Speaker 1: This is Dana Perkins and you're listening to Switched on
Speaker 1: the b and EF podcast, where we bring you some
Speaker 1: of our latest analysis on the future of the energy transition. Now,
Speaker 1: today we're going to discuss hydrogen with Aditya Basham from
Speaker 1: bnaf's hydrogen team. It's a buzzy topic, which would be
Speaker 1: why we have revisited it several times on this show.
Speaker 1: Clean hydrogen supply has the potential to increase by a
Speaker 1: factor of thirty by twenty thirty. So if you're focused
Speaker 1: on decarbonizing industry, you're probably looking at hydrogen and also
Speaker 1: thinking about how to transport it, how to store it,
Speaker 1: and also what it's going to cost. And those who
Speaker 1: are looking most intensely at the decarbonizing side of things
Speaker 1: are also looking at green hydrogen. That's the hydrogen that
Speaker 1: is made from renewable energy. It can be used to
Speaker 1: decarbonize industries with high temperature heating demand, but it is
Speaker 1: not a silver bullet. As the hydrogen industry matures, we
Speaker 1: are increasingly separating the real potential from the hype. Today
Speaker 1: we talk about some of the regional force is at play.
Speaker 1: We get into things like Europe's carbon border adjustment, mechanism,
Speaker 1: or the US's Inflation Reduction Act or China's shear Green
Speaker 1: hydrogen production capacity. We also talk about the gap that
Speaker 1: we're seeing between supply and demand as we pull from
Speaker 1: bn EF's recent supply side focused research notes, including Hydrogen
Speaker 1: Supply out Look twenty twenty four a reality check, alongside
Speaker 1: some of the regional deep dives that we've done. B
Speaker 1: andF subscribers are going to be able to find these
Speaker 1: at BNAF dot com or at BNAF on the Bloomberg terminal. Now,
Speaker 1: if you like today's show, subscribe or give us a
Speaker 1: review and that'll help other people find us. But right now,
Speaker 1: let's hear from Addie with an update on what's happening
Speaker 1: in hydrogen. Addie, thank you for coming on the show.
Speaker 2: Today, Thank you for having me.
Speaker 1: We're here to do a status update on what's happening
Speaker 1: in hydrogen and there, as always is a lot of
Speaker 1: attention and excitement about the potential of the role that
Speaker 1: hydrogen could play in the energy transition, in particular for
Speaker 1: some of the really heavy emitting spaces where this could
Speaker 1: be a real source of a near term pivot. But
Speaker 1: of course there are challenges. Nothing is perfect and hydrogen
Speaker 1: has historically been plagued with some pretty high prices, So
Speaker 1: can we actually start with where we are from a
Speaker 1: pricing standpoint with hydrogen. I realize that that then brings
Speaker 1: into question the fuel source. And we're going to focus
Speaker 1: today on kind of three colors, so gray, blue, and green.
Speaker 1: So if you can actually also explain what those colors
Speaker 1: are so that everyone listening today knows what we're talking
Speaker 1: about as we go through the hydrogen color wheel, just
Speaker 1: within those three absolutely.
Speaker 3: I mean, we've been talking about hydrogen as the fuel
Speaker 3: of the future, going back to the eighteen hundreds. The
Speaker 3: reality is it's been around for a long time, and
Speaker 3: so called gray hydrogen, so hydrogen made from fossil fuels.
Speaker 3: We use about one hundred migain tons of DOT today,
Speaker 3: mostly in refineries to crack oil into fuel products or
Speaker 3: to make ammonia, which is an essential fertilizer products. A
Speaker 3: nitrogen based fertilizers get their nitrogen from ammonia. So that's
Speaker 3: gray hydrogen, usually made from natural gas or coal. In
Speaker 3: China in particular, that is made at about one to
Speaker 3: three dollars per kilogram, depending on where natural gas prices
Speaker 3: are at. But that's roughly the range for gray hydrogen
Speaker 3: production and.
Speaker 1: On the gray hydrogen sidamen is really a necessary fuel
Speaker 1: for those industries, so it's not looking to decarbonize anything,
Speaker 1: it's just looking to create this necessary hydrogen for as
Speaker 1: you mentioned, fertilizer or crack it exactly.
Speaker 2: Today.
Speaker 3: It's not even a fuel, it's a chemical feedstock. So
Speaker 3: you need the hydrogen for its chemical properties rather than
Speaker 3: to burn it as a fuel. I mean, it has
Speaker 3: great properties as a fuel because it doesn't contain carbon,
Speaker 3: so when you burn it, there's no direct emissions with it,
Speaker 3: which is why a lot of people are talking about
Speaker 3: the use of it as a fuel going.
Speaker 1: Forward, which then brings us to blue and green.
Speaker 3: Yeah, so two ways of de carbonizing hydrogen today would
Speaker 3: be one blue hydrogen, which is essentially just taking the
Speaker 3: existing process of making gray hydrogen, which is splitting natural
Speaker 3: gas into carbon monoxide and hydrogen, and then adding carbon
Speaker 3: capturn storage to it to capture the carbon emissions that
Speaker 3: come from that process. With that, you can probably reduce
Speaker 3: the emissions by about seventy percent or so, but you
Speaker 3: still suffer from the upstream methane leakage from transporting and
Speaker 3: extracting the gas, and carbon capture is not perfect, so
Speaker 3: you get maybe ninety percent of the emissions on site
Speaker 3: in best cases maybe ninety five percent. There's still residual
Speaker 3: emissions with that, but adding carbon capture and storage is
Speaker 3: still one of the cheapest ways of decarbonizing hydrogen today.
Speaker 3: Let's say gray hydroen costs between one to three dollars.
Speaker 3: Adding carbon carptron storage that will make it like four
Speaker 3: or five maybe six dollars in the worst cases, but
Speaker 3: really just four five dollars per kilogram. So that's one
Speaker 3: way of decarbonizing hydrogen. The other one, and probably the
Speaker 3: one that gets the most policy push, is so called
Speaker 3: green hydrogen. That's a completely different way of making hydrogen.
Speaker 3: That's where you take the hydrogen from water. So water
Speaker 3: is H two zero, so it contains hydrogen atoms in it,
Speaker 3: and you extract the hydrogen by splitting it using electricity
Speaker 3: in an ideal scenario that's renewable electricity from solar and wind,
Speaker 3: and you split the water molecule into hydrogen and oxygen,
Speaker 3: essentially using in a machine called an electroalizer, something we
Speaker 3: have that's been around for a long time already but
Speaker 3: really hasn't been scaled to like one hundred megawatt gigowot
Speaker 3: scale yet and that's where we are at today that
Speaker 3: we're trying to do that well.
Speaker 1: So then let's stick on the green side of things
Speaker 1: for a moment. How heavily adopted has green hydrogen been
Speaker 1: around the world? Like where is it popular and is
Speaker 1: it the dominant source outside of you know this as
Speaker 1: a feedstock hydrogen that you were talking about before, where
Speaker 1: that's kind of a different market, But as a opportunity
Speaker 1: for decarbonization, is green hydrogen really taking off? And where?
Speaker 1: Because I know you recently did some analysis where you
Speaker 1: actually looked at pretty much went all over the world
Speaker 1: and tried to look at the different geographies and compare
Speaker 1: them to each other. So what was the finding in.
Speaker 3: Our latest outlook looking at low carbon hydrogen? What do
Speaker 3: you find generally today? Green hydrogen or blue hydrogen photomatter
Speaker 3: doesn't really exist today. Out of the hundred million tons,
Speaker 3: maybe zero point one percent of that are from electrolysis,
Speaker 3: And in total, if you add the blue hydrogen and
Speaker 3: top out of thee hundred million tons, maybe half a
Speaker 3: million ton are from both blue and green hydrogen, roughly
Speaker 3: half and half. So blue and green hydroen are not
Speaker 3: really a thing today, but that is about to change
Speaker 3: over the next few years, driven by the amount of
Speaker 3: policy that is coming across from governments, and because we
Speaker 3: need to scale up these technologies and these fuels to
Speaker 3: decommonize a number of sectors where electricity at loan doesn't
Speaker 3: do the job. In our outlook, what we get to
Speaker 3: when we looked at every single announced projects and there's
Speaker 3: one thousand, six hundred of them that want to make
Speaker 3: some form of low carbon hydrogen, what we found is
Speaker 3: that the majority of them will never get built by
Speaker 3: twenty thirty. A lot of them will likely be delayed
Speaker 3: simply because there isn't enough policy support to support all
Speaker 3: of them.
Speaker 2: But where we get to.
Speaker 3: In our outlook is from the half a million tons
Speaker 3: of low carbon hydrogen production today to about sixteen million
Speaker 3: tons by twenty thirty or so. That's about a thirty
Speaker 3: x growth in supply of low carbon hydrogen versus today.
Speaker 1: And where is that going to be? And I'm thinking
Speaker 1: about you know, we actually featured a panel from our
Speaker 1: New Work Summit on this show a few weeks back,
Speaker 1: and it focused on some of the tax credits in
Speaker 1: the US and the Inflation Reduction Act in the US
Speaker 1: being very pro hydrogen, although there are certainly things that
Speaker 1: these panelists were pointing out that needed to be improved
Speaker 1: in order for the market really to take off. Is
Speaker 1: the US really where the hydrogen on the supply side
Speaker 1: is looking to grow or are there other markets that
Speaker 1: maybe we're missing that have really good policy incentives.
Speaker 3: Yeah, globally speaking, is really just three markets where there's
Speaker 3: a strong regulation for hydrogen uptic where we see uptakes.
Speaker 3: So over eighty percent of the supply until twenty thirty
Speaker 3: comes from the US, Europe and China, none of the
Speaker 3: other markets where there's lots of projects announced but not
Speaker 3: enough policy support built many hydroen projects. In our view,
Speaker 3: the US is the single largest producer of low carbon
Speaker 3: hydrogen in our outlook, meaning it's about thirty eight percent
Speaker 3: of global supply. Let's say forty percent of global supply
Speaker 3: just comes from the US, and that's really driven by
Speaker 3: big blue hydrogen projects which are quite advanced already.
Speaker 1: And is it the reason that it's so much blue
Speaker 1: hydrogen the fact that the US is really a big
Speaker 1: producer and exporter of natural gas and is still actively
Speaker 1: building that renewable capacity or are there other things that
Speaker 1: have to do with the economics of it that they're
Speaker 1: focused on.
Speaker 3: I mean, natural gas is one of the main reasons.
Speaker 3: The US is one of the cheapest places to extract
Speaker 3: natural gas. It's today probably about two dollars per mmbit
Speaker 3: to you, whereas the landed cost of natural gas in
Speaker 3: Europe is probably more like ten dollars permmb to you.
Speaker 3: So making blue hydrogen in the US is relatively cheap
Speaker 3: compared to everywhere else in the world. The other part
Speaker 3: is that there's lots of companies which are already in
Speaker 3: the oil and gas space or in the fertilizer space,
Speaker 3: which know how to handle natural gas and use it
Speaker 3: already to do fertilizer, to do other products from it,
Speaker 3: or hydrogen and some of these cases. So there's some
Speaker 3: familiarity with building big blue hydrogen project as well, because
Speaker 3: it's doing the same thing that we've already done before
Speaker 3: and just adding common capture and storage to it. So
Speaker 3: it's a bit more mature in that sense and cheaper.
Speaker 3: So that's why we see a lot of focus on
Speaker 3: it in the US. The other big part is really
Speaker 3: tax credits, and as you mentioned, tax is really what's
Speaker 3: driving uptake in the US. So what blue hydrogen will
Speaker 3: benefit from, we think, is the carbon capture and storage
Speaker 3: tax for it forty five q which if you store
Speaker 3: the carbon after you've captured it, gives you a tax
Speaker 3: strait of eighty five dollars per ton over twelve years.
Speaker 3: With that, blue hydrogen is roughly competitive with gray hydrogen,
Speaker 3: especially if you think about exporting that blue hydrogen in
Speaker 3: some form to Europe, where natural gas prices are much
Speaker 3: higher and energy is just more expensive.
Speaker 1: So tell me about China, because we talk about China
Speaker 1: a lot on this show, and it's driven down the
Speaker 1: cost of so many different things in the transition from
Speaker 1: solar to batteries. What role does China play in hydrogen
Speaker 1: given that you just said that on the supply side,
Speaker 1: the US is over eighty percent of that market.
Speaker 3: Much like in many other clean tech sectors, China has
Speaker 3: been absolutely dominant in the green hydro and slash electrolyizer
Speaker 3: space as well. For the past few years, most electoralizers
Speaker 3: were installed in China, and seventy percent of the manufacturing
Speaker 3: capacity for the machines that you need to make green
Speaker 3: hydrogen is also based in China. So China is trying
Speaker 3: to absolutely dominate the manufacturing space as they are in
Speaker 3: solar and batteries and so on.
Speaker 1: So they have a really important role to play in
Speaker 1: making the equipment, but maybe not necessarily setting up the
Speaker 1: projects themselves that are actually doing the hydrogen projects the
Speaker 1: way the US is.
Speaker 3: That's a good question. I think that's something that we're
Speaker 3: still somewhat uncertain about. I mean, China is already today
Speaker 3: the largest user of hydrogen because just because it's populous,
Speaker 3: it needs a lot of fertilizer. It has a huge
Speaker 3: refining complex uses about I think thirty million tons of
Speaker 3: hydrogen or so that it needs to be carbonized over
Speaker 3: time as well. So there's lots of potential lots of
Speaker 3: domestic demand as well, and we see the largest electrolysis
Speaker 3: projects also being deployed there. What we don't know about
Speaker 3: China yet is what is this strategy going into twenty
Speaker 3: thirty or so, and what is the policy.
Speaker 2: Driving up more and more hydrogen uptake.
Speaker 3: So over the last few years, what was driving up
Speaker 3: these electoralizer plants of what made State On companies built
Speaker 3: these electoralizer plants were really two reasons. Once China's carbon
Speaker 3: neutrality target that state on companies are trying to comply with.
Speaker 3: And the second one is that even for private companies,
Speaker 3: it was harder and harder to get environmental permits for
Speaker 3: aossil fuel plants of different kinds, So they built electoralizer
Speaker 3: plants as a way of showing compliance with environmental regulation.
Speaker 3: And we're finding it easier to get access to environmental permits.
Speaker 3: And in some provinces there were diversification roles. So if
Speaker 3: you wanted to build let's say, Gigglewa scale solar farm,
Speaker 3: you needed to add something else to it, let's say
Speaker 3: battery storage, electoralizers or so on. Electorizers are relatively cheap
Speaker 3: in China, so a lot of Chinese products ended up
Speaker 3: building very large ones for us.
Speaker 2: The question is will that continue?
Speaker 3: Right Like, even operating and electrillized in China today is
Speaker 3: not very economic. Companies would rather not do it if
Speaker 3: they had an option not to. So why China in
Speaker 3: our outlook, and coming back to our outlook is only
Speaker 3: the third in terms of low carbon hydron production is
Speaker 3: the fact that we don't know what the policy direction is.
Speaker 3: The thing is, what I would say is that the
Speaker 3: Chinese electoralized environment is so nimble and fast. It only
Speaker 3: takes about six months to deliver and electualize maybe a
Speaker 3: year to install an electoralizer in China versus two to
Speaker 3: three years in most Western countries. Slight policy changes over
Speaker 3: the next few years, and a government target to say, actually,
Speaker 3: we want this industry to be much bigger domestically, could
Speaker 3: mean much more deployment in China, not just manufacturing of
Speaker 3: the equipment, and that's something to look out for. That's
Speaker 3: something we are not sure about either, and.
Speaker 1: Could really change the game very quickly in a matter
Speaker 1: of just a couple of years. Talk to me about
Speaker 1: a couple of the projects that are being worked on
Speaker 1: right now, because you would reference that of the twenty
Speaker 1: thirty targets that exist to increase the amount of hydrogen production,
Speaker 1: there aren't that many that are actually underway. But invariably
Speaker 1: this industry is kind of still getting going. What are
Speaker 1: the projects, where are the projects, and what are some
Speaker 1: of the things that you're seeing.
Speaker 3: I think what's important to understand and what really drives
Speaker 3: our forecast is like, especially large hydrogen projects take a
Speaker 3: long time to build. We think at least five to
Speaker 3: six years from announcements to operations. But if you do
Speaker 3: all the engineering studies before that, and maybe three to
Speaker 3: four is to actually build the planned once you have
Speaker 3: taken an investment decision, which is why that only plans
Speaker 3: have already taken an investment decision today is the ones
Speaker 3: that will be producing by twenty twenty seven twenty twenty eight,
Speaker 3: So most of the capacity or supply is kind of
Speaker 3: already baked in. And if you look at that where
Speaker 3: those plants are again mostly in the US. The largest
Speaker 3: low carbon hydrogen project currently in construction is from Air
Speaker 3: Products in Louisiana that's going to produce by twenty twenty
Speaker 3: eight about six hundred thousand tons of hydrogen, which is
Speaker 3: absolutely huge. To give you a frame of reference, if
Speaker 3: you did the same through electrolyzers, you would need six
Speaker 3: gigawatts of electrolyizers just to be able to produce those
Speaker 3: six hundredands tons of hydrogen. The world only sold or
Speaker 3: is expected to sell four gigawats over the next year
Speaker 3: or so, right in one year across the world. So
Speaker 3: this project alone, which is already under construction, is producing
Speaker 3: so much hydrogen then most projects that we've seen on
Speaker 3: the electrolyzer side, So that's one we've seen a lot
Speaker 3: of big ammonia producers in the US also trying to
Speaker 3: retrofit their existing ammonia plants so to produce blue ammonia,
Speaker 3: which is hydrogen where you capture the emissions and they
Speaker 3: make ammonia from it. CF Industries is building one and
Speaker 3: it's at it's Donaldsonville Complex. And then there is a
Speaker 3: few others on the green hydrogen side. I think the
Speaker 3: one that is worth mentioning the world's largest green hydron
Speaker 3: project currently under construction is the project in Saudi Arabia
Speaker 3: two point two gig or what's the electrolyzers producing about
Speaker 3: two hundred thousand tons of green hydrogen.
Speaker 1: Now, how about trade? Is the hydrogen trade industry really
Speaker 1: starting to show up as we look at these sources
Speaker 1: of supply and then where future demand could potentially be.
Speaker 1: And when I think about hydrogen, I think about trade.
Speaker 1: You know, when we brought it up on this show,
Speaker 1: we've talked often about converting the hydrogen into something else,
Speaker 1: so changing it into ammonia and then converting it back
Speaker 1: to hydrogen when it gets through to the other side
Speaker 1: and moving on ships. But almost like you know, transformers,
Speaker 1: robots in disguise. It's got to change shape each time
Speaker 1: in order to make it to where it needs to be.
Speaker 1: Are we still seeing a lot of discussion around the
Speaker 1: potential to convert hydrogen into various different things in order
Speaker 1: to get it where it needs to go, or are
Speaker 1: countries starting to increasingly think about actually having the demand
Speaker 1: near the supply, or actually the supply near the demand
Speaker 1: would be the direction you would do that in.
Speaker 3: I think there's a bit a bit of a disparity
Speaker 3: between like what countries want to do and what's actually
Speaker 3: happening on the ground. If you look at country strategies,
Speaker 3: particularly a lot in Europe. Germany is a big one there,
Speaker 3: but also Japan and Korea are looking to import vast
Speaker 3: quantities of hydrogen in various forms to meet their demand.
Speaker 3: What's really happening on the ground today is that most
Speaker 3: early projects are co locating with demand. Just because the
Speaker 3: infrastructure are transported isn't really there. If you're trying to
Speaker 3: transport it overseas, as you said, you need to convert
Speaker 3: it to something else to make it cheap. That's usually ammonia,
Speaker 3: because we already know how to transport ammonia. If you
Speaker 3: need hydrogen at the end of it, you need to
Speaker 3: crack back ammonia to hydrogen. That's a process that's still
Speaker 3: at demonstration scale and a bit expensive, so we haven't
Speaker 3: really seen projects go ahead off the back of that.
Speaker 2: But in our.
Speaker 3: Outlook, what we see is that out of the sixteen
Speaker 3: million tons, about five million tons of supply are export oriented,
Speaker 3: so some share of that will be exported. That is
Speaker 3: not to say all five million will be because we
Speaker 3: don't see a market for five million tons of trade,
Speaker 3: but five million tons comes from projects that are looking
Speaker 3: to export as well. How much that maybe that's two
Speaker 3: million tons three million tons of real exports in the
Speaker 3: form of ammonia, and most of these projects are targeting
Speaker 3: ammonia's exps. So that's where we see really the traded market.
Speaker 3: What's interesting within that is really just going to three places,
Speaker 3: as I said, Europe, Japan, and Korea. Japan and Korea
Speaker 3: are taking ammonia to put it into copower plants to
Speaker 3: co fired it and reduce the emissions of these plants
Speaker 3: that way. It's a very expensive process, but Japan and
Speaker 3: Korea are willing to subsidize that, which is why we
Speaker 3: see a lot of demand for it, particularly for blue
Speaker 3: ammonia because it's cheaper, so they just want the cheapest
Speaker 3: low carbon molecule. Europe is a lot more focused on
Speaker 3: green hydrogen or green ammonia imports, and what we're seeing
Speaker 3: within that is that we see some demand from Europe
Speaker 3: as well to have these imports.
Speaker 2: But what I think is.
Speaker 3: A big conclusion from our report is that when we
Speaker 3: looked at subsidized supply coming online in Europe, and making
Speaker 3: hydroen in Europe is expensive, so subsidies really drive a
Speaker 3: lot of the build out in Europe out the next
Speaker 3: few years. What we find is that there's actually lots
Speaker 3: of supply coming online, particularly the Nordics in Iberia, and
Speaker 3: if there was just inter European trade, so think pipelines
Speaker 3: from Spain to Germany, that would be enough apply to
Speaker 3: meet most of the existing demand in markets where there's
Speaker 3: a deficit and hydrogen for domestic production. That's Germany, Poland's,
Speaker 3: Eastern Europe in general. So the question is will these
Speaker 3: pipelines be available, and if there are, then a Spain
Speaker 3: or a Nordic country can meet that demand. If it's not,
Speaker 3: a Germany will rely more on overseas imports.
Speaker 1: So these projects, as you've established, take a long time
Speaker 1: to get off the ground on the production side, and
Speaker 1: it's very clear that the policy environment and tax incentives
Speaker 1: and whatever shape it takes is extraordinarily important in order
Speaker 1: for projects to succeed. So the companies engaging in these projects,
Speaker 1: are they essentially raising debt in order to get these
Speaker 1: projects done? And I guess really the question at the
Speaker 1: heart of it is who is financing these given the
Speaker 1: long timelines, and really what part of the community of
Speaker 1: investors that invariably have to be involved have the tolerance
Speaker 1: for something that takes that long to actually see through fruition.
Speaker 3: I think it really depends on the size of the project.
Speaker 3: If it's a small scale project, and we here we're
Speaker 3: talking about ten megawats, twenty megawats or less, electoralizer size,
Speaker 3: large companies can afford to finances of their balance sheet
Speaker 3: without needing to raise external financing at all.
Speaker 1: So this is why we see a lot of companies
Speaker 1: in the energy space, so we're actually getting into this
Speaker 1: and this just becomes an arm of their business that
Speaker 1: they're then looking into.
Speaker 3: Yeah, but once the scale really exceeds a few hundred
Speaker 3: megawats or a gigawad or so even large companies don't
Speaker 3: want to have that on the balance sheet, and obviously
Speaker 3: raising external that will be cheaper in terms of the
Speaker 3: financing costs of that project. So if you look at
Speaker 3: the largest projects, these are typical project finance deals, right,
Speaker 3: sixty seventy percent of the capital that you need is
Speaker 3: is debt from various banks and the rest is equity
Speaker 3: from the company involved and any other shareholder in the project.
Speaker 3: What these banks need to finance these deals, because these
Speaker 3: are first of a kind project is long term off take.
Speaker 3: So a buyer who's willing to buy the hydrogen or
Speaker 3: ammonia for like ten, fifteen, maybe even twenty years at
Speaker 3: a certain price with some variable range around that. Without that,
Speaker 3: very few banks are willing to finance it. So if
Speaker 3: you look at for example, Neon, that's eight and a
Speaker 3: half billion dollars in capex, So that's a huge capital outly.
Speaker 3: I believe about six billion out of that comes from
Speaker 3: debt from external banks.
Speaker 1: And are these projects difficult to get financed or the
Speaker 1: banks essentially kind of falling all over themselves and fighting
Speaker 1: off each other to actually get involved because there are
Speaker 1: you know. I think about green bonds, there was a
Speaker 1: point when the supply certainly did not meet the demand
Speaker 1: for green bonds. Where do these hydrogen projects actually fall
Speaker 1: in that spectrum?
Speaker 3: I would say that again depends. Most of the projects
Speaker 3: are struggling to secure an off taker, so no one
Speaker 3: wants to even touch that in terms of financing because
Speaker 3: it's risky, right, new technology. We don't know how that
Speaker 3: scales and how that works. No guaranteed offtake or buyers
Speaker 3: or the revenue isn't guaranteed, so no one wants to
Speaker 3: finance that type of project. And the vast majority today
Speaker 3: I think twelve percent of the supply until twenty thirty
Speaker 3: we think has identified an off taker.
Speaker 2: Today.
Speaker 3: Out of that ten percent or so is binding. So
Speaker 3: one percent of supply announced until twenty thirty has a
Speaker 3: binding off take behind it. But I think if you
Speaker 3: are within that one percent to have a binding off
Speaker 3: take over ten years, fifteen years or so. What we're
Speaker 3: seeing in the first large scale projects, particularly if they
Speaker 3: have government backing on the financing side, which is credit guarantees,
Speaker 3: cheaper loans from governments, and in some ways banks are
Speaker 3: actually trying to compete to be able to finance that
Speaker 3: neon was oversubscribed. Hay Shreulgreen Steel, which was a European
Speaker 3: example for a hydrogen to steal project over subscribed in
Speaker 3: terms of lending, and the margins that these lenders charge,
Speaker 3: which is a reflection of the risk that they're looking
Speaker 3: to take, is relatively small. So when you have all
Speaker 3: the elements in place, which is particularly a binding off
Speaker 3: take long term off take, and the revenue is secured,
Speaker 3: this becomes very competitive. When you don't, which is true
Speaker 3: for most projects, then no one really wants to finance it.
Speaker 1: So Addie, one of the things I think is probably
Speaker 1: really fun about looking at this space is that it's
Speaker 1: actively evolving, right, There's so much to keep track of
Speaker 1: and a lot of movement, but at the same time
Speaker 1: really difficult to then make a forecast and to think
Speaker 1: about the future in any sort of and great ways.
Speaker 1: So how confident are you in your look into the
Speaker 1: future and some of the forecasts that you're putting forward.
Speaker 3: Yeah, I mean, as they say, all forecasts are wrong,
Speaker 3: it's just about how wrong you are and how confident
Speaker 3: you are in the results. What I would say is like,
Speaker 3: this is the first time we're ever doing a bottom
Speaker 3: up forecast for low common hydrogen. It doesn't really exist
Speaker 3: out there, simply because it's such a new market with
Speaker 3: relatively a big lack of track record to say like, Okay,
Speaker 3: this market evolves this way. That's why we can say
Speaker 3: this confidently. What we have done is like, because we
Speaker 3: looked at every single announced project and decided like about
Speaker 3: five hundred of them are somewhat advanced, we have somewhat
Speaker 3: of a confidence that at least like these advanced projects
Speaker 3: are likely to happen over the next few years or so.
Speaker 3: So out of the sixteen million tons I mentioned, about
Speaker 3: ten million tons are at some form of advanced stage.
Speaker 3: So really what I would say is like our forecast
Speaker 3: is somewhere between ten to sixteen million tons. If it's
Speaker 3: within that range, I think if it ends up being
Speaker 3: in that range, I think that's pretty good from today's perspective.
Speaker 3: So there is still a lot of variability. What I
Speaker 3: would say biggest uncertainties are China. China could build a
Speaker 3: lot more than what we're seeing within our outlook, and
Speaker 3: then that's a lot of the policy that has been announced.
Speaker 3: Auctions across Europe for electualized deployment don't happen or don't
Speaker 3: happen on time. That could also delay, particularly the policy
Speaker 3: driven part of our outlook. Right, maybe if I break
Speaker 3: it down, the sixteen million tons breaks into about two
Speaker 3: point seven million tons of projects that have already taken
Speaker 3: a final investment decision or already operation.
Speaker 2: That's pretty sure to happen.
Speaker 3: Right, you really have to have a big change for
Speaker 3: these projects to not come online. Then another as I said,
Speaker 3: seven eight million tons or so are in advanced planning,
Speaker 3: so they are in discussions with an off taker. They
Speaker 3: have already done all the engineering studies that you need
Speaker 3: to do to be able to take an FID. All
Speaker 3: they need to do, I means still a big step
Speaker 3: is to raise financing for these projects and then take
Speaker 3: this final investment decision. As long as the policy environment
Speaker 3: is there and as long as they have a project
Speaker 3: that is solid, then these are likely to happen. And
Speaker 3: then there's another six million tons or so that are
Speaker 3: still at early stages but could happen if these auctions
Speaker 3: in Europe, go aheads and other side obsoity programs come
Speaker 3: to fruition as they are announced.
Speaker 1: Given the role that the US Inflation Reduction Act plays
Speaker 1: in the supply side. How closely are you watching the
Speaker 1: US elections.
Speaker 3: We are watching the elections. The good thing for the
Speaker 3: hydrogen industry is that the hydrogen tax credit as announced
Speaker 3: has bipartisan support, So no matter what way it swings,
Speaker 3: I would say, from today's perspective, at least I would
Speaker 3: think that the hydrogen tax credit would stay as is.
Speaker 3: I think where the biggest changes could happen is in
Speaker 3: the implementation of the tax credits. So I think you
Speaker 3: mentioned it before. There's still lots of discussion around who
Speaker 3: can access the tax credit and how the project needs
Speaker 3: to be designed from an emissions perspective to access these
Speaker 3: tax credits. And this discussion has been going on since
Speaker 3: the last two years in the US around the forty
Speaker 3: five V tax credit. We still don't have clarity and
Speaker 3: that's holding back projects. So no green hydroen project wants
Speaker 3: to take investment decision today without having clarity and how
Speaker 3: they can access these crucial track tax credits, and that
Speaker 3: we're seeing that in our outlook. A lot of projects
Speaker 3: are getting delayed because of that. So what you first
Speaker 3: need is clarity, and like once that happens, that hopefully
Speaker 3: happens over the next few months or so, you'll see
Speaker 3: decisions being made. I think the two things that could
Speaker 3: change what will happen to the US is after the election,
Speaker 3: any change to the tax credit. There's this thing called
Speaker 3: the Congressional Review Act that, like any law that has
Speaker 3: passed quite late towards like a change in the Congress,
Speaker 3: can be reviewed and changed as well. That also creates
Speaker 3: uncertainty for investors. So all of those could still change
Speaker 3: your outlook for the US, But as of now, we're
Speaker 3: confident that the HydroD tax credit at least stays in place.
Speaker 1: Tell me a bit about targets and whether or not
Speaker 1: that is something that is really driving this space forward,
Speaker 1: And if countries, in addition to creating the different policy
Speaker 1: environments that are actually seeing hydrogen forward, are they also
Speaker 1: setting targets that are committing outwardly to the rest of
Speaker 1: the world their level of commitment to this industry as
Speaker 1: a source of decarbonization.
Speaker 3: Yeah, pretty much every major economy in the world has
Speaker 3: now set out a hydrogen strategy. Within that they have
Speaker 3: a target for twenty thirty, twenty forty, twenty fifty or so.
Speaker 3: If you aggregate those targets governments across the world want
Speaker 3: to produce about thirty four million metric tons of hydrogen.
Speaker 3: So in our outlook, what we're getting to is that
Speaker 3: governments will miss their aggregate targets by half. Why that
Speaker 3: really happens is one very ambitious target setting before we
Speaker 3: really understood how quickly this industry could scale. Policy implementation
Speaker 3: has been much slower than expected, so a lot of
Speaker 3: these auctions and subsidies haven't come through as quickly as
Speaker 3: initially announced. And I think some of these targets, particularly
Speaker 3: when we look at the EU, the most recent target,
Speaker 3: the EU wants to produce ten million tons of green
Speaker 3: hydrogen domestically and import another ten million tons by twenty thirty.
Speaker 3: Those were set in response of the Russian invasion of Ukraine,
Speaker 3: so the EU needed to react and wanted to get
Speaker 3: rid of as much Russian natural gas as possible. Hydrogen
Speaker 3: was one of the potential solutions, so they set the
Speaker 3: very ambitious target for twenty thirty, which we don't think
Speaker 3: is realistically met. So we think the EU will produce
Speaker 3: two point four million tons a quarter of what they
Speaker 3: actually want to make domestically. So partly the reason is
Speaker 3: like policy implementation, but also these targets were set at
Speaker 3: a time as response and a bit too ambitiously. Then
Speaker 3: we think what could be realistically achieved.
Speaker 1: So we've talked a lot about the important role of policy,
Speaker 1: and it seems like a lot of that support is
Speaker 1: really on the supply side, whether it's the projects themselves
Speaker 1: to create hydrogen or even in the manufacture of electrolyizers.
Speaker 1: But what are policy makers doing about demand? Because in
Speaker 1: order to create an industry, you need supply and demand.
Speaker 2: Yeah, I would say not enough.
Speaker 3: That's something we've been highlighting over the last year or
Speaker 3: so that we see a lot of support for supply,
Speaker 3: so lots of subsidies to make hydrogen, but not enough
Speaker 3: incentives for potential buyers of hydrogen to actually switch to
Speaker 3: any form of low carbon hydrogen and sign a long
Speaker 3: term off take that these projects need. So most governments
Speaker 3: subsidize supply through some sort of production subsidy, whether that's
Speaker 3: a contracts with difference program, a tax credit or something
Speaker 3: like that, but only a few governments has se any incentives.
Speaker 3: Most of these incentives for buyers are carbon prices quotas.
Speaker 3: The USS established quotas for hydrogen use, same as South Korea,
Speaker 3: but that's the only two areas in the world where
Speaker 3: you have quotas for hydrogen UPTIC. I think more widespread
Speaker 3: use of potentially quotas could increase uptick, particularly as if
Speaker 3: the penalties are large for not meeting them, because what
Speaker 3: that does it creates a willingness to pay, So buyers
Speaker 3: are willing to pay up for green hydrogen over fossil fuels,
Speaker 3: and that enables a lot of these projects to go ahead.
Speaker 3: I think something we have been starting to say as well,
Speaker 3: this industry is built by production subsidies making products a
Speaker 3: bit cheaper than they are today, but also buyers willing
Speaker 3: to pre pay a premium over fossil fuel, So you
Speaker 3: need both to come together for these projects to go ahead.
Speaker 1: We did a previous show, and I think it was
Speaker 1: a couple of years back now, where we went through
Speaker 1: all of the different colors for hydrogen. So I mean
Speaker 1: it was pink and purple and then invariably the gray
Speaker 1: and blue that we're talking about here, and lots of
Speaker 1: other colors actually, but it does seem to be that
Speaker 1: what we're really talking about when it comes to decarbonizing
Speaker 1: and using hydrogen, green and blue are going to play
Speaker 1: dominant role in the future. What does your forecast tell
Speaker 1: you about which of the two, what's the balance going
Speaker 1: to be? And if this was a race, who's winning.
Speaker 3: Even though we have the US leading on low carbon
Speaker 3: hydrogen supply and that most of that being blue hydrogen
Speaker 3: the US and very few markets and exception to the rule,
Speaker 3: which is across the world there is more policy support
Speaker 3: for green hydrogen using electualizers. So globally speaking, sixty percent
Speaker 3: of the supply until twenty thirty we think comes from electrolysis,
Speaker 3: so called green hydrogen, and forty percent comes from blue
Speaker 3: and that forty percent is really the US, the UK,
Speaker 3: and some a few other smaller countries. Most of the
Speaker 3: world produces green hydrogen in our outlook as well.
Speaker 1: Addie, thank you very much for joining today and providing
Speaker 1: us an update on what's happening in hydrogen. I know
Speaker 1: all eyes are on it at the moment and really
Speaker 1: appreciate you having a forecast because figuring out where this
Speaker 1: is going to go with all this potential is certainly
Speaker 1: something that a lot of people are watching closely.
Speaker 2: Thanks Dana.
Speaker 1: Today's episode of Switched On was produced by cam Gray
Speaker 1: with production assistance from Kamala shelling. Bloomberg NIF is a
Speaker 1: service provided by Bloomberg Finance LP and its affiliates. This
Speaker 1: recording does not constitute, nor should it be construed, as
Speaker 1: investment advice, investment recommendations, or a recommendation as to an
Speaker 1: investment or other strategy. Bloomberg ANIF should not be considered
Speaker 1: as information sufficient upon which to base an investment decision.
Speaker 1: Neither Bloomberg Finance Lp Nor any of its affiliates makes
Speaker 1: any representation or warranty as to the accuracy or completeness
Speaker 1: of the information contained in this recording, and any liability
Speaker 1: as a result of this recording is expressly disclaimed.