Paul Rodden • Season: 2024 • Episode: 302
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Welcome to The Hydrogen Podcast!
In episode 302, Japan goes over the top in investing in hydrogen aviation. The US Treasury listens to 10s of 1000s of three pillar comments and Chart Industries should be very proud of their latest stock rating. I’ll go over all of this and give my thoughts on today’s hydrogen podcast.
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Paul Rodden
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Transcript:
Japan goes over the top in investing in hydrogen aviation. The US Treasury listens to 10s of 1000s of three pillar comments and Chart Industries should be very proud of their latest stock rating. I’ll go over all of this and give my thoughts 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 interesting engineering Rizwan Choudhury writes, Japan invests $33 billion dollars for its new in house hydrogen passenger jet.Japan has unveiled a new vision for developing its next generation in house passenger jet after delays and a troubled setback last year when a privately led venture was discontinued. The new project marks a nationwide effort spearheaded by both public and private sectors, this cutting edge aircraft aims to incorporate new environmental technologies like hydrogen fuel or hybrid electric propulsion systems. In an official statement, the Ministry of Economy Trade and Industry emphasized its dedication to decarbonizing the air transport sector, saying it is important for us to build next generation aircraft based on technologies where Japan is competitive, while also contributing to the decarbonisation of air transport.
As AFP reports in a meeting with industry experts, and economy ministry officials outlined the target completion date of post 2035. To achieve this ambitious goal. A significant investment of 5 trillion yen or $33 billion will be allocated over the next decade fueling research and development of the new passenger plane. This latest endeavor seeks to establish Japan as a leader in passenger aircraft production, a position that hasn’t held and over half a century building on challenges that Mitsubishi Heavy Industries or MHI encountered which canceled its long delayed passenger jet project in 2023. The new public private consortium strongly emphasizes clean energy, and a quote from Kazuchika Iwata, the State Minister for Economy trade and industry says for the Japanese aircraft industry to achieve sustainable growth we cannot stay satisfied with our position as parts supplier.
Taking the lead on carbon neutral technology initiatives like hydrogen propulsion will be key to securing a prominent position for Japan in partnership with other global players. Hydrogen Fuel is a promising alternative prospect due to its lack of carbon emissions aligning seamlessly with Japan’s 2050 netzero pledge. However, critics raise questions about the feasibility of green hydrogen without a reliable supply chain sourced from renewables. Edward Bourlet of CLSA Japan, an analyst who also follows MHI noted the significant cost and complexity of the company’s previous jet project. He believes this new consortium approach while reducing individual risk may present coordination challenges. Despite potential obstacles, the vision for a hydrogen powered aircraft holds immense promise and if successful, this project will contribute significantly to environmental sustainability and position Japan as an industry leader in a rapidly evolving sector.
Okay, so $33 billion dollars, that is a staggering amount of capital to invest over 10 years. But as a follow up to our last podcast, the aviation industry is desperately looking to hydrogen to decarbonize their sector, and it would seem that the US and the UK are well ahead in this space, with Japan playing catch up. Now, obviously, just throwing money at a problem won’t fix it. But if I’ve learned anything, it’s not to discount Japan’s industrial nature, if they truly want to lead the hydrogen aviation market. I can’t imagine a better starting place with this amount of capital backing them up.
Next, in an article in Politico, ARIANNA SKIBELL writes, Treasury gets an earful on hydrogen. The Biden administration’s effort to jumpstart the hydrogen power industry has sparked a heated debate over what constitutes clean hydrogen, a question that has generated as many as 30,000 answers. That’s so many comments the Treasury Department received on its draft rules for how hydrogen companies can qualify for generous tax credits included in President Joe Biden’s signature climate law. This according to Christian Robles, the agency held its first public hearing on the rules last week were industry players and environmentalists duked it out. A major point of contention emerged are on treasuries proposed requirement that companies use new low carbon energy sources rather than existing generators to make hydrogen fuel, while hydrogen is by definition carbon free it takes energy to make energy, meaning the gas is only as climate friendly as its production process. The bulk of hydrogen energy produced in the US today is extracted from natural gas, which releases planet warming pollution into the atmosphere.
The Biden administration’s goal is to produce 10 million metric tons of hydrogen fuel annually by 2030, using new solar, wind or other renewable power. The rationale is that using electricity from the grid without adding new clean power to meet the increased demand would boost hydrocarbon use. But critics of Treasury’s proposal say the requirement threatens to kneecap the nascent industry, it could, for example, stymie the use of nuclear energy, which is carbon free to produce hydrogen. This is an argument by Dorothy Davidson, the CEO of the Mach h2 Hydrogen hub. Building new nuclear reactors is too expensive and takes too long to be worth it for her company, which is in negotiations with the Energy Department for up to a billion dollars in federal funding.
Another company’s CEO Andy Vesey of Fortescue Future Industries, said the requirement to use new clean power sources would take five years or more to fulfill delaying operations and increasing costs by 20%. Still, at least four companies have said they plan to move forward with major hydrogen projects that comply with Treasury’s rules. This according to Erik Kamrath, a hydrogen advocate for the Natural Resources Defense Council, that’s enough to produce 6 million metric tons of clean hydrogen, according to the White House. Okay, so another follow up to the Treasury hearings from last week. And to know that 30,000 comments came in against the proposed three pillars is going to be hard to ignore.
Now only time will tell as to just how much of a change will occur for the 45 V tax credits, if any, but I will say this keeping the guidance as it currently stands will be a massive setback for the US hydrogen economy and will allow other nations to get a massive lead and hydrogen production and exports. And lastly, in an article in The Motley Fool Billy Duberstein writes, Wall Street thinks this hydrogen stock could double or triple and it could just be the start. The exciting energy transition market isn’t just relegated to electrification. The concept of a hydrogen fueled economy is on the rise, especially after the US government ordered $7 billion in funding for seven regional hubs across the US in October last year. In fact, hydrogen is getting popularity across the world, especially for industries that are hard to electrify like heavy industry or long haul trucking.
That’s because hydrogen is a zero carbon fuel that only emits water as a byproduct. And it’s also a baseload fuel, which means it can be stored and transported. That’s unlike solar and wind which only produce power when the sun is shining or the wind is blowing. One company feeding on the nascent hydrogen economy is equipment supplier chart industries. And while the company had a better than expected earnings report last month, it received a solid string of positive news in March as well. Chart is still well off It’s late 2022 highs when it announced the acquisition of a similarly sized peer Howden, from a private equity firm. Chart used a large amount of debt to buy housing and its stock plunged in the aftermath.
However, it appears from last quarter’s earnings report that after one year after it announced the Howden deal chart is executing on its promised revenue and cost synergies. On March 11, Ratings agency s&p global upgraded charts secured debt from a B plus to a double B minus and it’s unsecured notes from a B to A B plus. That may not seem like such a big deal after all, a double B minus rating is still non investment grade rating. However, crossing from a B plus to a double B minus does bring chart secure debt up from a highly speculative category to a non investment grade speculative, the category upgrade means chart could potentially see greater demand for its debt and lower costs of refinancing.
It also means the threat of the debt load which caused the stock to plunge in the first place is lessening and that means less risk for equity holders on that note, chart stock also received an upgrade last Tuesday from analysts at UBS an upgrading chart from a neutral to a buy rating. UBS analyst Manav Gupta sees chart bring in $600 million in free cash flow this year, lowering its debt from 3.7 billion to 3.1 billion by the end of 2024. Once Chart has paid off a sufficient amount of debt Gupta says chart could see its multiple double or even triple. You heard that right a double or triple just for margin expansion alone and that makes sense as charts stock was essentially cut in half when it announced the Howden acquisition. But given that chart now benefits from howdens earnings the combined company actually has more earnings power than before. So its valuation multiple actually compressed by three turns as again according to Gupta thus the market getting over its fears over charts debt load would allow the stock to undo its post acquisition multiple compression leading to healthy gains for the stock.
And while chart had been known as an equipment supplier primarily to the oil and gas LNG and traditional industrial gas markets in the past, it is quickly becoming a leader in the high growth hydrogen economy as well. Just last week Chart announced two big hydrogen wins. On March 18 charter announced it was awarded a large hydrogen equipment order from element resources which is building out a 20,000 ton per year green hydrogen facility in Lancaster, California. And the press release element said quote, We are pleased to have a supplier that designs engineers and builds in house essentially all of the hydrogen liquefaction storage and handling equipment which significantly simplifies the procurement construction and operation of the plant and facilities.
This statement speaks to chart’s current competitive advantage and the endorsement of the Howden deal, which gave chart a complete portfolio of both sitting and rotating hydrogen equipment, thereby allowing it to provide these easy turnkey solutions for customers rather than just being a supplier of one off pieces and equipment. And then on March 20 chart announced a collaboration with gaslog LNG services, a liquefied natural gas transporter to study the build out of a global liquid hydrogen supply chain. In particular, the collaboration we’ll look at the export of hydrogen from plants in the Middle East to export markets in Europe and Asia. Okay, so great news for those of you looking to invest in chart.
Now, keep in mind, I’m not here to give investment advice, but I will say this, we had Jillian Ivanka on the show a few months back, and after talking with her, it’s no wonder why the company is flourishing the way they are. She has shown great leadership and chart has been making all the right moves to showcase their prowess and supporting the hydrogen supply chain. So congratulations to Jillian and chart. This is great news. And I’m excited to see where you go from here.
All right, 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 podcasts, 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. So until next time, keep your eyes up and honor one another.
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.
