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Takeaways from Third Bridge Forum’s Hydrogen Days

  • Private Equity
  • Energy
  • North America

A clean alternative to methane, hydrogen is the most abundant chemical element, estimated to represent nearly 75% of the mass of the universe.* As countries ramp up their net-zero ambitions, demand for hydrogen is projected to soar fivefold by 2050, with growth and market sizes hinging on transportation technologies and industrial applications. Against this backdrop, Third Bridge Forum hosted a two-day virtual conference in May 2022 featuring nine Interviews exclusively on hydrogen. These shed light on the areas in which production and related technologies are taking hold. This article covers a few of the many insights gleaned from our extensive panel of experts.

While there are many questions regarding hydrogen’s future role in the energy mix, investors are taking note of developments in this space. As we heard from a former executive at FuelCell Energy Inc, a “tremendous” amount of capital was raised for public and private fuel cell companies in 2021, with valuations based on the notion that hydrogen fuel cells represent a significant addressable market.

“There have been advancements in policy, in incentives on a global scale, and, to some degree, regulation,” the expert said. “There’s also, if you look at individual companies, again, both private or public, you will see generally there’s been revenue growth over the last 12 months and there’s certainly been growth in the backlog of all these companies.”

But as we heard in an Interview with a former SVP at Air Products and Chemicals Inc, the market for battery electric vehicles (BEVs) and fuel cell electric vehicles (FCEVs) has not yet reached even 3% of the total vehicle market. It remains incumbent on the industry to create the demand it needs to expand, we were told. 

The former FuelCell Energy Inc executive believes one of the main obstacles for hydrogen fuel cell adoption is establishing demand, particularly against competing trends such as electrification and renewables. In a capital-intensive industry with many business models, creating a value proposition where “your solution is the preferred one” is key, they said. Across the board, this comes down to cost reduction, we were told. “Cost reduction in this industry is dependent, at this point, on scale. It’s really not a design issue.” Performance is also now predominantly assessed in terms of module life rather than efficiency, they added. Extending module life is a major industry goal.

To reach scale, greater progress is needed in two “major” areas: infrastructure, including who is going to pay for it, and transportation. “Even if you’ve got a very cost-effective hydrogen fuel cell in the vehicle, and you have cost-effective hydrogen, you’ve got to get it to people,” our expert said.  

Fuelling stations are a big piece of the infrastructure puzzle and a former executive at Great Wall Motor Co Ltd noted there are “a few industrial gas companies in the space”, including Linde, Air Liquide and Shell. There are also emerging construction players, such as Nel and FirstElement Fuel, which is leading the charge in California. OneH2 and Plug Power are also making headway, we were told, with the latter expanding its portfolio from fuel cells into other components of the hydrogen supply chain.

However, we appear to be a long way away from fuelling stations becoming commonplace. As of mid-2021, California has 47 and Hawaii has one, but there are no others in the US. California’s maturity is largely down to Toyota and Hyundai’s growing presence in the state, the former Great Wall Motor Co Ltd executive said. “I think that that’s pretty much going to remain that way, with the exception of maybe New York City, maybe the New England market might start to see some of those public filling stations, but I think it’s going to be several years before you actually see a lot of public refuelling stations.”

Looking ahead, we heard the most lucrative market for fuelling stations will “definitely” be medium- and heavy-duty vehicles, adding that those built for light-duty vehicles could be “losers for a number of years”. This is because there are fewer light-duty vehicles powered by hydrogen, making it less economically viable. Further progress will be based, our expert hopes, on a recent bill passed to support the launch of hydrogen hubs across the US. 

There are also different fuelling models and something to consider here is the shortage of hydrogen in the energy market, we were told. While some companies generate hydrogen on-site via electrolysers, others adopt a hub-and-spoke approach, generating large volumes via steam methane reformation, for example. The main bottleneck to the latter is the lack of a market itself and the need for off-takers, our expert said. As a larger market, heavy and medium-duty markets can sustain that requirement, but on-site production is a better fit for light-duty vehicles. “On-site production is not necessarily sustainable once the market improves, but that could be over a decade or so once the market comes to fruition, but, for now, I think it’s a good start,” according to the former Great Wall Motor Co Ltd executive. They said the small number of vehicles in California today does not justify “hundreds of millions of dollars for these large hub-and-spoke models”. 

Mirroring this, a former executive at Hyzon Motors Inc said fuel cell growth has been dominated by commercial vehicles. Discussing BEV technology versus FCEVs, they noted that the former is more advantageous for city driving, assuming the availability of charging stations. Fuel cells, on the other hand, are better suited to long distances, when roads are also likely to vary in gradient and therefore require more power. “If… [a] truck is running on hydrogen, it’s not carrying several tonnes of batteries which detract from the economic payload,” the former SVP at Air Products and Chemicals Inc said. “It’s that type of analysis, I believe, that will lead us in the direction of where hydrogen may and may not be a fit.”

Although it may seem time for hydrogen to have its day in the sun, a number of challenges remain. Chief among them is that most hydrogen today is extracted from fossil resources, although green and blue hydrogen, made from renewable energy or decarbonised sources, are gaining momentum.1 https://trendsformative.com/hydrogen-challenges-and-opportunities/ According to McKinsey’s Global Energy Perspective 2022, supply is expected to shift from nearly 100% grey hydrogen to 95% clean production by 2050 as costs decline and policymakers support technology adoption.2 https://www.mckinsey.com/industries/oil-and-gas/our-insights/global-energy-perspective-2022  

Finally, we heard, Hydrogen’s ultimate impact on energy demand could be “huge” – or “quite modest”. With the BEV and FCEV market currently less than 3%, its growth potential is “massive” but hinges on how countries set their carbon reduction targets. The Russia-Ukraine conflict has also underscored the weakness in oil and gas availability and as a result focus is shifting towards independent energy solutions – and “hydrogen has become front page news for that”.

The former Hyzon Motors Inc executive predicted that in Europe the fuel cell market will reach 5-10% in the next 3-4 years as countries such as Germany, the Netherlands and Sweden push towards their net-zero goals. Places including India, South Africa, South America and Middle Eastern countries are expected to follow suit as their decarbonisation plans accelerate. But ultimately, the industry is in the early stages of hydrogen production and rolling out infrastructure, with one of our experts describing a “chicken and egg” scenario in which investors are trying to grasp whether hydrogen refuelling infrastructure, or the vehicles themselves, will come first.

See the full list of Forum Interviews held during the two-day hydrogen event:

*National Grid

Related Transcripts

The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.

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