The Exchanges

Q And to what would you ascribe the bubble bursting? Like, fundamentally, why did it, I mean, all bubbles burst, if they're bubbles, definitionally, but like, what made this bubble burst?

A Yeah, so great question. So why would the bubble burst? Well, what's green hydrogen all about? It's all about avoiding emissions in very hard to decarbonize sectors of the economy. Green hydrogen Unfortunately, has been and continues to be an expensive solution to those problems. Now, there's no cheap solution to those problems. It's worth pointing out. Right? All solutions to those problems are expensive. But at the, the peak of the hype, there was a naive hope that society was willing to pay the difference for deep decarbonization because it had turned into a, decarbonization had turned into a global priority. Right? We had, kind of, Europe, the US, Asia, everybody had a hydro, every country had a hydrogen strategy. The world's changed dramatically since then. And I think that political climate is resulting in a retraction from commitment to retooling critical industries at some expense for the purpose of decarbonization. Green hydrogen, it is also true. Is expensive, and it's been too expensive, uh, over the last few years. Um, and it's been too expensive for a couple of reasons. If you look at the cost of making a kilogram of green hydrogen, um, today, let's say in southern Europe, it might be unsubsidized. It might be maybe six dollars U.S. a kilo. I think rough numbers, that might be about right. That can be broken down Roughly fifty-fifty into CapEx and OpEx. OpEx being …

AI assessment note: “political climate is resulting in a retraction from commitment to retooling critical industries”

Q is, like, why is the CapEx for, for electrolyzer, for electrolyzer systems? Why has it Been so high. Can you break it down? Like what is the, what is the cost stack of a traditional electrolyzer project? And then you can briefly talk about like what electric hydrogen is doing differently there. But, but first I want to start with like, what, three dollars a watt, like what happened here?

A Yeah. What happened at three dollars a watt? Um, so if you look at the cost stack of, of a conventional electrolyzer, you're a project developer, let's say in In, in Spain and, uh, and you're trying to build a hundred and 150 megawatt electrolyzer someplace, right? Um, how are you going to go about doing it? You're going to contract with an EPC. It's an engineer, procure, construct company. You're going to select your technology. Maybe you're going to, I mentioned two names before, so I'll pick one. You're going to maybe select Siemens. Um, that's your technology provider. And you're going to go through what's called a feed study, which is front end engineering design. That's where the EPC takes all of the requirements from the equipment supplier, the technology supplier, and figures out how to build that thing on your site, right? The total installed cost is what drives levelized cost of hydrogen. It doesn't matter what the electrolyzer costs per se. It matters what the constructed cost of the plant is. And in a typical project like we're discussing, Roughly half of the total installed cost goes to the EPC. What are they doing? They're grading the plot. They're managing stormwater. They're building the building that the electrolyzer is going to go into. They're building the substation. They're sourcing and selecting all of the support equipment, whether it's chillers or air co…

AI assessment note: “Roughly half of the total installed cost goes to the EPC.”

Q you solve it? How do you, I mean, not just the EPC, but they're tied to each other. Like, what is the, What's the solution to the CapEx problem? We could talk about what's the solution to the overall system cost, too, but on the CapEx side, how do you get away from this EPC ballooning and drive down the cost of the stack? Because I think you need to.

A Yeah, and I think it is important to talk about the overall solution cost as well, because they're not necessarily decoupled, but, uh, just starting with the capital cost, the The secret to it, it's no secret, is to think at the system level holistically, right? So what are those, all of those costs? Maybe let me back up. When we think about, um, when we think about our product, and the scope of our product, and how we present it into the market, the, um, the guiding light for us, the North Star, is levelized cost of hydrogen, right? So we think about it from the perspective of our customer's project pro forma. And when you look at the problem that way, you very quickly have to, uh, accept that the EPC cost must be in scope for your engineering team to try to address, right? There's just a big chunk of cost that's being thrown to the wind, left to others to contend with. And you could throw your hands up and say, well, yeah, but there's nothing that can be done about that. Because construction costs what construction costs, but it turns out that's not really the case. Now, there's a deep technology component to the solution, which is actually, quite simply put, making the electrolyzer as dense as possible. That enables the balance of plant construction to also be quite dense and small, and hence amenable to what's called modularization, which is just the chemical industry's ter…

AI assessment note: “making the electrolyzer as dense as possible. That enables the balance of plant construction”

Q question everyone gets, you get all the time, I'm sure, is, um, are we just gonna get a flood of cheap electrolyzers shipped from China And one, is that gonna solve the problem, right? From a societal perspective, are we just gonna get cheap electrolyzers like we've gotten cheap solar panels from China? Um, and two, like, what does that mean if you're not a Chinese player in the market?

A Yeah, let's talk about that. It turns out a large industrial electrolyzer green hydrogen facility looks more like a, you know, if you just walk up to it, it looks more like a gas generation plant. Like a combined cycle plant, then it looks like a solar array. What do I mean by that? I mean, it's a complicated thing. It's got a lot of pipes and valves and, and stuff going on, um, which makes it much less amenable to low-cost manufacturing at scale, kind of putting a low-cost product in a box in China and shipping it to someplace and letting someone install it. So it is true that the global market is flooded with really cheap Chinese electrolyzers. These are like Two megawatt electrolyzers that are the size of a school bus and way more than a school bus, and they need to sit in a building and have this, like, chemical plant wrapped around them to support them and operate them. So the, um, the normal approach that China has used in other industries to drive cost out, um, really kind of only addresses the cost of the electrolyzer stack or stack and power conversion. It doesn't address the EPC component Of the cost buildup. And so it's a limited, there's a limited opportunity for overall total installed cost reduction, taking that approach. It's real, by the way, you know, we see, um, integrators building or promising to build using Chinese equipment systems in the European market a…

AI assessment note: “I don't think the same game that worked in solar works in green hydrogen.”

Q your view, okay, if you can sell at a thousand bucks-ish today and drive, and that's, you know, entering the market at a thousand bucks and a And presumably we'll be able to drive costs down from there if you're able to scale. What, what does demand look like? What does it rely upon in terms of policy support? What's your view? Like, what's your thesis of the market here?

A Yeah, the current market is still policy supported, primarily in Europe. So Europe has, to get a little policy wonky here, Europe has the Renewable Energy Directive III, REDD III, so-called REDD III. RED-III has a component in it called RFMBO, which is the, um, the part of the RED-III law that stipulates the, um, the gradual conversion to, partial conversion to renewable molecules, e-molecules, and these, these range from, uh, hydrogen itself, um, to things like green methanol and green ammonia for various purposes. Um, That policy, I think, has been, geez, I don't know when, when red two and three were enacted, but it's been years. Um, but the way European policy works, uh, the EU law has to be, what's called transposed or translated into national level rules, which then drive project decisions. And those rules are being transposed as we speak. It's underway. The process is underway. Uh, I think Romania has transposed, uh, Red Three now. Uh, I think Netherlands are close. Germany's very close. Uh, Spain is about to, to do so. Uh, long list. Um, and so we are seeing, uh, in the short term a policy-driven market. What do I mean by policy-driven market? I mean, markets where the green product is more expensive than the gray product, but There is a compulsion to make a conversion and hence, ah, an absorption of that cost by society. That's, that's, that's the nature of the market …

AI assessment note: “the current market is still policy supported, primarily in Europe.”

Q where could you achieve fossil parity? What cost would it take on your side for that to be true? Um, and And similarly, is it like in those markets, is there a, is there a premium that has to get bought down? Is there a secondary benefit? To green hydrogen that doesn't, isn't entirely about the emission savings? Like what's the theory of the case on how that plays out?

A Yeah. We are getting more sophisticated on that last point. And, uh, uh, we experienced the same thing in the solar industry. If you remember it initially was all about carbon and then later it was about energy security. Um, and today it's about both, right? It's about energy security. It's about carbon. It's also about volatility hedging. Right. You, you buy a green PPA, that's a fixed price for 10 or 20 years. Um, whereas if you buy fossil power, you, your price for that power kind of floats with the fuel price. Um, so there's, there's various values that can be derived from, from conversion to renewables that are independent of the carbon footprint of the renewables. And we're starting to see the same Kind of more sophisticated point of view in the market emerging in e-molecules. Um, I'll talk for a little bit about a market that I'm Really interested in. And it's not a market we're incredibly active in. We've, we've, we've just dipped a toe in the water over there, but, um, but the market is Brazil. And, uh, and give you, let's like a few facts about Brazil. So, um, Brazil is a huge agriculture exporter. Um, I think agricultural exports, uh, are about 20% of Brazil's GDP. Uh, represent about 50% of Brazil's exports, with most of the rest being, uh, being minerals, I believe. For this industry to exist in Brazil requires a great deal of artificial nitrogen fertilizer. So, as…

AI assessment note: “We are getting more sophisticated on that last point.”