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Hydrogen - Heading Down the H2 Rabbit Hole
An article by • Published Feb 1, 2021
Hydrogen as a replacement for fossil fuels in the global energy stack has become topical recently due to government and industry focus on reduced carbon emissions. It's clean burning, can be used for renewable energy storage, transport, power and industrial applications and is readily available.
Unfortunately, hydrogen ("H2") isn't generally cost competitive with traditional forms of energy today, but through technological advancements, scale, efficiencies and carbon taxes it is expected to become competitive by 2030. H2 projects and investments are moving forward today, however, and a number of companies provide exposure to this nascent, but potentially large new 'energy sector.'
Bank of America held a Hydrogen Conference last week, with a handful of companies involved in the H2 value chain. Despite being an energy guru who tends to pay attention to alternative energy sources hydrogen and its use cases hasn't been on my radar. Digging into the conference transcripts led to a series of H2 rabbit holes. Enjoy taking the path down them with me.

The Hydrogen Rainbow

Hydrogen has a rainbow of color opxtions and is part of the planned de-carbonization of power, transport and industrial sectors to help in a global push toward a future net-zero emission goal.

Black hydrogen - hydrogen from black coal gasification
Brown hydrogen - hydrogen from brown coal (lignite) gasification
Grey hydrogen - hydrogen created from any fossil fuel without carbon capture
Blue hydrogen - hydrogen from natural gas steam reforming with carbon capture
Green hydrogen - hydrogen made from renewable electricity through electrolysis, and the primary focus for much of the H2 activity today (highlighted in graphic below)
Pink hydrogen - hydrogen made from electrolysis powered by nuclear energy
Yellow hydrogen - hydrogen made from electrolysis powered by solar power
Turquoise hydrogen - hydrogen as by-product of methane pyrolysis
White hydrogen - naturally-occurring hydrogen found in geological deposits

Drivers of the New Wave of Green Hydrogen

H2 activity is gaining steam for a number of reasons

Low variable renewable energy electricity costs
Technologies ready to scale up
Benefits for the power system
Government objectives for net-zero energy systems
Broader use of hydrogen
Interest of multiple stakeholders

Aggressive assumptions are being made on the future H2 cost curve, but projects are moving forward today. Some of the companies at the Bank of
America conference discussed their spot in the value chain.

Air Product and Chemicals ($APD), who in July announced a partnership and plans to build a $5 billion Green Hydrogen plant in Saudi Arabia powered by 4 GW of wind and solar discussed the transportation market for mobility - bus and truck markets - as its primary focus.
One of the strongest opportunities we see are the city bus fleets. And why is that? Well, to be honest with you, most of the city bus fleets, they don't travel, of course, cross-country. They stay focused on the city they're in. They tend to have a depot or a couple of depots maybe that the buses come back to. So from a fueling infrastructure standpoint, it's very, very efficient. And of course, guess what, the cities are where a lot of the pollution in the world is.

Bloom Energy Corp. ($BE) has partnered with SK Engineering and Construction (SK E&C) to supply solid-oxide fuel cells powered by hydrogen and electrolyzers to

And the final thing I want to talk about is actually using natural gas to make hydrogen. But if you equip it with carbon capture, you can also make zero-carbon power, and that's a place where we actually do this today when we make electricity. And we've announced that we're introducing a carbon capture module that grabs the CO2 that allows us to put that underground to make low-cost blue hydrogen. We actually think that for blue hydrogen that we can beat competitive technologies by something like 20% and make $1 a kilogram blue hydrogen with carbon capture. And if you layer in some biogas, that makes that carbon negative. We think we can do that for $1.30 a kilogram by 2030, which is 50% more efficient than other kinds of things like BECCS or bioenergy with carbon capture. So across the board, all these different kinds of applications, all these different niches, we think we have strong economic advantages in these different markets.

In October, CF Industries Holdings Inc. ($CF) announced its commitment to a clean energy economy, which included a green ammonia project at its Donaldsonville Nitrogen Complex to produce approximately 20,000 tons per year of green ammonia.
We've had inbound inquiries from transportation companies, particularly on the marine side, that are looking at ammonia as being a fuel used in internal combustion engines that will allow fleets to achieve IMO 2050 standards and 2030 standards and moving in that direction. We've had inbound inquiries from -- as you I'm sure are aware, the Japanese utility industry is pushing hard for the use of low-carbon ammonia as a fuel source in power generation. And we've also had inbound inquiries from a number of industrial users that are very focused on their end-to-end supply chain and what their carbon footprint looks like. And that's particularly true in the U.K., where a bunch of our production at the Billingham facility gets piped directly to some industrial users, and they're very excited about that. And then the kind of the fourth leg of that stool is one that we didn't necessarily immediately assume was coming, but it has been a lot of excitement about, which is agricultural use of a low-carbon ammonia product. So a number of ag companies are looking at helping farmers to generate and quantify and monetize carbon sequestration in the soil as being a revenue stream and looking at a low-carbon input as part of the addition of the net carbon position that the growers can generate adds to their profitability.

In November, Cummins Inc.
, which anticipates electrolyzer revenues of at least $400 million in 2025. $CMI has diversified hydrogen product offering, which includes PEM fuel cell power modules and fuel cell powertrains, in addition to electrolyzers.

So I think electrolyzers are tangible. They're going to be a source of profit for us, and they're going to be an important midterm opportunity to enable us to keep investing, but also enable the adoption of fuel cells. The second thing that's super tangible for us and exciting is rail. So we talked a lot about Alstom and our partnership there. But rail is interesting because there's a lot of pressure on commuter rail lines to electrify them. And when you look at the use case of taking a diesel -- a traditional diesel-powered line and electrifying it, you can do it with a fuel cell or you can do it by electrifying the whole line. And the cost of doing that is so expensive and the time it takes to build that out is actually long compared to applying fuel cell electric drivetrain and you can have point-to-point fueling. It's a very nice duty cycle because it's more of a constant speed for a fuel cell. And we have a commitment with Alstom to be putting trains out in very specific -- in Austria and France and some very specific deals that are commissioning. And we're getting ready to launch production in Herten, Germany to be our main Alstom production site. So in that case, like it's coming, there's a lot of interest in rail. And I would say, the Hydrogen Council says by 2030, rail will be one of the biggest adoption areas with fuel cells as will bus be. So bus is another area, which also has been leading in battery electric. So we don't talk a lot about it because there's so much hype on hydrogen, but we are a power of choice. So we also do battery electric. And at the end of the day, a fuel cell is just a battery electric vehicle with a fuel cell power source to either be an alternative power source or a range extender. So there's a lot of commonality across the powertrains.
In the last several months, additional companies have highlighted their H2 exposure
Iberdrola Sa held a green energy webinar

3 factors have to be -- need to be taken into account. The cost of electricity that we supply, the electrolyzer, the number of hours that we have this cheap renewable electricity and the CapEx of the electrolyzer. How are those factors going to evolve in the coming years? We expect that we are going to have cheaper and cheaper renewable electricity. And you know these figures. (inaudible) probably will expand the capacity 4x in this decade and decrease the cost another 40%, onshore wind, 3x, decreased cost another 30%, and offshore wind 7x, 50% decrease in cost. And we are going to have electricity systems with a high percentage of renewables. Besides, we are going to have increasing load factors from renewables. That will mean that we will have a cheap electricity for the electrolyzers during more time. So this is the third factor I was mentioning before. And if we look at the cost of electrolyzers, we can see in these 2 graphs, how it's going to be the learning curve. Today, we can think about EUR 1,000 per kilowatt installed, and we think it's feasible to think about EUR 400 per kilowatt install of electrolyzer at the end of the decade. And this will help very much to produce this green hydrogen in the range of EUR 2 to EUR 3 per kilogram and to be able to supply this industrial consumption, ammonia and refineries at the end of the decade in a competitive way with a gray hydrogen, not mentioning blue hydrogen, that as I said before, I don't think it's an option.
Johnson Matthey Plc:

Fuel cell technology is expected to become the lowest cost option for heavy-duty trucks compared to diesel and battery from the latter half of this decade. Also, the weight of a fuel cell is significantly lower than that of the size of the battery needed for the kind of ranges required. And due to the relatively low energy density of batteries, the range offered by a fuel cell truck is much greater than that of the battery truck, and the refueling time is much lower. So even if the energy density of a battery improves by 2 to 3x, it will still take in the order of hours to refuel and a fuel cell truck refuels in minutes. So fuel cells in these applications make sense, and we're seeing evidence of this today.
Plug Power ($PLUG) announced M&A to vertically integrate into the H2 market

So let me step back and make sure everybody understands why electrolyzers make sense. First, it's not just Plug Power saying. If you look at the European market, the European Hydrogen Council and the European plans cover 80 gigawatts of electrolyzers installed by 2030. We've seen numbers that by 2025, presented by McKinsey, which shows this market could be 70x larger. I think when you take a step back, though, PEM electrolyzer green hydrogen compete with dirty brown fossil fuel hydrogen. And this is a question, and this is how Plug has always approached market. We've always liked to approach them by creating -- knowing we're creating value for customers. And when we look at the low cost of renewables today and a $0.04 or $0.05 a kilowatt hour -- and this is a number that many, many folks are talking about. Electrolyzers generate green hydrogen is comparable to hydrogen generated by natural gas.

H2 Factoids

The Congressional Research Service wrote a piece in June 2020 titled "
" discussing why hydrogen is being investigated to replace or reduce the use of fossil fuels to reduce greenhouse gas (GHG) emissions. Simply put, to hit aggressive global carbon reduction goals, renewable and cleaner forms of energy are needed.
According to the CRS report, 28% of GHG emissions are from transportation, 27% from electricity production, 22% from industry activities, 12% from commercial and residential markets and the remainder from other activities. Hydrogen is an ideal replacement fuel because it has one of the highest energy density values per unit of mass, is highly flammable and when burned with oxygen, the only by-products are heat and water.
Sources of Hydrogen
Fossil fuel sources - currently 95% of U.S. hydrogen production, through steam-methane reforming ("SMR") or coal gasification
Renewable sources - electrolysis (splitting water molecules using renewable energy), biomass conversion, and solar conversion
Nuclear power - pink hydrogen
Cost of Hydrogen
Currently grey hydrogen is +/- 3x cheaper than green hydrogen. Electrolyzer cost reductions, higher capacity/utilization factors and lower power costs are expected to bring green hydrogen costs lower by 2030 and beyond.
Cummins laid out the cost of green hydrogen during its hydrogen day
This twitter thread also laid out the current cost of H2 and challenges to achieving cost competitiveness
1 Kg of H2 = ~40 KWh * 1 Kg of H2 = ~12 cubic meters of H2 * 1 KWh = 3,412 BTUs

Costs vary widely by hydrogen source. As can be seen green hydrogen needs significant cost reductions to become part of the energy decarbonization future.
Expected increases in carbon taxes will help bridge the hydrogen cost curve gap

Legislative Support and Current Projects

Germany announced a national hydrogen strategy this summer. France followed with a $8 billion+ support plan for hydrogen in September and Spain joined in with $10+ billion plan in October. South Korea has a national hydrogen strategy. Legislatively, the will is there to provide the capital, resources and support to help make H2 a bigger part of the global energy stack.
Cummins worked with Alstom for "the world’s first hydrogen fuel cell passenger train. It’s completely emission-free, using electrical energy for propulsion and putting off only steam and water."
More than 1GW electrolyzer
have been announced.
In the U.S., the Los Angeles Department of Water & Power is backing the conversion of the
from 1,800 MW of coal-fired turbines to 840 MW of dual-fuel CCGTs. The new plant is expected to burn 30% hydrogen gas starting in 2025 but eventually move to 100%. Salt dome storage and nearby interconnection to solar and wind renewable power will be utilized to store excess renewable power.


It is early days in the move toward utilizing H2 to help decarbonize the energy economy. Green hydrogen is currently costly and not competitive with fossil fuel and renewable energy sources. Net-zero emission goals require cleaner burning fuels and hydrogen supplies are ample. Governments, especially Europe have recently embraced H2 as a fuel alternative and have pushed through legislative support to make it happen. Investments into the H2 value chain feel 'early', but sentiment and momentum always lead fundamentals so it is a sector worth spending time on now to understand and be prepared for when opportunities do present themselves.