Decarbonising the Energy Sector with Hydrogen

Decarbonising the Energy Sector with Hydrogen

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Gareth Baker: Welcome to the Natural  Resources Forum and Sparkland and   Stock Exchange Issue of Services  Platform. My name is Gareth Baker,   I am a Partner at Gowling WLG and I am also the  Co Sector Leader of our Global Energy Sector Team. Today, I am delighted to present a discussion on  decarbonising the energy sector with hydrogen.   Well, I am joined by three speakers: Tom Bruton,  who is the CEO of TCRK Energy; Graham Cooley,   who is the CEO of ITM Power; and Richard Hulf, who  is the Managing Director of HydrogenOne Capital. Now before we jump into the speakers, there has  been an awful lot of interest in the hydrogen   market, which is perfectably understandable.  There is a huge opportunity and it seems a  

very rapacious demand. But it is worthwhile for  those coming up to the sector for the first time,   just reminding the group, or educating the group  as to the different types of hydrogen that exist   and some of the colours, that I will shortly  mention, may well come up in the discussion. So green hydrogen is the process of producing  hydrogen through electrolysis of water   which is split into hydrogen and oxygen; blue  hydrogen uses natural gas stream afforming where   there is separation into hydrogen and CO2 and  then that CO2 is subsequently captured and stored;   grey hydrogen is a similar  process to blue, however   once that process is done the CO2 is not captured,  it is instead released and turquoise hydrogen   is where natural gas is broken down using  methane pyrolysis into hydrogen and solid carbon. So, following that run through of  several colours of the rainbow,   so now I would like to move onto our first speaker  which is Tom. Tom is the CEO of TCRK Energy and   Tom is going to talk to us about blue hydrogen  and its role in the transition. Over to you Tom. Tom Bruton: Yes, hi. Our interest in blue  hydrogen stems from a starting point.  

We are involved in the gas sector mainly  in Africa and Mozambique principally   with a couple of places in the Middle East.  We, in 2017, set about looking at what next,   what if you were developing your gas resources?  What was the direction of the industry? So talking to regulators and buyers and around  the world, it was clear that there was a shift   in the energy matrix and it was looking  more and more likely that that shift   was towards hydrogen and that has been proven  over the last three or four years. There   has been a huge move towards hydrogen and  being hydrogen ready. If that was the case,   how were we going to position in the market?  If our first gas was coming on stream   in 2026/2027, our long term contracts will  finish in 2035, if the market has moved to   hydrogen at that stage and we do not have  a strategy, how do we deal with this? So we start looking at blue hydrogen at that  point. So, in looking at blue hydrogen you have to  

look at the ability to produce blue hydrogen under  steam methane form. This is not new technology,   it has been around for about 50 years. What  we are looking at is an enhanced form of   steam methane reforming which allows us to capture   power more efficiently, much earlier in the  process. Actually to end up with a usable   carbon rather than carbon which is just going  to sink into the ground, back into the ground.

The next issue is developing shipping and  transportation solutions because, in hydrogen   today, these solutions do not exist. So for the  last two or three years we have been designing   ships that will transport hydrogen and deliver  the hydrogen to the markets that require it.   The first two ships that we have designed  have gone to the classification societies   at the moment for approval in principle  before they will go to the ship yards. And then it is looking at key markets. The two  key markets that we are looking at are the UK   and South Korea. The UK has positions of low  hydrogen as part of its energy mix going forward.  

They were announced in the UK several SMO plans we  would slights disagree with the SMO plans in the   UK because the baseline economics. The better  decision from the UK government. The second   market we will focus on is South Korea.  South Korea's hydrogen economy pathway   is probably one of the that's better to find than  most governments, they have a very clear pathway   to where we are trying to get and it is focused  around fuel cell electric vehicles and they have   a plan to go from where they are today which is  roughly 200 hydrogen charging stations 2024 / 2050   hydrogen charging stations and to do  that they will need five million tonnes   of hydrogen per year and of that there are five  million tonnes, roughly 50% will be imported   and blue is always part of their mix,   so yes they are looking at green and yes they  are looking at turquoise, grey, but blue as   one of the elements of the energy mix will  always be there. So that is our starting point   but a lot of the technology that we are developing  is agnostic about the current hydrogen itself   because it still needs to shipped, it still needs  to be distributed and that is where our focus is. Gareth: Great. Thank you very much. Tom  I suspect that there is some … certainly  

I have got some questions arising from that  summary but I was proposing next that we talk to   Graham and Graham perhaps … well … first of all  I will introduce you. Graham is the CEO of ITM   Power and Graham ITM Power is a name that has come  up very often in the hydrogen story getting a lot   of coverage. It would be interesting if you  could talk a little bit about ITM Power, its   positioning, how it has developed and to get your  perspectives on the hydrogen market going forward. Graham Cooley: Thanks very much for having me, so   I am Graham Cooley, I am the CEO of ITM  Power. I have been the CEO now for 12 years.   I have background in the power industry  so I was development manager at National   Power and then International Power and in  particularly concentrating on energy storage so   I've worked in super capacity that is  batteries, flow sills, fuel cells and hydrogen,   so a 35 year journey for me personally and ITM has  been designing, researching and now building and   operating electrolysis equipment for the last  20 years, so it is not new industry for us. We moved in the first Monday of this year to the  world's largest electrolyser factory which is a   capacity of 1000 megawatts, 1 gigawatt per annum.  We have a backlog of projects now of 124 million.  

We tendered over the last 12 months  £435 million worth of capital equipment. In October we raised £172 million   on the London stock market. That was  two and a half times oversubscribed   and actually we had a phenomenal response from  capital markets and I would say that the capital   markets have a really deep understanding of  hydrogen and its use in the energy transition. We announced a couple of weeks ago the  sale of the world's largest electrolyser   which is going into the NUON chemical  park in Germany, a 24 megawatt machine.  

We have been working with Orsted  and Phillips 66 in the Humber side,   we are doing a front end engineering design for  100 megawatt electrolyser and was delighted,   only a few days ago now, to see the announcement  from Shell that they are expanding out 10 megawatt   project which is at the Rhineland refinery to 100  megawatts in size and I would point out that 10   megawatts at the Rhineland refinery makes just 1%  of the hydrogen that they use at that refinery. In terms of the market side and what the entry  markets are and the way that ITM have used this,   we formed a partnership 18 months ago  now with Linde, so Linde are the world's   largest speciality gases company and the world's  largest EPC contractor in the area of grey,   and we formed a 50:50 joint venture  with them and we bid with them into   the industry that is replacing grey hydrogen with  green hydrogen so refineries ammonia and methanol,   metal streaming, and so on. And as  I say working very closely with them   with the £435 million of equipment. That number  is a number we have put out for tonnes a year  

and it is actually a very good measure of activity  in the market. These are not press releases,   they are international commercial tenders and we  bid against them on fixed price quotations which   means that there have been a lot of engineering  work involved in specifying on some projects.   With a platform we used for Shell product we did a  2 megawatt module, we are now moving to 5 megawatt   modules we worked with Linde on pre-engineering  20 megawatt trains and we put those 20 megawatt   trains together to bid for turnkey plants  at 100 megawatt level and we are bidding now   absolutely on a regular basis 100 megawatts in  scale, so if you go back ... periodicity action   is about two and a half years, if you go back two  and a half years everything we were bidding was   at 10 megawatt level. You go a couple of years  before that it was at 1 megawatt level and now  

we are seeing press releases about gigawatts  scale electrolysis plant. So we have a modular   technology, modules are at 5 megawatt level. They  are of a magnitude larger than the modules that   are used in a battery plant for energy storage,  of course they are somewhere around the 44 watts   in size. So I mean an amazing time for green  hydrogen right now. You will have seen the   announcement on 8 July 2020 from the EU and  that announcement was that they are backing   green hydrogen, 15% of the one trillion euro green  recovery so 150 billion is for green hydrogen, 100   billion that's 10 billion a year for ten years for  CFDs, which bridged a gap between green hydrogen   and grey hydrogen and today in Europe we  used 400 terawatt hours of grey hydrogen,   mainly ammonia refineries, production  of methanol and some metal streams.

So just a final point refineries look like  they are entering the market right now.   The reason that refineries in the entry market  is because all refineries in Europe were included   in the renewable energy directive and there  is an obligation on refineries to make 14%   of their product renewably over the next  decade. So if you look at that market,   it's a huge market. As I said 10 megawatts at  the Rhineland refinery is 1% of the hydrogen   so that refinery needs a gigawatt  electrolysis to decarbonise the hydrogen   and that's just one refinery  of one oil and gas company. Gareth: Great. That just really does illustrate  the size of the opportunity that is out there,   and as you say, it's a fantastic time  for everyone involved in green hydrogen   as well as the broader market.

Our final slot is with Richard Hulf. Richard is  the co-founder of HydrogenOne. HydrogenOne is   a fund that will be investing in the hydrogen  market. Many different aspects of it. Richard   it would be get your perspective, the investor's  perspective on where the opportunities are   for investment and give a sense of where those  are both in the short, medium and longer term.

Richard Hulf: Yeah thanks for that introduction.  My name is Richard Hulf. I am the co-founder of   HydrogenOne Capital with my partner JJ  Traynor. We set this business up last year   as a company that will launch funds now  and over the next few years that will   invest exclusively into the hydrogen space and  that will be listed companies, like Graham's,   there will be private companies as well. There are  as many of those as there are listed companies,  

in fact more. We will invest into electrolyser  makers, fuel cell manufacturers, the sort of the   core builders of the sector and as the sector  builds out into transportation, into storage,   into a vast number of applications. The reason  that this sector has really kicked off and if you   look at the sort of hockey stick performance of a  lot of the listed shares over the last few years   that have been around a long time and know what  they are doing, they have been at this for years,   but the thing that has really changed more  recently is legislation, global action by a   number of governments around the world and the  UK is a little bit behind Europe and a number   of other locations that are forging ahead to ban  the manufacture of internal combustion engines as   we know by in the UK that isn't a particular  long a way in industrial terms and then you   have got the existing uses of hydrogen that  Graham already mentioned that, you know, as a   hydrogen use and desulphurisation in the refinery  sector, in a molar production which feeds into   the fertiliser manufacture around the world into  a reducing agent in the steel sector and at the   moment that's all grey hydrogen, it comes from  steam reforming as we were talking about earlier   which is a very polluting process and in a lot of  locations where this is going on all the companies   that are involved in this activity have made  commitments to go to, to net carbon zero by 2050   and to make big efforts to do that before. So,  as an investor there is a market there right now  

in the decarbonisation of the existing industry,  so at the moment we are producing about 70 million   tonnes a year of hydrogen and that's all got to  become blue and green. So there is a ready market   to invest into and some of the projects that  Graham mentioned are already doing that. So,   and the green part of this sector has really  become active because of the massive growth   in wind and solar power which is available around  the world and in particularly in Northern Europe   when we are well positioned in the UK and in  Northern Europe to utilise wind power to make   green hydrogen and that goes hand in hand  with the Paris climate ambitions to achieve   net carbon zero and to reverse the pollutions that  we have already made, so you've got a very fast   growing market which is underpinned by legislation  with a large number of participants that have   already been at this for years who know what  they are doing so it's ready to invest, that's   what makes the sector so interesting. Then beyond  the conversion of our existing hydrogen sector,   hydrogen as a carrier, as a fuel itself is  growing in itself and if you just even look   at the European Commission's plan to get to this  40 plus 40 gigawatt capacity of electrolysis   just in Europe alone and it's probably at least  double that globally out to 2030. You have also  

got a route map to see that this sector has got  real legs. If you start to project the potential   revenues that all the companies that you can see  producing electrolysis like ITM, like others,   like the private companies, they are going to have  to grow enormously to reach those targets which   makes the sort of initial jump in share prices a  little bit shocking but then when you look into   where that has to go out to 2030, its multiples  of what we have already got. So I am just   giving a lot of information about, you know, what  makes this such an investable sector right now. Gareth: Thank you Richard. Some  questions. Tom I had question for you.  

This is perhaps slightly in a UK context  but I think it applies more widely,   even in the last week we have seen lots of  announcements around blue hydrogen in the UK,   we've seen a big statement from  BP in relation to a site in Hull,   Saltend, the site I know quite well and also  Equinor have made statements of intent around   investments into Teeside. So it seems that blue  hydrogen is very much on the agenda at the moment.   I was interested to know what attracted  your organisation TCRK to blue hydrogen and   how do you see the pathway to blue hydrogen  becoming an important part of the energy mix? Tom: Well we were attracted to blue  hydrogen because as our starting point   we were in the gas sector. If we don't  develop a solution to be able to use gas   then we die, it is simple as that. We see blue  hydrogen as a key part of the transition. I think  

it's something that can be  produced now at a price point   that will drive the industries to use hydrogen.  I guess that's where we would see it coming from.   We see that there is … looking at the  pricewise that the regulators are looking for   to build this transition over the next 20  years, blue hydrogen sits into that. If   you look at Korea, even though 2024 to 2050  they see blue hydrogen as part of the mix.   It may not be 100% of the mix and we don't  see it as 100% of the mix but it is certainly   30% of the mix of air hydrogen matrix. If you  look at the UK, UK probably roughly the same,   it won't all be green, it won't all be blue, it  won't all be turquoise, and it will be a mix.

Gareth: Sure and you touched on price and  policy there and this is perhaps a question   for the broader group as well. What outcomes  and policy interventions are you expecting,   obviously we are seeing some work being  done by bays in the UK but listening to   the work that you have done in Mozambique and  the Middle East and possibly other territories   that you are looking at, I am interested to  know what the UK can learn from, well from   other countries in this regard, you know, what  other policy interventions that will make us,   or set us on the right path in terms of this  being a good growing developing market here? Tom: I think as far as blue hydrogen is concerned,  the UK has made some interventions already, that's   why you've had a stream of announcements from  BP and Equinor and the companies that you say.   Interventions in the markets that we are  producing in, they are developing markets,   we are not getting interventions from, and  you know, local governments or the IOC's.   What we are trying to do is to ensure there is a  local outcome for a developing gas industry there.   I think going back to a comment I made earlier,  we are trying to develop this without relying   on subsidies. I think one of the problems I  see in the hydrogen industry at the moment   is that there is a lag in adoption and a lag  in development because people are waiting for   developers, the industry is  waiting for government to   set a policy on subsidies or to put a price  on, put a carbon price in, so you have emission   reductions of where we are coming from. For  us it's a commercial thing. We can reduce  

hydrogen at a price that regulators need to get  to and we can combine that with a carbon catcher   that is sound and we can use that carbon, we can  sequestrate that carbon. That would be our focus. Graham: Can I jump in here would that be ok?   So the first thing to say is if green  hydrogen is the only net zero energy gas,   blue hydrogen isn't at zero. To implement  blue hydrogen you need three infrastructures,   you need to maintain the use of the gas and  natural gas infrastructure which is of course   the reason why the gas industry are so interested  in blue hydrogen. You then need to build a   separate hydrogen and CO2 infrastructure and then  you need to store the CO2, and you will be storing   huge amounts of CO2 for generations and somebody  has got to underwrite those CO2's stores   for a very long time. You don't make any CO2  if you produce green hydrogen. You also don't   absorb it in the oxygen from the atmosphere.  We know green hydrogen when you split water   is the only fuel where you also co-generate  the oxygen. So there are five blue hydrogen  

projects that have been funded from the UK  government, they're feed studies, they're   front end and engineering and design studies.  All of them are going to be asking for a subsidy   and they are developing the business model so that  they can put to the UK what subsidy they require.   Green hydrogen has been rapidly decreasing in cost  so at 4p per kilowatt hour you make green hydrogen   at a similar cost to blue hydrogen and actually  the cost of renewables is rapidly decreasing,   so is the cost of electrolysis and I think by  the time any of the schemes that have been muted   are ready to be built, green hydrogen  will actually be lower cost, in which case   those investments may well end up be a  stranded asset. You see across Europe  

widespread support only to green  hydrogen, not for blue hydrogen,   so actually the strategy being adopted  in the UK which is a dual‑track strategy   is actually a UK strategy right now. I can see  some advantages in admitting blue hydrogen to   encourage the development of hydrogen  infrastructure but there are three infrastructures   that have only been used, you'd be handling three  energy gasses and you won't have the advantage   that green hydrogen has of storing  renewable power and making it oxygen. Tom: I don't necessarily agree with SMOs in the  UK, I don't think it is economically viable.   The reason why I don't think it is economically  viable is because the starting point of economics   is NDP at GTF because they are  taking gas from the grid but   blue is part of the transition. We are not saying  it's forever or it should be over green but it   is part of the transition. If we can, as a  developer, if we can produce blue hydrogen   and then economically sustain a level that  drives the transition, that's what we want,   we want to drive a transition for hydrogen, if we  can drive that transition and if we can capture   the carbon and we can use that carbon in a way,   and this moves slightly away from hydrogen, you've  got to remember in the countries we are working in   there isn't a huge economic benefit to them  normally in the gas project because the LNG is   liquefied and sent overseas. We started it in this  project because we are trying to develop a local  

outcome so if blue hydrogen is part of the mix and  we can produce it economically the next stage is   can we use this carbon to develop a local carbon  because we can use carbon to produce fire fuel   so a country like Mozambique they import 600,000  tonnes of fuel every year. If we can replace some   of that import with biofuel by using carbon what's  wrong with that, I don't see that as a negative, I   see that as positive. If we can produce, if we can  sequestrate into carbon black or graphite where   if we have carbon black we can produce carbon  fibre so we can use carbon fibre to replace steel.  

Steel as a product is a fairly major polluter in  how it is produced so I don't necessarily see blue   as a solution for everything or everywhere but it  is a solution in the markets that we are working   in and it is part of the transition. It's also  part of the transition in the economics and Graham   I accept completely that the price of renewables  are coming down rapidly and at a certain point   in time green will be at the right price but  green hydrogen today is not at the right price.   A lot of the talk we hear, we are not trying to  compete against green hydrogen as I said, I don't   want this to turn into an argument, green versus  blue, this has been a discussion about hydrogen.

Graham: It depends what you mean by the right  price so you know you have seen the widespread   of document green hydrogen across Europe, in  Europe that is the strategy and actually the   price of green hydrogen is declining rapidly  as I said before but would you agree that one   of the advantages of hydrogen is that you can  use it as a storage medium for renewable power? Tom: Yes absolutely. That's a given. I am   not trying to argue that it's not  effective for a store of energy. Graham: So when you take into account the  economics you are not only looking at the   direct price of electricity but you are also  looking at the advantage of energy storage   which has value as well which you need to include.  It will have an increasing value as the amount of   the renewables goes up and presumably ignoring all  energy storage. Well look if you are ultimately  

going to use a net zero energy gas which is green  hydrogen you are ultimately going to use it. What   governments need to be doing is investing in the  technology that they are ultimately going to use   so that goes down the cost kerb and it's all  about we did this with solar and we did with wind   you invest in the technologies that you are  ultimately going to use, they are more expensive   in the early days but you go through down a cost  reduction kerb and the oil and gas industry is   very significantly larger today than the green  hydrogen industry by an astonishing amount so   the fact that you need some incentive to get the  cost structure equivalent is not surprising is it? Gareth: Perhaps I could just soak away a  little bit into the question of supply chain.   ITM Power obviously Graham is a very well  established and known name in this space   particularly with your cornerstone investor. If  you compare or if you look at the supply chain  

particularly, you know, pick any of the  offshore wind, onshore wind and solar,   the UK really did fail at the prime contractor  level to build a credible proposition there   and certainly all of the work that  have done has involved German,   Spanish, other contractors coming in  and doing that work or Nordic on wind so   how do you see the supply chain opportunity for  the UK and given where you are starting from,   how are we going to get this right as an  industrial strategy for the UK first of all? Graham: It's a very good point, this  isn't just an energy transition,   it needs to be an industrial strategy as well  and we work all over the world. We are looking at   green recovery plans and actually they involve  manufacturing and they involve developing   products in aid of exporting products so you know  from our point of view that's very important,   we are clearly a British manufacturer looking at  manufacturing equipment. Most of our projects now   are exports so we are exporting of that 120  million … 124 million of backlog of projects   much of it is actually  exporting to other countries.   So back in British industry as well as, looking  at the energy transitions is very important. You   know Boris' Ten Point Plan goes 40 gigawatts  of offshore wind, 5 gigawatts of hydrogen.   Actually it's worth adding that it doesn't  specify how much of that is green and how much   is that is blue. It does state …  in the announcement of the plan,  

that the Ten Point Plan should also be about  industrial regeneration, bill back better,   manufacturing and levelling-up. So those things  have all been referenced in that [unclear 36:52]. Gareth: And you've talked about technology  costs coming down and if you look at the costs,   well certainly in onshore wind, you  know solar even more, there has been   a dramatic reduction in frankly the cost of solar  panels and one of the things that people were a   bit frightened of was well am I coming in too  early to these things so how do you see this,   this supply chain, you know pricing  coming through on electrolysis, you know   is that something that we should be frightened  of, is that something we should embrace because   scale will mean that those kinds of  dramatic drops are perfectly sustainable? Graham: We half the cost of our electrolysis over  the last three years. We are looking at a 40%   reduction over the next couple of  years but the point is this, with   an electrolysis the cost of agreeing hydrogen  is not nominated by the cost of electrolysis,   it's dominated by the cost of the renewable power  and the biggest factor from the electrolysis point   of view is the efficiency. You know customers  buy on the basis of price, performance and  

lifetime and that's true of any technology and you  need to optimise all those three things at once,   but we are driving down the cost all the time. You  are right about solar, I mean, look the record in   Portugal has just beaten the world record which  has been 1.1 cent per kilowatt an hour for solar,   in UAE the announcement of 1.4 cents per kilowatt  an hour. You can make green hydrogen using those  

electricity prices low across the grey hydrogen  let alone blue hydrogen and it's all about   looking at the way you get the lowest cross  renewable power, where you get reasonably high   low factors because they are all an influence. So  if you look at the hydrogen council's report which   published in McKinsey model and you go to that  model you can see the cost structure of green   hydrogen based on electricity prices, based on low  factors and based on the capex of electrolyser. Gareth: And interesting, finally  before I move on to Richard,   a client I'd say came into see  me but that isn't true because of   COVID is was over Zoom, was talking about  a world where we see onshore wind farms,   where instead of having all of the expensive AC  and DC kit in there, you'd strip a good amount   of that out and you'd have much cheaper  build and then you would have that DC kit,   you'd link it up to electrolyser and off you  go with private wires and all of that is going   to be onshore. I just wondered if you had a  view on that being a realistic business model   or is it not because actually electricity  generation isn't the problem right now. Richard: First of all I'm not an expert on wind  power but in all the data that we look at in terms   of running the economics on the projects that  we look to invest into, the economics are always   more attractive through offshore and also when you  just look at the global wind atlas about whether   the windiest places there are mostly offshore  around the world apart from the Middle East,   parts of Africa, I mean really I would like to go  back to some of the points Graham is making about,   you know, you are talking about the input  to the economics of these projects and when   we run sensitivities on these projects and you  end up with these little tornado charts which is   you know best case MPV is in the middle and if  you increase the cost of hydrogen that you are   selling or reduce it or you play around with the  cost of the electrolyser. They are actually the  

opposite to oil and gas projects where we used  to run these things, a lot of this comes from   the oil and gas sector, JJ and I both come from  oil and gas where it was the capex, you know,   you will be spending billions and billions upfront  on an oil and gas project putting a platform   out in the middle of the artic, drilling wells  where you have got only a 30% chance of success,   this is such a great sector because the risks  are so low compared to that. You know, you're   talking about something that you make from water,  you are putting these electrolysers onshore and in   some cases you can put them offshore but really  it's the … what drives the economics of these   projects, first of all its hydrogen price, at what  price are you selling hydrogen and it kind of goes   back to the earlier discussion about subsidies  and pricing and I think Graham mentioned there,   the way this will likely be introduced is through  contracts with differences which is the way that   the renewable sector and wind and solar set itself  up, you know 12, 15 years ago. So that's the role   of government in these things and when you talk  about, I had to go back to the subsidy point again   as well, there isn't a bigger subsidies centre  than the oil and gas sector globally. You know,   if people just think about what they pay for a  gallon of petrol in the UK compared to the US,   it's different because it's subsidised more in the  US, it's a hugely subsidised sector. So, the other  

big thing on price on hydrogen is carbon pricing  so the two things that really drive it from an   investment perspective are price of hydrogen that  you are selling and carbon pricing and it's not   a big deal at the moment, carbon pricing, but  when it gets introduced over the next ten years   you want to be in a sector that doesn't have any  carbon in it and that is the hydrogen sector,   so in terms of getting investors to start thinking  about how do you risk manage your energy portfolio   going forward over the next ten years, you've got  to have some hydrogen in there because you need to   be wary about carbon pricing when it comes in  and then you are going to have an early stage   input from government on probably around contracts  with differences in Europe, they look as if they   have put a lot of money aside to help on the  capex subsidy of some of these projects. It's   going to vary around the place but very quickly  you move to a point where all of these projects   start to become economic even though the price  of hydrogen is on green, you know may be 4 and   7 dollars to make these projects work at the  moment but that is going to fall as Graham says   but not so much because the cost of electrolysis  is going down and we are using a base case of, you   know, looking at 30% reduction over the next few  years but the load factor is how often do you run   these electrolysers is going to improve because  in the Middle East we are seeing solar projects   which obviously the load factor is but  basically how often do you run the electrolyser   and so that's in the daytime with solar but  you can supplement that with wind as well.   So load factors are improving, efficiencies  are improving as the technology gets better   and the cost of the green electricity is  getting better, those of the things that   are really driving the economics so whether  the wind and turbine is onshore or offshore   it is part of the equation in terms of the cost  of electricity but I think it is about scale,   I think it is about getting very large scale  winds available to produce hydrogen because   there are some scenarios that say that the  problem with hydrogen is that there is not enough   green electricity because we just got to carry on  building these things out to make sure there is   enough for direct source green electricity  and the green electricity that you need   for electrolysis but that's a small  problem when you look at the overall   potential growth of the entire sector which is  underpinned by law and by industrial investment. Graham: So we are at 3 dollars per kilogram at 4p  per kilowatt hour and looking at the mid 2020' to   2030, mid 2020' 100 megawatts scale and about  1.6 dollars per kilogram which is the number  

that is quoted regularly by Bloomberg New Energy  Finance, the Hydrogen Council and Hydrogen Europe   so it's a lot lower than that. We announced the project with Orsted and Siemens  Gamesa about direct coupling electrolysers to   wind turbines, so to take you point about EC so  you can actually and it's the basis of the project   connect the electrolyser directly to the wind  turbine and reduce the amount of … or rationalise   the power electronics in both the electrolyser and  the offshore wind turbine. We are also integrating   it with the desalination equipment and you will  probably know that all or nearly every offshore   oil and gas terminal has desalination unit  on it anyway. But actually desalination to   derive your fresh water is a requirement for many  countries so, Oyster the project is called, ITM,   Orsted, Siemens Gamesa is  about doing that integration. Gareth: Fantastic thank you.

Richard: Yeah we are seeing some very huge  projects in the Middle East that are based   around this desalination and if you start to … I  think the mentality of the UAE and Saudi Arabia   definitely is about how do we export our sunshine.  As we move into the next era, you know, we will be   levelling off our oil production … I mean there is  still a good business in oil and gas because the   world is so geared up to work on oil and gas but,  you know, there is going to be a transition and   it's already under way so there is enough room  for everybody here but some of the big project   that we are seeing out there and we have seen  a lot of electrolysis being specified out there   is to take the sunshine from the enormous  deserts and get over the problem about   shipping hydrogen which is, as we know has to be  almost at absolute zero to move it, but you can   turn it into ammonia and you can ship the ammonia  so there is a big business that we are looking at   and this is applying equally on the logistics  between Australia and Korea as we were talking   about earlier and Japan, in shifting hydrogen  up from Australia and from the middle east   into Europe and out to the US by putting it into  ammonia tankers and then turning it back into   hydrogen at the other end or using the ammonia  directly. So, it kind of goes back to the point   about, you know, what are we doing in the UK, well  we are moving quite slowly here and when you look   at the investment opportunity globally and you  look at the scale of these projects, as Graham was   saying, you know, they are now around 100 megawatt  plus and we are now looking at gigawatt so what we   are worried about as investors is how do we scale  up our investment capacity and how do we plan   to build further funds that bring in large scale  capital that is knocking on our door and to invest   into these very very large projects. It's all  being trialled and tested, a lot of investors  

still think that this is a bit science fiction and  that it's a bit of an option. It's not an option,   its legislation in a lot of countries, it's got  to happen and that's really what is driving it. Graham: Absolutely, I mean I may not be an  advocate of blue hydrogen but I am an advocate   of what the oil and gas industry is  doing. Actually they are making the  

transition real and the oil and gas  industry will be incredibly important   in moving from natural gas to green hydrogen,  there is no doubt about that and you need that   massive mobilisation of capital and the oil  and gas industry's understanding of how you   put infrastructures together. We did a big  project with Sumitomo Mitsui Bank looking at   exporting hydro, it was joint with BC  Hydro and actually exporting the energy   and looking at importing these to countries  like Japan and South Korea so I agree with   that as well. Looking at liquid hydrogen amongst  ammonia as a transport will be very important. Gareth:   Listening to the project that you are  either involved in for all of you,   or some of you, they are very very big and  vast projects and there seems to be you   know an appetite perhaps for an investment  a bit level orders of magnitude so Richard,   you know, how do you see that, I  mean some of these initial funds,   you know, will they be looking at supply chain,  will they be looking at suppliers to supply chain,   is it consultancies, is it you know, people want  to get involved in investing in this opportunity,   you know, what are the ways  that people can get in there? Richard: Yes the interesting point about how  the sector has been set up to accept capital   and to move assets between different parties,  in the oil and gas sector there were well known   investment banks that you would talk to almost  like estate agents, if you wanted to buy into   a project or an asset, the hydrogen sector is  very new and it doesn't quite work like that yet   which is why, you know, we feel like an early  mover into this space in that it is literally   just virtual shoe leather, talking to people,  phoning people up, pushing yourself into projects.   The thing we find quite interesting at this point  as we are going from sort of 5 megawatts to 100   megawatts is the for a minority investor like us  into a project we'd be looking … and it could be   a blue hydrogen project as well with, you know,  perhaps there could be a carbon cap and storage   taking advantage of the sum of the depleted oil  fields in the North Sea, that all makes sense.   Those sort of projects, you know, we are looking  to invest probably tickets of 25 to sort of 50   million max. Some of the bigger infrastructure  funds that will help this sector as it goes from  

100 megawatts to gigawatts have got minimum  investment sizes of 200 million so there is   a need now for fast moving, slightly smaller funds  like the sort of funds that we will be developing,   so we are interested as a growth investor and  we've got Arup partners working for us to help   us to sieve through these projects to help us to  manage this early stage sort of development risk   which is a very important part of what all of the  providers like ITM are doing, it's about sort of   systems integration which for a lot of investors  concerned about the commoditisation of the sector,   that's very hard for it to  happen because of the vital   sort of infrastructure role that these components  are taking, you cannot commoditise these sorts of   projects because there is so much that goes  into the engineering with blue and green   on the sort of systems integration, development,  the risk management which is why it's at the   high end and the barriers are quite high  but that's how we see that at the moment. Tom: Can I come back on shipping … and  it's the crossover between blue and green.   Earlier in my comments I said that there's a  technology pathway. We get to a point where  

we're agnostic about whether it's green  or whether it's blue because wherever you   are producing it you are going to have  to get it to the market that needs it.   So the two ships that we designed which are now  with the classifications agencies at the moment,   one is a LOHC which is a liquid organic  hydrogen carrier and the other is a dehydration   unit. So we look at various ways of transporting  the hydrogen and I take the point that in   15 years' time we will be transporting in  liquid hydrogen form but we are not there yet.   The first liquid hydrogen ship is on its way  Australia to pick up a cargo at the moment, it is   1200 cubes which is a tiny ship. The ships that we  will use in the initial stages will be delivering  

probably about 20,000 cubes but it will  be combined with ammonia. We did have a   look at Tulane but we've actually gone for  ammonia and a dehydrogenation unit as well,   so there is a crossover, whether the ships we  are designing and the ships that we will build,   it will make no difference whether it is green  and blue or turquoise. Whether you are producing   and surely when you are producing in Australia  it still has to be brought to the market, so   yes while our background and our focus is blue  in the end technology that we are developing   will be agnostic to the colour of the hydrogen. Gareth: I just have a final  question before we wrap things up.  

There has been a lot of discussion about the  types of investment where, you know, either we   are seeing, you know, large institutions like the  oil and gas sector making those investments or,   you know, we are seeing equity come into this  space. We haven't talked about debt at all today.   Obviously, you know, debt has  been significant in terms of   things like the offshore wind market but  really underpin by contracted revenues   and that's enabled, you know, some very cheap debt  particular the project finance to have role so,   you know, do any of you see a role for debt, if  you do, how, or is it later, you know, because   debt should help this transition as well, is there  any observations from any of you? Richard perhaps? Richard: Yeah, it goes back to what I just  said I think there is a big role for debt   when you are scaling up from 100 megawatts  to a gigawatt that gives you 1000 megawatts   because you've got … probably you need an offtake  agreement in place and that's what slowing up   some of the projects around the world at the  moment. Projects are evolving in little clusters,   you know, when you see clusters  in the UK, you see them around the   Dutch ports, you see them in parts of Australia  and they are usually working around a local steel   mill or a chemicals plant or a refinery where  you can agree what the hydrogen offtake price is   going to be amongst the local players but as these  clusters increase and they start to join together   then you will start to get a hydrogen market price  starting to get established and at that point I   think you will probably start to see large scale  debt coming in, but at the moment the debt is   really going into the companies, I mean, you can  easily debt finance the building of a new factory,   the thing that we are really keen to look at  when we are investing into companies that are   making electrolysers and fuel cells is that  they have done what ITM have done, you know,   they built their first factory, have you got space  for another two or three factories and we can get   debt into those projects to build the factories to  build the components is ultimately underpinned by   the grey hydrogen industry that's well established  turning itself blue and green. That's where a lot   of the electrolysis is going so that is sort  of debt fundable but the projects slowly but   coming a bit later I think in terms of project  finance and our fund is mostly focussed on equity. Gareth: Graham, are you preparing yourself  or ITM taken this view already about,   for example, performance warranties that are  offered on your kit, are you debt market ready,   this is the sort of areas  that debt tends to focus on,   you know, certainly we've learned that from  the project finance experience on renewables? Graham: We, first of all in  the after sales support market   we are developing an important part  of our business is that 'operate'   so we have a control room where we monitor  every one of the electrolysers in the field   24 hours a day with two skilled engineers  and we have a control room where you can   see every clamp and valve and solenoid in those.  We gather data and put that into rams modelling.   The rams modelling then not only gives us the  ability to be continuous improvement but also   gather data that is useful for the customer in  terms of operating points and all of those good   things. So we are developing a very strong  business in the area of offices support.  

Warranty is part of that and so is the  continuing relationship with the customer.   Debt will come into any industry, I mean it's just  a commercial decision and whether you think it's   early in this industry or not and it will  gradually appear and it's an instrument that,   you know, if offered all the time by customers  and also by partners so I don't see the hydrogen   industry in terms of financing assets being  any different from any other industry. Gareth: And Tom just concluding with you,   I have a sense that, you know, whatever the  colour of hydrogen, but when you are talking   with debt and other investors that what one  must spend an awful lot of education time   with people coming in or trying to get people  in, is that how a lot of your day is spent? Tom: Yes, and it's actually convincing partners  because debt will follow the market as Graham   says. If we want to build a ship for 200 million  dollars and we have a ten-year royalty contract,   final debt for that is not  going to be the problem.   The stage we are at is convincing people in the  market, and we have partnerships with already   that the next stage is hydrogen so together  we will finance the prototype ships.  

We are not quite at that stage yet but we would  go to the general debt market looking for debt.   I don't see that as a gating factor  because debt will follow market. Gareth: Great. Well we are just  about at time so Richard, Graham,   Tom, thank you very much for your time today. It's  been an enjoyable and thought provoking discussion   and, you know, the opportunity is massive for  sure and I am really looking forward to seeing how   this market develops and it's going to develop  at pace that's for sure. Thank you everyone.

2021-05-18 07:57

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