March 20, 2023 • Paul Rodden • Season: 2023 • Episode: 198
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In episode 198, North America rolls out its first hydrogen train and have investments in hydrogen stalled? I'll go over all of this on today's hydrogen podcast.
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North America rolls out its first hydrogen train and have investments in hydrogen stalled? I'll go over 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 an article in Smithsonian Magazine, Molly Enking writes North America's first hydrogen powered train will debut this summer. Molly writes this summer North America's first zero emission train will start running in Canada. The hydrogen-powered Train de Charlevoix will run a 90-minute route between Parc de la Chute-Montmorency, the site of an almost 300-foot waterfall located just outside of Québec City, and Baie-Saint-Paul, a picturesque riverside town known for its art galleries and local food scene, reports the Independent’s Joanna Whitehead. Developed by the French company Alstom, the train has been in the works for a decade.
The project is a triumph for North America, though European countries beat Canada to the punch: Germany started testing the world’s first hydrogen-powered passenger trains in 2018, going on to roll out a fleet in 2022. The German Coradia iLint trains, also made by Alstom, can reach speeds of 140 miles per hour. A single tank of hydrogen can last for more that 600 miles. Germany’s trains are a “model for the rest of the world” and “a milestone on the road to climate neutrality in the transport sector,” said Stephan Weil, president of Lower Saxony, last summer, per CNN’s Julia Buckley. Canada’s Train de Charlevoix will reach speeds of up to 85 miles per hour, while emitting only water vapor, reports Afar magazine’s Bailey Berg. The trains are powered by combining hydrogen with oxygen. Particularly in Europe, electric trains are becoming an increasingly common sustainable alternative to diesel-powered trains. But as Smithsonian magazine’s Sarah Kuta wrote last year, electrifying train lines can be a challenging and expensive solution, sometimes making hydrogen more realistic. According to a statement from Alstom since 2018, its hydrogen powered trains have traveled more than 100,000 miles across eight European countries.
Now, the company is positioned to expand across the Atlantic, and a quote from Michael Keroullé, president of Alstom Americas in a statement with only 1% of the network's electrified in our region. This technology will provide an alternative to diesel. This project will demonstrate our capabilities to provide more sustainable mobility solutions to customers, agencies and operators as well as to passengers. It will also provide an extraordinary showcase for Quebec'sa developing green hydrogen ecosystem. service on the trains will begin on the morning of June 17. Starting in Quebec City, the train will stop at seven Riverside towns on the way to Bay St. Paul, which will reach in the late afternoon. So ok, this is some very exciting news for Canada, and that they get to be the first country in North America with a hydrogen powered train. Now I know for a fact that there are some companies here in the US that are working on getting hydrogen powered trains on us rail. Now one of the interesting things I think about trains, especially freight trains here in the US is that they are already electric, but they're diesel electric, meaning it should be pretty easy to swap out a diesel generator for a hydrogen fuel cell system, and with what I believe will be more micro hubs popping up across the United States.
Refilling a hydrogen powered freight train should be relatively easy. Next, in an article from hydrogen insight, Agnete Klevstrand writes not a downturn. Hydrogen investment has slowed in 2023. Despite huge appetite from investors. Agnete writes investors want to plow money into clean hydrogen facilities. But there's a lack of investment targets available due to permitting and regulatory constraints on existing projects. This coming from a senior analyst to hydrogen insight. Last year saw record levels of investment in the hydrogen space $5.7 billion in the first 11 months of 2022 more than 50% growth year on year. This is according to market analyst PitchBook with money going into everything from early stage startups to more mature infrastructure companies, but so far and 2023 Hydrogen related funding tracked by hydrogen insight is far behind the pace of hydrogen investments last year. Peter Gardett Executive Director for research and analysis at s&p global commodity insights, agrees that hydrogen financing has been slower this year, but says quote, I think it would be unfair to characterize it as a downturn. He continues to say there was a major rush to capital allocation last year, as the implications of the IRA became more widely known. And now there's a positively frenetic effort underway to get projects sufficiently ready to put that capital to work.
As green hydrogen projects are still waiting for rules around subsidies to be signed off in the US, the EU, UK and elsewhere, developers are largely waiting to take FID's but Gardett does not believe the lack of clarity over financial support is slowing investment. He says the pace of fundraising for hydrogen in particular, but across all energy transition investment areas has far outpaced the amount of available projects to invest in. He continues to say several funds were raised in the idea that they'd be able to allocate capital towards Construction and Engineering quickly. But the fact is that often the road just to get to fid on projects of these size is generally counted in years. When raising funds that have a traditional five to seven year investment horizon. There are simply not enough hydrogen projects that could reasonably finish in that amount of time to justify maintaining the late 22 pace of fundraising Gardett believes that regulatory uncertainty from the EU and lack of details on the US Ira are not likely to hold investors back. He says the legal clarity from EU and the details on the IRA credits would be helpful, but investors have demonstrated they're more willing to act in advance of government actions if they think a market is emerging. He also says the issues here are technical constraints on large projects, including the regulatory hurdles involved and permitting new physical infrastructure more than anything. He also adds that inflation may play a role in slowing down development.
As some project developers wait for renewable costs and labor costs to come back down before beginning construction. But for now, that is a theoretical issue for most projects. There's simply too early in the scoping and planning stages to even begin thinking about that. The constraints here are simply the scale and complexity of large projects, as the precede follow on financing will be raised and project financing arranged. And that will be a better test of capital availability for hydrogen. He finishes by saying I have heard some project financiers say that the cost of renewables today is high enough, in part because of competition from power producers, that hydrogen from natural gas was CCUS outcompetes, hydrogen from renewables. But they're hesitant to invest in a natural gas drive technology, because of the extreme price volatility overall, that may be slowing down their investment as they look for renewable cost declines to resume again, but it is not in the main factor.
Okay, it's really a great article and a great interview from s&p and hydrogen insights. And really, what I want to focus in on here is this last paragraph, because it's something that I've talked about before, but it's been quite a while. And that's the price volatility of natural gas, especially in terms of methane reformation for hydrogen. And what can be terrifying for an investor right now is looking over the last two years of natural gas prices, when roughly about May of 2021, natural gases spiked and continue to spike until September of 2022, when the price reached $9.95 per MCF. Now that price point is back down, where as of this recording, it's $2.34 per MCF. That's quite a bit of volatility over the last two years. But I think we can all agree that the last two years were quite a bit of an anomaly. But there are other options also on the table. For instance, micro hubs that I talked about earlier, could include project investments from natural gas operators, when they decrease their price for their natural gas and order for Project buy in.
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