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The Hydrogen Economy

 

A weekly comprehensive report focused on unlocking the potential of the hydrogen market. This new weekly report is designed to provide comprehensive insights and analysis on the latest trends, developments, and investment opportunities in the hydrogen sector.

 

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Comprehensive Coverage: Our report goes beyond surface-level analysis, offering a deep dive into the hydrogen economy. You’ll receive actionable insights that can shape your strategic decisions. Understand the key trends shaping the hydrogen economy, including government policies, investment activities, and technological advancements.

Timely Updates: Be the first to seize emerging opportunities. Analyze the competitive landscape with detailed profiles of key players, their strategies, market positioning, and recent developments.

Valuable Intelligence: Identify lucrative investment opportunities in hydrogen infrastructure, production technologies, and emerging applications across industries. Gain access to exclusive data, market forecasts, and in-depth analysis that reveal untapped potential and help you capitalize on the growth of the hydrogen market.

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Hydrogen Economy Update Report Features:

 

  • Market Trends and Drivers: Understand the key trends shaping the hydrogen economy, including government policies, investment activities, and technological advancements.
  • Competitive Landscape: Analyze the competitive landscape with detailed profiles of key players, their strategies, market positioning, and recent developments.
  • Investment Opportunities: Identify lucrative investment opportunities in hydrogen infrastructure, production technologies, and emerging applications across industries.
  • Regulatory Insights: Stay informed about the latest regulatory frameworks, incentives, and mandates driving the adoption of hydrogen as a clean energy solution.
  • Market Forecast: Access accurate market forecasts, growth rates, and revenue projections for key segments of the hydrogen economy.
  • Data Visualization: Visualize complex data through engaging charts, graphs, and infographics, enabling quick understanding and decision-making.

    The Biden $1 per KG Hydrogen Target, Causing More Problems Than It Solves

    The enthusiasm behind cheaper green hydrogen relatively quickly shows the Biden Administration’s ambition, but it may drive its failure because of electrolyzer overinvestment and overall project delays.  

    Overinvestment in electrolyzer capacity, supported by grants and tax incentives, will leave too many companies chasing too little business – few will get economies of scale, and many will likely fail as cash runs out.

    As potential hydrogen users see lower cost projections from the Administration, they are reluctant to support current projects with long enough take or pay contracts for the projects to get funding; this slows progress.

    Graham Copley will attend the World Hydrogen North Americas conference in Houston this week to represent Issaquena Green Power and discuss C-MACC work in hydrogen and associated industries.

    Mandated Expense – Can Europe Afford Its Current Pathway?

    Most of the European hydrogen projects that we cover need high premium pricing, which they are getting through grants, subsidies, and fuel value mechanisms that allow fuel makers to pay the necessary high prices.

    But this is expensive, and someone must pay – in a worst case below we estimate a hydrogen subsidy growing to 1.3% of current EU GDP by 2040 – things are expensive in Europe and even higher costs will limit GDP growth.

    Carbon pricing in Europe also factors into hydrogen economics, blue and green, and with weaker carbon pricing, because of industrial cutbacks, some of the projects in the chart below will need even more subsidies.

    We remain convinced that the electrolyzer market could face chronic oversupply for years, yet governments keep funding expansion – this will not lead to lower costs it will lead to bankruptcy – more next week.

    Meanwhile, ammonia pricing is trending down globally, and this will make some of the blue and green projects more challenging as company directors and lenders pay more attention to current pricing than forecasts.

    We Can Rescue Green Hydrogen By Throwing A Lot Of Money At It – But Why?

    • The economics of intermittent hydrogen are poor, and you need both very low capital costs and very low power costs to make any sort of return – even with 45V – those investing today hope for something more.
    • The lobbying around changes to 45V is driven by the severe challenges with finding conditions that allow you to benefit from the incentive and make money. Temporal matching with intermittent power is the real killer.
    • Other regions are also falling short, though “contract for difference” incentives could work, where governments are willing to shoulder the huge subsidy that will create. But even then, physical power availability is a hurdle.
    • The incentive (taxpayer) cost of removing carbon for blue hydrogen is much lower than for green – the incremental cost of removing the extra carbon is therefore very high – DAC based credits would be far cheaper.
    • In the projects section we show several in Europe that are being aggressively subsidized and still look barely profitable without premium prices, and we look at incremental carbon improvements for ammonia.

    If Only We Had Cheap Power – The CCUS Properties of Hydrogen.

    Like transport, there are pockets of hydrogen opportunities associated with CO2 use that might make economic sense where carbon disposal costs are high and local curtailed power can deliver cheap hydrogen.

    The power is not there for scale applications and by the time there is sufficient power most of those with hard carbon abatement problems will have taken a different path. This is likely opportunistic and small-scale.

    Again, we have an idea that could drive hydrogen production but does not drive hydrogen scale – and our concerns remain that all those building capacity for electrolyzers have demand projections that are too high.

    We see project momentum behind blue hydrogen, and all the green initiatives are either small or expensive. Spreading limited electrolyzer demand among too many players means scale is years away – post consolidation.

    While power is the primary constraint to faster green hydrogen investment, in the US the constraint is the power grid, as there are enough projects on the sidelines waiting for connections before construction starts.

    Hydrogen For Transport – Some Early Opportunities But Unlikely to Drive Much Needed Scale

    The trucks and trains may end up being the most meaningful early adopters of green hydrogen as a fuel because there are only limited pockets of cheap power and this favors liquid fueling. Engine makers could win.

    The economics of running large-scale ammonia or e-fuels from low-volume batch hydrogen will likely not work even with significant subsidies and blue projects are stalled because of permitting and financing.

    Pockets of cheap/free wind and solar power are distributed and so lend themselves to supplying a transport focused grid – filling station for trucks – hub and spoke commercial operations and possibly trains (Europe).

    Governments are spending to support hydrogen infrastructure, which may allow for development of systems that could work without undue inflation – the electrolyzer capital would be inefficient, but free power helps.

    But lots of small hydrogen facilities will drive small orders for equipment, initially spread among too many electrolyzer suppliers; it will not solve capacity oversupply and likely will not see anyone gain scale benefits.

    Making The Most of Unattractive Economics – Finding the Best Pathways

    For a hydrogen investment to work several factors need to be stacked in your favor, not just one or two. Lining up all the options should give you a place to start, but it is unlikely that any two opportunities will be the same.

    The most common misalignment is where you can find inexpensive power, but you cannot find nearby demand, but sequestration opportunities vary dramatically with geography and jurisdiction, and capital costs vary also.

    In our Sunday piece we discussed deteriorating geopolitics as one of the uncertainties in ethylene rationalization globally, and the role of China in energy transition technology and spending remains a wild card.

    Investors need to get behind projects where they have a handful of unique opportunities to help drive a profitable solution, but in almost all cases one of those opportunities will need to be a customer willing to pay.

    US ammonia and methanol cost advantages remain significant, but coal-based methanol supply in China is keeping pressure on prices and margins – blue projects do not need high prices, but they need stability.

    The Hydrogen Optimists – Often in “La La Land” and Always Unhelpful

    We have done substantial work on the perils of business optimism in the past and the underlying problem is the misallocation of capital and the negative impact on returns.  

    While this work was focused on large public industrial and material companies we see corollaries in hydrogen, today, as excessive optimism at the start-up companies at the subsidizing governments is wasting capital.  

    Green hydrogen delays will expose the premature spending, weakening results for the larger established companies and likely sinking the over-levered newcomers. Delays are driven by permitting and economics.   

    Otherwise we look at a hand full of projects, none of which will work without subsidies or premium pricing, we also look at the US ammonia advantage, and China’s power, hydrogen, and ammonia opportunity in Africa.

    The Power Generation Demand for Clean Ammonia: Could Be Huge, but The Economics Matter

    If Japan can show tangible success in co-firing its coal facilities with ammonia, and as many regions struggle to keep up with the growth in power demand and transition needs, other countries may look to mimic Japan.

    Demand would be very price sensitive, but depending on how carbon values develop, power generation could put a floor under ammonia pricing through the 2030s – we have only looked at developed Asia.

    Blue ammonia is the obvious choice here because of costs, but also because large-scale investments like blue ammonia lend themselves to the “cost plus take-or-pay” offtakes that are needed to get financing.

    We set up next week’s report by looking at whether too much optimism is a constraint to progress – if the consensus is that costs and prices will fall over time, why buy today? No progress = no better costs/pricing.

    We show very little project activity this week but have some views on why the agricultural side of ammonia may be worth investing in this quarter and a lot more on power.

    The Great Hydrogen Reset – Economics and Insufficient Incentives Spell Trouble for Some

    It is very hard to get away from the physics of splitting water atoms, and without cheap power, the economics don’t work. One of the core messages of CERA Week was expected power shortfalls – not good for hydrogen.

    A very skeptical John Kerry reluctantly admitted that CCS was likely needed in transition, and this is clearly the bet that the US majors are making, and by so doing, supporting the idea that blue hydrogen has real potential.

    We have suggested that the evolution of the market looks discouraging for green hydrogen equipment producers, especially those who have spent too much – the discussions over the last week reinforce that view.

    To develop the green hydrogen market, we will need to move demand to sources of cheap and reliable power, and where this is not close to the centers of demand, we will need to move the hydrogen as something else.

    With a growing interest in direct air capture (DAC), E-Fuels investments may make more sense at remote cheap power locations than ammonia – but everywhere there is cheap clean power, data centers for AI may pay more.

    45V – The Red State Rush!

    • Some of those concerned that a Trump administration would repeal the 45V tax credit for hydrogen are pushing forward with projects in Republican states in the hope that their support will keep 45V in place.
    • With so much of the infrastructure and IRA funding targeting Republican-biased states, the only real (non-vindictive) reason to roll back some of the incentives would be anticipated affordability – jobs are being created.
    • With the many investment challenges we have outlined for hydrogen, costs, incentive risk, & power availability, it is unlikely, in our view, that we will get much through FID by November – but we may see more plans.
    • Texas has momentum, in part because of the significant renewable power investments in the state, but also because of the unregulated utility that covers most of the state and because of possible low-cost CCS.
    • Otherwise, we are excited about almost 60 hydrogen-related presentations or forums at CERA, with some of our initial thoughts discussed below – no projects this week – we will double up next week if there are any.