July 03, 2023 • Paul Rodden • Season: 2023 • Episode: 227
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Welcome to The Hydrogen Podcast!
In episode 227, Today I go over the hydrogen technology expo and cover the most important hurdle the hydrogen industry is currently facing all of this on today’s hydrogen podcast.
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Respectfully,
Paul Rodden
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Transcript:
Today I go over the hydrogen technology expo and cover the most important hurdle the hydrogen industry is currently facing 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.
So to start off today’s show, I wanted to briefly go over the hydrogen technology expo conference I attended last week. It was really an amazing time getting to witness firsthand the growth this industry has experienced in recent months and years. From my vantage point, attendance felt substantially greater than I had known last year. I know that it was greater over 1000 in attendance from what I heard, but the booth traffic, the interaction with the speakers and panels, the conversations I heard walking around, there was a buzz there was an atmosphere that I have felt before but it was at much larger energy conferences like nape or IPAA, or the Esri conference in San Diego. People were excited to be there and learn about where this industry is moving. I was able to run into old friends like Trevor Best from Syzygy.
Their Booth was as excited as any and it was great to meet with the Woodside team and talk about their Oklahoma project and the hurdles they face as the project moves forward, as well as logistics surrounding the build of such a large hub. Now, as you all know, I was also able to sit down with Mark Klewpatinond and the incredible work he is doing with Exxon Mobil, Baytown, and around the world. But with that said, the most intriguing panel I attended was the financing the hydrogen sector discussion with Roxana Bekemohammadi with the US hydrogen Alliance, Tanya Peacock with EcoEngineers, Brian Hodges, with Aurum Capital Connect, and Sean Shaffer with Energy and Industrial Advisory Partners. Now as usual, Roxana had great insights into the policy and regulatory metrics at play regarding hydrogen financing. And Tanya with her background at Bloom and the California hydrogen Business Council, as well as her new role at EcoEngineers was really able to add depth and understanding to what Roxana brought up, Brian and Sean were both excellent at speaking to the financial markets in the current and near term markets around hydrogen financing. And one of the big themes surrounding the expo was the acknowledgement of the need to establish offtake agreements in order to secure financing.
And these two gentlemen really showcased that point, and to echo what they said, if you have a hydrogen project that’s ready to launch, it ultimately, doesn’t matter how good the economics look, if you aren’t able to provide proof of long term offtake agreements, banks will not provide capital to that project. That’s how important offtake agreements are right now. Now, one thing I was surprised about both in the financial discussion, and around the expo was the lack of derivatives discussions, I would have expected someone to ask the panel their thoughts on Synfuels or ammonia as a gateway path to getting debt sources more comfortable with investing in this space, ultimately de risking their investments in hydrogen. There was some brief discussion about Blue ammonia as a fuel source, but it wasn’t as in depth as I thought it should be. I believe that the derivatives market will be where we as a hydrogen industry make our biggest strides. And one other point that was made in the panel and again overheard several times at the expo that ties into offtake are the policies around carbon and hydrogen. Europe, the UK in the US have made major gains in promoting the development of hydrogen and so the hydrogen is eagerly waiting to be produced. But there’s a lack of incentives to users to switch from Legacy fuels and embracing hydrogen. The 45 E and the 45 Q tax credits in the US are doing their part in the hydrogen economy.
But we also need to extend incentives to potential off takers and get them excited to embrace hydrogen. So again, it was an exciting Expo and I had a great time. I’m looking forward to going again next year. Next in an article that really ties into some of what I just talked about Velda Addison writes in Hart Energy, hydrogens biggest hurdles, customers and demand. Addison writes with a shortage of electrolyzers. manufacturers need to scale fast to meet what is expected to be heavy demand for hydrogen due to its potential as one of the world’s top decarbonizing tools. However, if hydrogen producers haven’t reached final investment decisions, or fid on price projects, manufacturers can only do so much when it comes to turning out more of the equipment needed to split water molecules using renewable electricity. Those hands on securing offtake agreements. factors at play include demand and costs.
According to a panel of experts speaking recently at an energy and utilities conference in Austin, in the US clean hydrogen production for domestic demand has the potential to scale to about 10 million metric tons per year in 2030, up from less than 1 million tons per year today. This is according to the US Department of Energy’s pathway to clean hydrogen commercial liftoff report. In a quote from Tom Hellstern, associate partner from McKinsey & Co, if you thought that all that was going to come from Green hydrogen, there’ll be something like 60 gigawatts to 100 gigawatts of electrolyzer deployment. Let’s say half of it comes from Green hydrogen and half of it comes from Blue hydrogen, we’re talking 30 gigawatts to 50 gigawatts of electrolyzers. Globally, there’s only about 700 megawatts.
That’s with an M megawatts of electrolyzers. So this is an industry that probably needs 50 to 100x. To hit the types of targets the Department of Energy is talking about Hellstern is confident that the industry can rise to the challenge with policy and incentives now in place. The inflation Reduction Act, for example, includes the 45 E hydrogen production tax credit of up to $3, a kilogram of hydrogen, depending on the greenhouse gas emission intensity. Use mostly today in oil refining an ammonia production hydrogen has the potential to decarbonize sectors, such as steel, maritime and aviation, power, fuel cells generate electricity and serve as a transportation fuel displacing carbon emitting hydrocarbons. While most of the department is met today by hydrogen produced with natural gas as a feedstock. Hydrogen supplies with low carbon intensity are expected to rise lowering emissions in the US and abroad. electrolyzers are essential.
The question is whether there will be enough. Again according to Hellstern, when we look at the pipeline of hydrogen projects, there’s about 10 gigawatts globally that are fid or beyond. So expect 700 megawatts today, up to 10 gigawatts by 2025, or 26. Over 200 gigawatts have been announced by 2030. Globally, he says they don’t think that all that is going to be built. He says that they’re anticipating that this market is incredibly short electrolysis capacity for the foreseeable future, at least until the late 2020s. But what about off take? off take is among the hydrogen industry’s biggest obstacles. And a quote from Alex Panchula, vice president of products of Massachusetts-based Electric Hydrogen, which makes industrial scale hydrogen electrolyzers. In order for us to fill a factory for a capital intensive product like an electrolyzer, we need to have what is effectively firm orders and therefore we need projects that have firm offtake to receive those orders.
Plus, it takes time to see financial flows given electrolyzers can cost millions of dollars, depending on their size. Another limiting factor is the project’s ability to secure debt financing, which Panchula said could open a pool of capital and allow projects to grow exponentially. However, bankers are not yet comfortable with the risk adjusted returns in the emerging hydrogen industry, which lacks the maturity level of pure play wind or solar development. Again, according to Hellstern offtake, is critical and we don’t see enough of it. There’s actually more announced projects and hydrogen than we anticipate the demand to be. The market is in theory oversupplied of projects, but of course, not all of them are real.
The hydrogen industry announced more than 1000 large scale projects more than one gigawatt globally by the end of January 2023. According to the hydrogen Council, they announced projects require direct investments of more than $320 billion through 2030, only 29 billion has passed fid again Hellstern and said because there’s not a lot of electrolyzers deployed in the world, the financiers the infra equity firms, and the banks overall are thinking really hard about what are they willing to finance, what premium for the risk and how you pick your electrolyzer, which company you go with ends up being a really important factor for that.
Now getting cost down is another hurdle to overcome. A 500 megawatt electrolyzer requires about a billion dollars of CapEx. This according to Hellstern, bumped that up to 2 billion to 3 billion when you add in renewables electrolyzer projects also have EPC hidden costs. That’s engineering, procurement and construction. Bringing down construction costs on a 500 megawatt or one gigawatt scale project is an area of focus for electric hydrogen. Now, I’m gonna pull away from the article as it continues on with scaling and efficiency opportunities, because I want to focus on the offtake dilemma. How do we entice the usage of Hydrogen.
Well, obviously tax incentives will be critical, but costs also need to be lowered. But that brings me to something else. This article focuses in on electrolytic hydrogen to its detriment. Now, while it’s well researched and well written, the lack of inclusion from other hydrogen technologies highlights something in the hydrogen industry that we really need to discuss. And to set up that discussion, we need to step back from the infighting around which technology is best and understand something the oil and gas industry has had over 130 years to get where it is today, and renewables have had almost 50 years, the hydrogen outlook was aggressive three to five years ago with a target of 2050 to really be a large part of the global energy supply chain. That’s only 30 years. And with the turmoil in Eastern Europe, it seems that that timeline has been shortened further. So with that said, it’s becoming even more critical to embrace the different feedstocks and technologies as they will all help in decarbonizing our globe.
And if we can work together to push hydrogen forward, we can also work to develop in use opportunities that are economically viable derisk debt financing, and really build out a full supply chain for hydrogen.
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 would be a tremendous help to the show. And as always, if you ever have any feedback, you’re welcome to email me directly at info@thehydrogenpodcast.com.
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.
