Paul Rodden • Season: 2024 • Episode: 303
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Welcome to The Hydrogen Podcast!
In episode 303, Babcock and Wilcox are showcasing the massive potential of leveraging their BrightLoop chemical looping technology for hydrogen production, and Germany is looking to decrease investment risk for their hydrogen vision. I’ll go over all of this and give my thoughts on today’s hydrogen podcast.
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Transcript:
Babcock and Wilcox are showcasing the massive potential of leveraging their BrightLoop chemical looping technology for hydrogen production, and Germany is looking to decrease investment risk for their hydrogen vision. 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’s 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 forbes.com, Ken Silverstein writes as demand heats up low carbon hydrogen production is near. Baton Rouge, Louisiana, is best known as home to the LSU Tigers, but energy experts will soon recognize it for its low-carbon hydrogen production, which will start two years from now. It will use biomass as a feedstock and produce 10 to 15 tons of carbon-negative hydrogen daily by 2029. Steam methane reformation—using natural gas—and electrolysis now produce nearly all hydrogen, requiring massive fuel consumption and electricity. However, the Baton Rouge plant has a technique called “chemical looping,” which uses an iron ore particle to separate the hydrogen from oxygen.
While coal, natural gas, or biomass are the underlying fuels, developers can capture the resulting CO2 and bury it or use it for enhanced oil recovery. “This technology has net-negative carbon intensity,” Kenny Young, chief executive of Babcock & Wilcox told me. His company is building the Baton Rouge-based hydrogen plant. “It is important to be flexible. Developing countries can’t revamp their entire grid. The cost is phenomenal. We must do this on a transitionary basis. A wide variety of fuels are necessary to drive the transition. In the long term, it is more cost-effective.” Chemical looping technology can help industries become sustainable. To produce hydrogen, the hot particle—the iron ore—enters a hydrogen reactor and searches for oxygen. Notably, the CO2 is isolated and captured.
The result is pure hydrogen—to fuel transportation, energy, and hard-to-abate industries. We won’t meet our 2050 carbon-neutrality goals unless we decarbonize industrial process heat. In contrast, electrolysis creates an electric current to split apart hydrogen and oxygen from water. If producers use clean resources to generate the current, the output is called “green hydrogen.” But that process is expensive, requiring mass production and a carbon penalty to drive down costs and increase the capital flowing into clean technologies. Separately, steam-reforming natural gas now generates most hydrogen, called “grey hydrogen.” It only uses natural gas. If the resulting CO2 releases are captured and buried, it is known as “blue hydrogen.” Grey hydrogen produced from fossil fuels now costs $1-$3 per kilogram, while renewable or green hydrogen prices are $3-$4 a kilogram, and in some cases, they are much greater. “Our company can produce clean hydrogen today at $1.50 per kilogram,” says Young. “The U.S. Department of Energy is aiming for $1 a kilogram.
We are already competitive with steam methane reformation or natural gas, which releases CO2 into the atmosphere. But we are net negative.” The enterprises inventing electrolyzers want to scale the technology, reducing the cost of green hydrogen produced from solar and wind energy. Once creators increase production, the cost of electrolysis will fall to $1 to $1.50 a kilogram. “But it is a question of timing,” says Young. “When does that happen, and when can the grid handle mostly renewable energy?” Babcock & Wilcox also uses chemical looping in Ohio and Wyoming. The Ohio plant will start producing hydrogen next year and use natural gas as the primary fuel. That plant will make 1 to 3 tons daily, which the industrial and transportation sectors will deploy. The facility in Wyoming will go live in 2028 and use coal. It will start producing 10 to 15 tons of hydrogen daily and gradually scale up, which utilities and transport companies will consume.
According to the International Energy Agency 2023 Global Hydrogen Review, low-carbon hydrogen projects are revving up: If all the announced deals come to fruition, annual production could reach 38 million metric tons in 2030. For that to happen, those projects need money. As for Babcock’s plants, they get some government funding. “We are taking steps to fast-track this technology to a commercial state,” says Young. “We will be as green as any project in the world.” Babcock & Wilcox’s fundamental premise is that the green energy transition takes time and that its technology is already practical. Electrolysis also has enormous promise. The upsurge in demand means low-carbon hydrogen generation is near.
To reach its potential, though, developers must scale up, driving down the costs of production, transportation, and storage. Okay, so BrightLoop chemical looping technology is getting ready to get kicked off in the US, and babcox and Wilcox look to be doing great things with their low carbon solution. It would seem like their technology is on the upper end of desirability, thanks to their landed price point being so low right around $1.50. And so with that in mind, I say congratulations to B&W. These projects they’re working on will help to build a hydrogen economy and set it on its proper path far into the future. Next, in an article in reuters.com, Riham Alkousaa and Markus Wacket write German coalition agrees financing details of hydrogen network.
Germany’s ruling coalition on Friday agreed a financing mechanism for the country’s future hydrogen network, extending a deadline for it to be built by five years to 2037 and offering protection for investors in case of bankruptcy. Many countries are betting on hydrogen, which can be used in part to replace natural gas, as they seek to decarbonise their economies and find ways to absorb intermittent renewable supplies into the power grid. Germany, which was heavily reliant on Russian gas until the Ukraine war began, is especially keen to shift towards hydrogen. The country’s core network for hydrogen fuel will extend over 9,700 km (6,000 miles) and cost around 20 billion euros ($21.6 billion), with existing gas pipelines making up 60% of the network. The energy policy lawmakers of the government’s three coalition parties on Friday agreed on the network’s details that will be discussed and are expected to be agreed by the lower house of parliament next week, the lawmakers said in a joint statement.
According to the agreement, the network should be in place by 2037 at the latest, five years beyond the original deadline to try to ease the financial burden for the operators, lawmaker for the Social Democrats Nina Scheer said. The project will be financed through user fees and built by private companies, and to encourage investment in technology that is in its infancy, the network operators will not be liable if one operator goes bankrupt, with a government guarantee of around 6.7% return on equity before taxes. The Economy Ministry has been considering what it refers to as an amortisation account to cover the network construction costs over a long period to avoid passing the full amount to current consumers, with plans to have the costs paid back by 2055. If, however, demand is weak and the market fails to take off, network operators will have to shoulder some 24% of the costs, the parties agreed. “The federal government is only partially liable in the unlikely scenario that the core network ramp-up fails,” the agreement said. The BDEW utilities lobby welcomed the agreement but said investors should be offered more security against the loss of capital.
“The litmus test will be whether or not actual investment decisions are made on the basis of the agreement,” Germany’s association of local utilities, VKU, said in a statement. Okay, so will Germany actually get their hydrogen economy funded and is federally funding the risk associated with these investments a good idea, it will certainly make the project economics more appealing by lowering the beta associated with the net present value calculation. But there is still quite a bit of risk built in. And it sounds like the German government is looking to lower the risk by around six to 7%. That being the return on equity before taxes, but in the modeling I’ve done on some of the projects we’re working on, I’m giving a discount rate of over 30 to be as conservative as possible.
These projects are risky, but the returns and cash flows make up for it over five years. So back to the first question, will a government backed reduction of risk of near a third be enough to entice investors in these projects? My guess is that it will, but only time will tell if German investors feel the same way.
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.
