better Environment Pacoima beautiful and the Sierra Club noted that although hydrogen doesn't produce planet warming carbon emissions when burned, it does generate lung damaging nitrogen oxide pollution, much more than gas, at least using current technology.
That's especially problematic for low income communities of color that have already suffered from years of hydrocarbon pollution. Communities like those around DWP is Valley Generating Station, which were forced to live with a years long methane leak. Other activists pointed to the risk of explosions from hydrogen leaks enter the research finding that hydrogen can worsen climate change in the short term, if too much of it leaks from pipelines before it's burned. They also raise the possibility that DWP is experimental green hydrogen project could fail leaving la stuck burning natural gas when the city instead could have invested more heavily in battery storage, energy efficiency and other strategies to ditch hydrocarbons while keeping the lights on. After hearing from opponents and supporters. The council voted 12 to zero to move forward with a hydrogen plan, but only after approving a separate motion that newly elected council members Traci Park and Katy Young Yaroslavsky said would require DWP officials to more closely examine alternatives and to more robustly engage with communities near the gas plant.
It's not yet clear though whether the city council would be able to stop the Scattergood conversion if something goes awry, cost spiraling out of control, for instance, or an ability by DWP to reduce nitrogen oxide pollution from burning hydrogen. further steps and the contracting process must be approved by the DWP board whose members are appointed by the mayor, the city council can override those decisions, but only with 10 supporting votes from the 15 member council, a high bar to clear. Ok so a big jump by Los Angeles into becoming a consumer of hydrogen. And I'll be honest, I have a lot of concerns about this project. The first is that California already has a power problem. And I'm not sure that shutting down a natural gas generating station to use hydrogen is the best course of action right now.
Now, I'm not saying that's not a good potential in five to 10 years. But right now, they probably need to ensure grid stability before tackling their decarbonisation goals. But that being said, there are a few things in this article that I do agree with. The first is that they're not necessarily shutting off natural gas and turning on hydrogen combustion, they're doing a mixture. But I will also say that a 30% mixture of hydrogen, just like the inner Mountain Power Project is a lot. And I'm sure there are a lot of looming questions as to just how they're going to get hydrogen to this facility. But with that being said, I know there are several projects in development for hydrogen in various stages of development in California. And so this may be a case of everything being developed and finished just in time to be used when these power stations come online.
Alright, that's it for me, everyone. If you have a second, I would really appreciate it. If you could leave a good review on whatever platform it is that you listen to Apple podcast, Spotify, Google, YouTube, whatever it is, that will be a tremendous help to the show. And as always, if you ever have any feedback, you're welcome to email me directly at firstname.lastname@example.org. And as always, take care. Stay safe. I'll talk to you later.
Hey, this is Paul. I hope you liked this podcast. If you did and want to hear more. I'd appreciate it if you would either subscribe to this channel on YouTube, or connect with your favorite platform through my website at www.thehydrogenpodcast.com. Thanks for listening. I very much appreciate it. Have a great day.