It’s kicking off in the USA: The Inflation Reduction Act with its billions in funding (369 billion USD), among other things for the ramp-up of the hydrogen economy, is giving hope. I was able to witness this myself live via video stream at the 2nd Hydrogen Americas Summit. In Washington, many board members of well-known companies showed their histories with hydrogen and reported their plans. Hydrogen has always had a place, but the time is now here to massively expand its scope in order to solve environmental and climate issues and to see hydrogen as a game changer for the world.
Energy security too was stressed. The next ten years in hydrogen development will change the world, during which the US plans to produce an initial 10 million metric tons per year. It is fundamentally different today than it was in the decades before. The mix of measures for the ramp-up can be listed as follows:
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– Incentives (tax breaks, cash grants)
– Policy framework (regulations, standards)
– Demand conditions (markets)
– Climate influence (climate change questions)
– Energy security (security of supply)
– Inflation Reduction Act as an initial spark
There’s need to become H2-ready. This entails conversion of existing infrastructure (gas pipelines, etc.) for hydrogen. There’s already an infrastructure for ammonia, so green hydrogen will see its first big market here if ammonia is used as a medium for transporting hydrogen alongside the use in fertilizer production.
The issue of hydrogen must be approached locally as well as globally at the same time, it was said. For this, cooperation between old industries and new players is necessary, and even a prerequisite and condition for a successful ramp-up of the hydrogen economy. The other side must also be taken into account, however, which is based on jealous competition, market prevention and protection of vested interests, since not all players find the development good.
But healthy competition is also needed. Here, government representatives from Canada and the US came in, and according to their statements, competition in the implementation of a hydrogen strategy will occur with true sportsmanship. Demand must be created for hydrogen. One of the first markets will be transportation (here: commercial vehicles, ships and trains) as the “driving force & source.”
A statement from Christian Bruch, board chairman of Siemens Energy, regarding the Act described it best: “This will bring about investments from many companies in the US. One can certainly debate whether America is funding too much and fueling subsidy competition, but the need for renewable energies is far too great everywhere. What makes America different from Europe: the USA is open to technology. There isn’t talk about green or blue hydrogen, but about hydrogen. The subsidy eligibility conditions are simple; everyone can understand them. There’s a wave coming that has the chance to reindustrialize the USA.”
There are 18 sectors in which hydrogen is needed. It will start off with “early mover markets,” to which heavy transport belongs (heavy-duty trucking industry). But other markets will also emerge and grow, like communication towers, as there are over 600,000 in India powered by diesel engines and 10,000 police radio towers in the USA that in the future will be powered by hydrogen via fuel cells. In the case of forklift trucks, we can already see that more and more are running on hydrogen instead of diesel or battery-electric.
Many market participants are suddenly all seeing their future in this market at the same time. Here, comparisons can be made to the beginning of the Internet, of the WWW, which changed the whole world as a new disruptive system. Whether financiers (banks, VCs) or technology suppliers, consulting firms, clients or governments – they now all want to enter the hydrogen age.
Also heard were comparisons to the beginnings of the solar industry, where 30 years ago, one kWh cost 2.50 US dollars, and today, only 0.025 cents. With batteries, it took 15 years for the energy density and price to initiate a new market. The same will happen with green hydrogen, for which the majority of analysts foresee a price of 1 USD per kg for year 2040, and expect 1 to 2 USD per kg already by year 2030.
Hydrogen will be obtained from many sources, including biogas and waste recovery. With this, it should also be “grid-friendly,” meaning able to be transported and used in the existing infrastructure (for example blended in the natural gas grid). The optimization of all components as well as their integration in particular will take on importance.
Disclaimer
Each investor must always be aware of their own risk when investing in shares and should consider a sensible risk diversification. The FC companies and shares mentioned here are small and mid cap, i.e. they are not standard stocks and their volatility is also much higher. This report is not meant to be viewed as purchase recommendations, and the author holds no liability for your actions. All information is based on publicly available sources and, as far as assessment is concerned, represents exclusively the personal opinion of the author, who focuses on medium- and long-term valuation and not on short-term profit. The author may be in possession of the shares presented here.
Author: written by Sven Jösting December 12th, 2022
Those who weren’t familiar with Refire before can now think of the fuel cell company every time they hear the name Clean Logistics, because the startup from Niedersachsen has a supply contract for fuel cell systems from the company. So it’s not surprising that Audrey Ma, Refire Group Vice President International Markets, had been invited to be a guest of honor at the presentation ceremony for Clean Logistics’ truck Fyuriant truck launch this past summer in Stade (see H2-international Oct. 2022). H2-international had the opportunity to speak with Ms. Ma during IAA Transportation 2022 in Hannover.
H2-international: Ms. Ma, how long has Refire been around and how long have you been with the company?
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Ma: Yesterday was actually the seven-year anniversary of the Refire Group. It started out as a very small team. The founders were three engineers who worked in the area of fuel cell technology. I joined the company at the beginning of 2017 and within these few years, we’ve grown to a team of nearly 700.
What was your goal at the time?
Our common goal was to further develop fuel cell technology for commercialization, which is now all around us at this trade fair. I believe we’ve contributed to making fuel cell technology market ready.
Could you give us examples of how?
In 2017, we put our first FC vehicle fleet – 500 7.5-tonne fuel cell delivery trucks – on the road in Shanghai. We engineered and manufactured the fuel cell systems and worked on further development of the vehicle prototype, including FC system integration. Our partner at the time, Dongfeng, which is a major Chinese OEM, then built the 500 trucks. This was a really challenging undertaking, and we learned a lot from it – from hydrogen production to the question of who would do vehicle maintenance work. We managed to find operators that would use these vehicles and market them to end-user companies. When we mobilized drivers, we were also the ones who then organized the after-sales service of those vehicles, not the OEMs or the operators. After that, we redoubled our efforts and, among other things, we installed an H2 station of our own with partners so that our drivers would have a place to refuel.
In other words, a completely new approach to bringing such technology into the hands of customers.
Yes, we had to take a different path. We had to find ways to make it viable because a traditional approach wouldn’t have worked here.
Why are you here today?
We brought a fuel cell system with us today that came straight off the production line. This is not a prototype. We will have covered over a million kilometers with this system by the end of the year. It has a power output of 117 kW and has already been integrated into several hundred heavy-duty vehicles. We are working together with a variety of partner companies – domestically and internationally, including in Germany, to integrate these systems into vehicle powertrains.
So you’re a classic system integrator.
Yes, we integrate fuel cell technology in various applications. The Refire Group has three subsidiaries that develop FC technologies and manufacture products. One of the business units, Unilia, produces FC stacks. Another, Pando, makes FC power electronics products, and Refire Technology builds complete FC systems. These three subsidiaries operate independently but under a common umbrella.
So you produce your own fuel cell stack but also use stacks from other producers for your systems, like Ballard for example?
That is correct. In the production of complete FC systems, our own stacks or those from other manufacturers may be used. For example, in one project Toyota is our stack partner. Similarly, there are also German, Canadian and Chinese stack suppliers that we have worked with.
I see. What applications do you address with Refire Technology?
We focus on a variety of applications for commercial vehicles and stationary power. We don’t just supply the fuel cell systems and core components, but also offer application engineering services. Sometimes we’ll also do turnkey solutions in order to help customers decarbonize specific and unique end use case applications.
Is that what you do for Clean Logistics?
Clean Logistics has a very capable engineering team which already has experience from past work in the conversion of diesel powertrains to battery-electric, and they’re now adding fuel cell solutions to their product lineup. The complete engineering solution that we typically provide OEMs is to integrate a fuel cell powertrain based on their own existing chassis. We look at which fuel cell system is optimal for a given application, and then we assemble the various vehicle components in order to return a fully finished fuel cell vehicle prototype to the OEM.
How many systems have you already delivered?
We have shipped in total about 4,500 fuel cell systems for commercial vehicle integration. Vehicles powered by Refire FC systems have now converted at least 3,500 tonnes of hydrogen into electricity for zero curbside emission driving. Altogether, the fuel cell commercial vehicle fleets have clocked more than 125 million kilometers, a mileage that rises about 1 million kilometers every week. As I mentioned earlier, our aim has always been to commercialize fuel cell technology, and so bringing products to market and into the hands of actual drivers is very important. We work collaboratively to enable OEMs to homologate their prototypes so that at-scale vehicle production can be achieved when fleet operators place their orders.
You’re based in Shanghai, and are also active in Germany and North America. Where is your global focus?
That’s right – Refire’s corporate headquarters is in Shanghai. We currently have two engineering centers – one in Shanghai, and another in Vancouver. A third engineering center is in the works in Germany which will service our European customers.
According to concerted opinion, hydrogen is now considered the new universal energy carrier that is set to take the place of fossil energy sources in gas heating systems, cogeneration plants, cars, steel works and the chemicals industry. This is also recognized by Scientists for Future. In a recently published policy paper they describe hydrogen’s essential place in the energy transition yet also point out that its use is inadvisable in many areas on technical, economic and environmental grounds. The key sections of this paper are set out here:
In principle, hydrogen can be transported in the same way as natural gas via pipelines or tanker vessels and stored in tanks or caverns. This suggests that green hydrogen, in other words decarbonized hydrogen that is produced electrolytically with renewable power, could act as a replacement in all situations where we currently use fossil-based raw materials such as crude oil and – above all – natural gas. This belief is deceptive since for many purposes the deployment of green hydrogen is much too expensive and is an inefficient use of energy. Ultimately we will only use green hydrogen in cases where natural gas and crude oil cannot be replaced by the direct application of electricity or where hydrogen is the base material, for instance in the chemicals industry or in the carbon-free manufacturing of steel.
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A calculated optimism is clearly evident in some studies by natural gas network operators: The German gas and water industries association DVGW, whose membership includes over 2,000 utility companies, does not work on the basis that there will be a shortage of hydrogen. A study published by the DVGW calculates that high demand will be accompanied by an equally high degree of availability of more or less sustainable hydrogen (Gatzen & Reger, 2022). Underpinning this is the unsupported assumption that there will be an import rate of 90 percent, in other words the same level as today’s oil and gas imports.
“Just supplanting one fuel with another will not suffice for the energy transition. The energy transition inevitably requires a shift away from traditional technologies and habits.”
These optimistic assumptions on the availability primarily of imports are at the center of the argument that hydrogen would be available even for heat provision: “In contrast to the frequent assumption, hydrogen does not have to remain a scarce good. The demand for hydrogen can be more than covered from 2030 onward. The quantity exceeds all current demand forecasts many times over” (DVGW, 2022, p. 5). This strikingly optimistic supposition can be confirmed neither technically nor scientifically.
At least 10 years will pass before larger quantities can be imported. And what often goes unsaid in relation to desired hydrogen imports is that the transportation is so expensive that imported hydrogen will cost many times more than today’s natural gas or crude oil. On this point it makes no difference whether the hydrogen is transported in a compressed, liquefied or chemically bonded form.
The use of hydrogen is only wise if it is produced with renewable electricity (green hydrogen). In future this will also be the cheapest production method. Hydrogen manufactured from natural gas (gray or blue hydrogen) and hydrogen from methane pyrolysis (turquoise) are not carbon neutral due to the use of natural gas and the upstream emissions from methane; and excessive risks and long-term consequences are associated with the use of nuclear energy for electrolysis as an ecofriendly method of producing hydrogen (pink).
Analysis of individual application areas
The need to use hydrogen is already on the horizon in certain sectors. This affects, for example, iron and steel production as well as the chemical raw materials industry and hydrogen as an energy storage medium. At present, refineries require hydrogen for several processes, including the cracking of crude oil when manufacturing fossil fuels. This area of current hydrogen demand will disappear in the future. In other applications, hydrogen competes with other good solutions:
In vehicles, e.g., automobiles, electric propulsion is the most efficient and most practical solution. It is for this reason that manufacturers have practically given up on hydrogen propulsion for the future (Clausen, 2022). The situation for delivery vehicles, city buses and railroads can be said to be similar. Even when it comes to long-distance trucks, the Fraunhofer Institute for Systems and Innovation Research points out that, should the first hydrogen trucks be available in 2027, the second generation of battery-electric trucks will already be on the road (Plötz, 2022). The window of opportunity for successfully launching fuel cell trucks onto the market would therefore be essentially closed and all that would be left for hydrogen trucks would be a small niche, namely the transportation of heavy loads to very remote locations (Plötz, 2022).
Which country will be the first to establish a hydrogen economy? It’s not just the German energy sector that has been plagued by this question. Following the introduction of new legislation in the United States – the Inflation Reduction Act – which sets out highly attractive conditions for creating a hydrogen industry, Germany once again risks being left on the sidelines. That’s why representatives from German businesses and associations have joined forces to argue the case for swift political action.
One demand put forward by the German hydrogen and fuel cell association DWV, which is now being reiterated by its chairman Werner Diwald at every event, calls for the rapid implementation of the 37th BImSchV (37th Ordinance on the Implementation of the Federal Immission Control Act). For months, the DWV has been pointing out that industries act on a global scale and primarily invest where the best conditions can be found. So long as an absence of clarity prevails in Germany (with regard to the EU’s revised Renewable Energy Directive RED II and the 37th BImSchV), industry does not have the necessary planning certainty to make investment decisions, explained Diwald.
Andreas Rimkus, hydrogen representative from the SPD parliamentary group, has also repeatedly made the following appeal to German environment minister Steffi Lemke in unison with the DWV: “Please release the 37th BImSchV!”
“Everything speaks in favor of quickly creating the legal framework for the use of green hydrogen in refineries. Yet the German environment ministry has been avoiding taking the decisive step for years.”
Werner Diwald, DWV chairman
Meanwhile the US has acquired a far greater level of planning certainty following the Biden administration’s announcement of the Inflation Reduction Act. Since then, an increasing number of European electrolyzer manufacturers are openly considering expanding their production capacity there rather than investing in Germany. Against this backdrop, Diwald warns that in just a few weeks circumstances could arise that mean Europe would lack the capacity to establish a hydrogen economy because the order books of manufacturers may potentially be already filled with US commissions.
The US Inflation Reduction Act, according to the DWV head, is based on Germany’s renewable energy law EEG. According to his remarks, those responsible in the US looked extremely closely at the EEG and adapted its principle for hydrogen. What the German response to it could look like is still undecided. Ingrid Nestle, head of the climate protection and energy working group of the Greens parliamentary faction, declared that now isn’t the time to provoke a one-upmanship battle.
Hydrogen strategy overhaul
German industry, however, is hoping for a revision of the country’s national hydrogen strategy. Various ministers have, time and again, stated that a new draft is in the pipeline. The original aim was to present the second version before the winter break, though at the time of writing that seems unlikely since the German economy ministry especially is busy tackling issues on several fronts.
To underline the urgency of the current situation, a total of 30 companies and associations from the energy sector sent an open letter to German economy minister Robert Habeck on Nov. 10, 2022. In this communication, a copy of which has been seen by H2-international, the DWV asks on behalf of all signatories not only for a rapid enactment of the 37th BImSchV but also for more planning certainty in general. Diwald stated: “Germany needs an immediate response to the USA’s Inflation Reduction Act which is supporting the scale-up of the hydrogen economy by providing over USD 50 billion in secure resource funding. Unless the German government takes immediate action there is a risk that […] the hydrogen industry will relocate to the USA.”
The market ramp-up of electrolysis is a significant constraining factor for the mass production of green hydrogen. In an article that appeared recently in Nature Energy we analyzed possible pathways for expanding electrolyzer capacity in the European Union and around the world (Odenweller et al., 2022). Using a technology diffusion model we showed that the market ramp-up needs time in spite of initial exponential growth. Even if electrolysis expands as rapidly as photovoltaics and wind energy – the reigning growth champions – there will still be a short-term lack of green hydrogen and its availability in the long run remains uncertain. Nevertheless, it is important to accelerate the ramp-up now in order to ensure ambitious 2030 expansion targets can be reached and to guarantee long-term availability.
Because electrolysis is a key technology for the production of green hydrogen, the market ramp-up of electrolyzer capacity represents a critical area of constraint (IRENA, 2020). The magnitude of the scaling required is enormous, since at the end of 2021 only around 600 megawatts of electrolyzer capacity were in operation worldwide. To meet the 3,670-gigawatt figure in 2050 that the International Energy Agency (IEA) says is needed to achieve net-zero, capacity must be increased 6,000-fold (IEA, 2022b), thereby dwarfing the tenfold expansion in renewable energy capacity that will likewise be required.
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Furthermore, electrolysis expansion poses a coordination challenge in terms of ensuring that not just the hydrogen supply but also the demand and infrastructure for hydrogen are driven up simultaneously. This is the proverbial “three-sided chicken-and-egg problem” of ramping up the hydrogen market (Schulte et al., 2021).
In the following we summarize the key results of our recently published article on scaling up electrolysis (Odenweller et al., 2022). Our synopsis shows updated figures and results based on the most recent version of the IEA Hydrogen Projects Database as of October 2022 (IEA, 2022a).
Announced electrolyzer projects
The years ahead are due to see a pronounced upswing in project announcements (see fig. 1). If all the projects announced come to fruition, electrolyzer capacity in the European Union will increase by a factor of 28 by the year 2024 compared with the year 2021; globally it will grow by a factor of 23. However, this positive outlook comes with the caveat that final investment decisions have yet to be made for over 80 percent of these project announcements. Consequently there is a large degree of uncertainty about how many projects will be realized in the short term and therefore whether sufficient green hydrogen will be made available in time to reach net-zero.
We therefore asked the following question in the main scenario outlined in our article: “What would happen if electrolysis expands as quickly as photovoltaics or wind energy in its boom phase?” To cover unavoidable uncertainties we used a model to simulate and then aggregate the technology diffusion of electrolyzers in response to thousands of different parameter constellations (see box).
In the event that electrolyzer capacity expands just as rapidly as photovoltaics and wind energy once did – the two greatest success stories for the energy transition thus far – the primary outcome can be encapsulated as follows: short-term scarcity, long-term uncertainty.
Methodology: technology diffusion model
New technologies usually penetrate markets in the form of an S-curve. In this situation, there is an initial period of exponential growth which is followed by a virtually linear increase in the growth phase before growth diminishes in the saturation phase and approaches the peak. In our article we extended this standard model of technology diffusion by deploying a stochastic uncertainty analysis. We considered uncertain parameters to be (i) the electrolyzer capacity in the near future, specifically in the year 2024, (ii) the initial exponential growth rate and (iii) the demand for green hydrogen, for which we assumed a continuous increase based on policy targets and net-zero scenarios. The combined propagation of these independent uncertainties finally resulted in what we called the “probabilistic area of possibility”.
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