Catalyst with Shayle Kann - What’s holding up hydrogen in Europe?

Episode Date: October 20, 2022

Europe’s hydrogen economy is so close to becoming a reality. Billions in public and private dollars are lining up to invest in a wave of newly planned hydrogen facilities. EU policymakers are finalizing new regulations and subsidies. And the region’s energy crisis–sparked by Russia’s invasion of Ukraine–has accelerated the need for alternative energy sources like hydrogen. But an unexpected twist: The U.S. passed the Inflation Reduction Act, with subsidies for hydrogen production and far looser rules than those under consideration in Europe. Could Europe lose its hydrogen competitiveness? In this episode, Shayle talks to Gniewomir Flis, an independent hydrogen consultant. Previously he researched hydrogen at Agora Energiewende, a decarbonization think tank, and Energy Revolution Venture, a decarbonization venture capital firm. Gniewomir explains that some in Europe worry the U.S. might become a more attractive place to invest in hydrogen if the EU’s rules are too strict. This concern throws more complexity into an already difficult policy-making process. It’s causing EU policymakers to fight over proposed rules and investors to delay final decisions to greenlight European projects. Gniewomir and Shayle discuss questions like: What’s the evidence for the concerns about Europe’s competitiveness? What counts as renewable hydrogen in the proposed EU rules? They discuss the three key criteria that could be required for subsidies: additionality, temporal correlation and geographic correlation Which electrolyzer technology—proton exchange membrane (PEM), alkaline, or solid oxide—is best for which power generation technology, such as solar, gas, and wind? How will the proposed rules impact developing countries’ plans to export hydrogen to Europe? How do we transport hydrogen? They discuss options, such as metal hydride, ammonia, methanol and liquid (also known as cryogenic) hydrogen. Will China ultimately take over electrolyzer manufacturing, like it did for solar photovoltaic manufacturing? Recommended Resources: Agora Energiewende: 12 Insights on Hydrogen Guidehouse: Facilitating hydrogen imports from non-EU countries Florence School of Regulation: Green hydrogen: how grey can it be? The New York Times: Can This Man Solve Europe’s Energy Conundrum? Catalyst is a co-production of Post Script Media and Canary Media. Catalyst is supported by Scale Microgrid Solutions, your comprehensive source for all distributed energy financing. Distributed generation can be complex. Scale makes financing it easy. Visit scalecapitalsolutions.com to learn more. Catalyst is supported by CohnReznick, a trusted partner for navigating the complex and evolving financial, tax and regulatory landscape of the renewable sector. Visit cohnreznick.com to learn more.

From the studios of PostScript Media and Canary Media. I'm Shell Khan, and this is Catalyst. In the euphoria on your side of the pond, Shail, upon the IRA's passing, that euphoria was seized upon by lobbyists in Europe to scare policymakers into essentially saying, look, all this hydrogen economy that we are aiming for, this leadership that we have today, suddenly all this industry will shift to America because there are far better conditions, far more relaxed rules for producing hydrogen in the U.S. This week, why the hydrogen market in Europe is simultaneously moving incredibly quickly and not moving at all.

When utilities need flexible capacity they can count on, they turn to Energy Hub. Energy Hub works with more than 170 utilities, coordinating over 2.5 million devices to manage 3.4 gigawatts of flexibility, built for the moments when utilities can't afford uncertainty. Energy Hub builds and operates virtual power plants that utilities actually stake their grid planning on, coordinating EVs, batteries, thermostats, and more through a single platform built for utility scale. Predictive, verifiable, and designed to perform when it counts. Learn more at energy hub.com. Trillions of dollars are flowing into clean and critical infrastructure, but those investments aren't driven by technology alone.

They're shaped by markets, by policy, by capital, and by the institutions that connect them. I'm Alfred Johnson, CEO of Crux, and host of a brand new podcast, Critical Capital. Each episode, I talk with people deploying capital, shaping policy and building the clean economy. Tune in as we unpack how progress is actually made. Listen to Critical Capital on Spotify, Apple, or wherever you get your podcasts. I'm Shale Khan. I'm a partner at the venture capital firm, Energy Impact Partners. Welcome. So we haven't talked hydrogen here in a while.

And let me tell you, things have happened since the last time we did. If you're here in the U.S., where I am, you're probably well aware that the Inflation Reduction Act contains some very rich tax credits for low-carbon hydrogen production that are, and I can say this with 100% certainty, going to supercharge the market from a truly infant stage where it is today. But in all our fervor to figure out what's going to happen here in the U.S., let's not forget Europe. Europe has, I think, three things going for it when it comes to clean hydrogen. First, it's actually ahead of the game, at least relative to the U.S. Europe has been pushing hydrogen as a decarbonization lever and starting to implement rules around it for years, whereas the U.S. really just showed up at the party this year. Second, Europe does not benefit from the abundant cheap natural gas that the U.S. has, which makes the competitive benchmark for low-carbon hydrogen all the more attractive there. But third, and it's a big one, is Russia's invasion of Ukraine, which has completely upended the energy market in a variety of ways that will have long-term ramifications for the hydrogen market in that region.

On the other hand, you've got a regulatory construct that is still very much in development in Europe and that is causing some significant headwinds for anybody who's trying to actually get something built in hydrogen in Europe. And then you've got questions around imports versus domestic production and what? types of resources are going to power these big electrolyzer units and all these thorny questions that will determine the degree to which hydrogen actually acts as a mechanism to decarbonize everything in Europe from industry to shipping to aviation to more. So let's cross the Atlantic and survey the state of clean hydrogen in Europe. For this one, I brought on my friend Genevimier-Flees, who's the European hydrogen market whisperer, at least in my mind. He's an independent hydrogen expert and consultant, and as you will see, he is deep in the world of hydrogen market making within Europe.

Here's Genevimir. Genevimir, welcome. Hi. Let's talk about hydrogen in Europe. And I want to start with a flashback, not that long ago. And let's talk about, you know, a year ago or so before Russia invaded Ukraine. How would you characterize what was happening in the hydrogen market, such as it was in Europe pre-Russia, Ukraine? Well, it was an interesting time. We had, you know, the two hydrogen backbone documents

were released. So we were hot of the heels of talking about pan-European hydrogen networks. People were getting a little bit lukewarm on the idea of blending. People were more focused on on figuring out how we're going to build pure hydrogen pipelines. So we're awaiting for gas directives from the European commissions. So what I mean here is actually decarbonized gas packages and the hydrogen gas package. So regulation was being drawn up. At the same time, people were looking for clarity over what would constitute as, or what would qualify as renewable hydrogen. For what purpose? Like, what would it matter whether you qualify, a particular hydrogen qualifies as a formal hydrogen or not? Yeah, yeah, of course. So the European Union sets

has this thing called the Red or Renewable Energy Directive, which sets renewable energy targets for all the sectors of the economy. We're currently on number Red 2, which was implemented in 2018, but of course hydrogen had this big moment, big break in 2019, of the publication of the EIA report, and then the EU's hydrogen strategy followed in 2020, and then various other countries, 20-plus countries, since then have adopted national hydrogen roadmaps.

So the problem was that this new molecule, hydrogen, was not really accounted for in the Renewable Energy Directive. There was no regulatory clarity on how to deal with this molecule, on what even qualifies as renewable hydrogen. So the European Commission came out with a plan saying we're going to release a delegated act where we're going to specify the conditions where your hydrogen qualifies as renewable. And this renewable hydrogen then counts towards official targets, which are binding. And number two, it qualifies you for subsidies. And those subsidies occur at the national level, but it all rolls up into the European Commission levels. So if you are defined as renewable hydrogen by the European Commission,

by this set of directives, then it probably is going to flow through to these individual national policies that are providing subsidies, or are there European-level subsidies as well? Yeah, I think there are both. So many initiatives are on the national level. I believe there is about 10 billion or even 11 billion hydrogen-specific national funds to access. And then on the European level, I think there is a further – or at least – actually, no, sorry, there is the European Union Innovation Fund, which is technology neutral, but there is around 40 billion,

and hydrogen projects can access that money. Okay, so that was a bit of a tangent that I think we're going to come back to in terms of what qualifies as renewable hydrogen because it's an interesting question and also one that we are sort of grappling with a version of here in the US as well. So in addition to those things happening, what was actually happening in the market?

Were we seeing electrolyzers get installed or blue hydrogen systems, CCS being attached to C methane reformers, was new manufacturing getting announced, were projects getting announced, like where were we in the market development cycle? So many projects were getting announced tens of megatons, well, maybe not tens, but just over a dozen megatons in 2020,

and then that increased to probably 20 megatons of projects, two thirds of which were due to be renewable hydrogen projects, one third of which was due to be some form of gas reforming with carbon capture and storage. The issue was that everybody was waiting for that regulation. So everybody was waiting for the decarbonized gas package and the hydrogen package, as well as the Delegated Act, which specifies these renewable rules. So lots of projects announced very little projects going past final investment decisions. Okay, so then we can fast forward.

So Russia invades Ukraine, while this stuff is supposed to be getting worked out, energy markets in Europe enter major crisis mode. What has happened since then? Well, there has definitely been an upscaling of ambitions and hopes in the European hydrogen strategy. So we've seen the repower EU plan by the European Commission, which is the European Commission's plan to reduce European dependency on Russian gas and to accelerate renewable rollout and renewable hydrogen rollout. And particularly what we've seen is the uping of the target from 10 megatons of clean hydrogen by 2030 to 2030 to 20 megatons of hydrogen in 2030. And 10 of that is due to be imported.

10 of that is to be produced domestically. So hopes are high and ambitions are high. But in terms of actual deployment, we haven't really seen anything. Everything keeps getting delayed by this lack of clarity of regulation. All right. So let's dig in then on where there is a lack of clarity in the regulation. So what is the actual question, what's the key question at hand and what needs to be decided? This is an excellent question.

The key question is, what qualifies as renewable hydrogen? And this is not as simple as it sounds. It is not just a question of simply, it is not as simple as determining its carbon content because then the next question that follows is how do we determine that carbon content. Furthermore, there is also optionality. Usually when using renewable energy, there's also optionality in terms of, am I going to be using renewable energy for the electrification, which is often more efficient, or will I be using this electricity to make hydrogen, which is typically as efficient? So, in other words, if you're

diverting clean electrons from direct electrification, you might be actually getting less bank for your buck in terms of emissions abatement. So there are three things that have been proposed in what's called the Delegated Act, which is an amendment to their renewable energy directive to. And this delegated specifically applies to hydrogen. And the three criterion are one, additionality, which means that every single unit of electricity that's going to go towards hydrogen production should be from newly built renewable assets.

So that's the first criterion. Criterion number two is temporal correlation, which specifies that hydrogen can only be produced within a specific time frame of the production of clean electricity by the underlying renewable asset. So in the latest version of the Delegated Act, that has been monthly temporal correlation until 2027 and then hourly thereafter. And then finally, the third element of the Delegated Act that you need to check to qualify as renewable is geographical correlations. relation. And the purpose of this is to prevent grid congestion between bidding zones. So the act stipulated that hydrogen production must occur in the same bidding zone as renewable

energy production. All right. So let me draw each of those out a little bit and also maybe draw a contrast to what's happening right now in the U.S., which is grappling with a somewhat similar set of questions, albeit in a different way. So the first question you're asking is, around, or that is being asked, I guess, in Europe is around additionality. Interestingly, this is one that I think we're not actually tackling here in the U.S. So what's happening in the U.S. right now, as I'm sure you know, is the Inflation Reduction Act passed. That bill contains within it a bunch of tax credits for clean hydrogen production.

And those tax credits are measured. The level of the credit is measured by the life cycle emissions intensity of the hydrogen that is produced. So the big question is then, how do we calculate the life cycle emissions intensity? That's the core question here. And it doesn't really address the question of additionality. It doesn't say resources need to be net new resources in order to qualify. So that's one that it appears the EU is tackling the U.S.

is sort of, unless something changes in the guidance, the U.S. is just going to avoid. The second one, though, is an open question here. And this one I think is important to understand. So if you're using an electrolyzer to make green hydrogen, or to make, you know, electrolyzed hydrogen, if we don't want to use the color scheme, what you're doing is, you know, using electricity and water, and you're splitting the water.

So the electricity is the vast majority of the emissions in a life cycle context associated with the production of the hydrogen. The question is how much emissions is embedded in that electricity production. And in a, in the least stringent context, you could just say it's electricity, it produces zero emissions, let's not worry about it. There's probably something in between where you say, okay, let's look at the average annual emissions intensity of the grid and the location where you're producing hydrogen and take that. But the more, I think, robust way to do it is to try to match up what specifically, what electricity are you using? Synthetic.

obviously because electrons just flow freely on the grid. And so where does that come from? When are you using it? When is the production of the resources that are producing it and so on? And that's where you get into this question of what is the time-based resolution. Can you just calculate it on a monthly basis or an hourly basis, which makes it a lot more complicated, but probably does a better job of ensuring that the electricity you are producing is actually low emissions. So I guess my question is, on this one is it seems like there's been, and this is true of additionality too, it seems like there's been a movement in Europe where I think initially the, it seemed like the direction was heading toward more robust, more stringent guidelines, but then the energy crisis

and the need for expediency has been sort of pushing in the other direction. And so there's been some movement back toward perhaps less stringent guidelines? Am I interpreting that right? I'm not actually sure that I wouldn't pin it on the energy crisis. If anything, I would pin this on the IRA derailing European regulatory efforts. And the reason for this is that in the euphoria, on your side of the pond, shale, upon the IRA's passing, that euphoria was seized upon by lobbyists in Europe to scare policymakers into essentially saying, look, all this, all this hydrogen economy that we are, that we are aiming for this leadership that we have today, suddenly it will, all this industry will shift to America because there are far better conditions, far more

relaxed rules for producing hydrogen in the U.S. But I don't think that's necessarily true, because the rules for claiming these tax credits, production tax credits in the US have not been fully defined, if I understand that correctly. And then number two, the difference between even yearly and hourly temporal correlation, the difference in the levelized cost of hydrogen and how that impacts the price of hydrogen is not that much.

It has been recently, very recently in September, an excellent paper from the European University Institute and the Florence School of Regulation, which demonstrated that the price difference is to the tune of 10%. That's not really enough to make a whole industry, to destroy a whole industry and prevent investments from flowing in

if you have a little bit more stringent rules. But on the other hand, at this small increase in price, what you get is actual emissions abatement. So you don't have a situation where you're running off coal or gas, In fact, if you have super relaxed rules, which you would base purely on renewable energy credits or maybe guarantees of origin with no form of additionality whatsoever, you would actually increase energy insecurity because you'd be burning more gas

than if you had this additional, sorry, not additional temporal correlation principle in place. Right. There's lots of moral hazard embedded in doing this wrong. On the additionality piece, I guess I glossed over it because it's not at issue as much in the U.S. But the concern there is that if you assume we have limited local renewable resources or clean energy production resources, and we're going to direct, because the subsidies are so rich, we're going to direct a significant amount of them to producing hydrogen. That may be great in a vacuum. but if there's a fixed pie, a fixed pool of those resources, then everything you direct toward hydrogen doesn't go towards something else, and then maybe you have a harder time decarbonizing the rest of the electricity system

or electrifying heat or whatever it might be. And so the idea is there may be a zero-sum game there. I think it's more fluid than that, but that's the reason for the additionality question, I think. I also think the additionality question is, yes, everything to what you just said, yes, Shale. But I also think it is also a development mechanism for potential exporters, especially those in the global South, because it clearly tells that,

well, at least if additionality is in place, then developers wishing to export from developing nations have to invest in building renewable capacity in these nations. And these nations, more often do not, don't have renewable grids ready. So essentially, additionality is also a capacity-building tool. That being said, I'm a little bit split about the additionality. I think temporal correlation, in terms of absolute emissions abatement, I think temporal correlation or additionality or good principles, both together,

you know, that's a little bit, that is quite a bit stringent. I tend to agree with you. I think really strong temporal correlation is actually quite important in my mind. It's obviously a personal opinion, but but I think if you have that, you've solved enough of the problem that the more you do, the more you add complexity. I want to talk about a couple of the other components that you talked about, but first, let's just show, where are we today?

Do we have this guidance? When is it supposed to come? And when are we going to start to see these final investment decisions on all these projects that have been announced? So that's the irony is that due to the, well, okay, so let me roll it back for a second. No, we don't. We don't have any regulatory clarity still. Everything is being delayed.

And everything is being delayed by this lack of regulatory clarity. And I actually think it's a little bit ironic because the hydrogen lobbying organization in Europe, which was a very strong critic of additionality and temporal correlation, in pushing that line, once the IRA came out and these voices were joined by more voices within the industry that suddenly Europe risks becoming irrelevant, they got more than the bargain for it, because the European Parliament then voted on an amendment to the Renewable Energy Directive

that effectively would strike down the proposed Delegated Act a year or two after its passing. So there would be no point in passing the Delegated Act if a year or two later it would be just struck down by Parliament. It's, yeah, so now we have no clarity, and we want to, it's, yeah, everything has been delayed because of that, and we probably won't see new regulation. Well, I hope we will see new regulation soon. What's going to happen right now is we will, the European Commission, the European Council and the European Parliament now go into what's called a trilogue with their negotiating positions set.

now the European Parliament is at odds with the European Commission. So now we will see there is no set date on when they will resolve this issue. Maybe some are saying 2024. That's incredible. And it seems like, I mean, from the outside, it seems like in the meantime, there's still a steady march of new project announcements. There are infrastructure funds being raised specifically for hydrogen in Europe. I mean, the market activity, at least as measured in like press releases at this point, doesn't seem to have abated at all.

What's your sense of the industry sentiment toward this? Is there a sense, look, this is going to have to get figured out? And so we just march forward until then. Or are folks starting to get despondent about it and taking their dollars and attention elsewhere? What's happening? Yeah, there are new funds being raised. And there is still new announcements coming in almost every week

and new projects being planned. I think some of the projects are speculative and some projects are realizing that in this uncertain environment, what they need to do is they just need to future-proof their project. In other words, just do the most stringent thing, be able to do additional, temporally matched at the hourly level and local, and then you're pretty much safe.

Exactly, and to do that, all they have to do is just integrate storage within their projects. I think hydrogen storage, local hydrogen storage, not necessarily huge salt caverns, but at these buffer, worth will be enough to make some of these export projects or many projects actually fly. But that doesn't really trickle down to final investment decisions. So more announcements, more planning, but very little increase in investment decisions. So I wonder, where is the money going to go from, you know, these funds are raising money. Where is the money going to go? virtual power plants are becoming a reliable way for utilities to manage capacity, but enrolling devices

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Trillions of dollars are flowing into power plants, transmission lines, battery factories, data centers, but the future of energy isn't shaped by technology alone. It's shaped by markets, by policy, by capital, and by the institutions that connect them. I'm Alfred Johnson, CEO of Crux, the capital platform for the clean economy. Join me for my brand new show, Critical Capital, as I talk with people deploying capital, shaping policy and building projects. Together, we unpack how risk is priced, how incentives are structured, and how progress is actually made. Listen to Critical Capital Capital on Spotify, Apple, or wherever you get your podcasts. You talked about one other thing I want to spend some time on, which is you mentioned that the goal for 2030 doubled, but half of that is supposed to come from imports and half domestic or local production.

This is another thing that's different about the North American context versus the European context. I don't think anybody's really talking about importing hydrogen into North America. In fact, if anything, we are likely to be a high. exporter, potentially. Europe, obviously, different contexts. So what's the thinking there around producing hydrogen within Europe versus importing hydrogen? And I guess as a coda to that second question, where are we in figuring out how we're going to be importing hydrogen? What the hydrogen carrier might be, where it's going to be coming from, all those kinds of questions. One of the things that, I mean, good, major import targets are out there.

there for signaling. I think the issue we will run into is that hydrogen is very expensive to transport. So I think the way it will be split is that when hydrogen needs to be produced for hydrogen's sake, for end users that require, in other words, for end users that require hydrogen, whether that's heavy trucking, whether that's steel, direct reduced iron, whether that's the chemical industry, well, some of the chemical industry, there is an appetite to produce that within Europe to ensure the continuity of European industry. There are strong vested industrial interests

to produce hydrogen locally. On the other hand, there are certain molecules that some of the transport options for hydrogen, things like ammonia or methanol or even hot-bricketed iron, these things can be produced abroad and imported into Europe. So I think we will, in the end, see some, industrial shift out of Europe, just because some countries have natural competitive advantage

in access to cheaper renewable resources and thereby making their hydrogen production costs lower. And it makes sense to import finished products rather than hydrogen. You just alluded to this, but there's this big kind of growing and raging debate around, if we're going to move hydrogen around, what form are we going to move it in? And that debate, you know, it's relevant in a localized context, too, if we're going to produce hydrogen in one place and then just use it in another place. But when we're talking about importing significant volumes of hydrogen into Europe, you know, there are multiple options. There's liquefied hydrogen or cryocompress hydrogen. There's all these like metal hydride hydrogen carriers. And then, as you said,

you can turn hydrogen into ammonia, you can turn it into methanol. There's all these different pathways, what's your sense of how that question is evolving? And do we have any visibility into where the big players who are going to be the ones doing the importing and exporting are leaning? Yeah, another excellent question. So what we're seeing is a number of announcements for every technology really. So in Japan, we've seen liquefied hydrogen. Actually, liquefied hydrogen is already being transported between Australia and Japan. Then we have liquid organic hydrogen carriers that are being proposed for hydrogen imports from Sweden into Germany or in Southeast Asia.

We've got ammonia. And actually ammonia accounts for most of these projects. Frankly, most of these projects, I think something like 80% use ammonia as a hydrogen carrier. and I wouldn't even call it a carrier. I think at the end of the day, what's going to happen is that ammonia is going to be sold into international markets as ammonia.

In other words, we're not going to have to crack it back into hydrogen. We're just going to use ammonia for things. We already use ammonia as fertilizer, obviously. But you say we could use ammonia to produce power. theoretically, we could use ammonia for other purposes. So rather than it being a hydrogen carrier

in the sense of like it's just along for the ride, and at the end of the day we use the hydrogen as hydrogen, you're saying we'll end up using it as ammonia. Yeah, exactly. And I think that's the main difference between ammonia and the other carriers. And that's why most projects and most players are looking to make ammonia. Because with liquid organic hydrogen carriers, you don't have a useful product at the end.

You have to crack it back. And that means 30% thermal losses. With liquid hydrogen, on the other hand, you spend an enormous amount of energy just liquefying that hydrogen again up to 30, 40% with today's technology, although I do think that with further development cryogenics will get more efficient. So, yeah, if you can avoid the final step of cracking your carrier back to hydrogen, it is, yeah, it makes more financial cells. I will say one thing.

there is also a plan to ship synthetic LNG. So in Europe, there is a company called Tree Energy Solutions, and they have this wild idea of taking CO2, combining it with green hydrogen, shipping it using existing infrastructure, and then cracking it back at the destination for the CO2 to be sent back, sent back to be turned back into the synthetic energy. And the benefit of this solution is that it can use existing LNG infrastructure, and it can also use existing steam methane reformers to that purpose.

Oh, that's fascinating. So they're shipping in one direction, they're shipping synthetic LNG, in the other direction, and then they're shipping the CO2 back across the ocean to produce more synthetic LNG and then shipping it again. That feels like cost is going to be your barrier, but you have the benefit of using the existing infrastructure. Yes, yes, absolutely.

And I mean, you've nailed it, Shell, really. There was a recent study by one of the German institutes looking at the options, and the synthetic LNG option was the most expensive one. Although, I'm actually not sure if that synthetic LNG in that report was using direct air capture and just using LNG at the end, just like gas, so not capturing these emissions. Right. With the one we didn't talk about, as we're talking about all these quote-unquote hydrogen carriers, that looks more like ammonia from the perspective. of you can use, it has a useful purpose of its own is methanol. And methanol is sort of interesting because it's an existing market. It's a major chemical precursor to lots of things. Also seems to be the direction in which at least some of the major shipping companies are leaning in terms

of shipping fuel. So Mariske has ordered a bunch of methanol-ready ships. You can theoretically, you can produce power out of methanol using a methanol fuel cell. So it looks sort of like ammonia in that context. And you don't necessarily have to crack it back into hydrogen in order to use it. So it feels like if the debate is either we use a pure hydrogen carrier for which at the end of the day, we're going to need to turn it back into hydrogen that is useful for some end use, versus turn hydrogen into some fuel or gas or whatever it might be that is going to just be used on its own, there's sort of those two groups.

You've got the liquid organic hydrogen carriers and liquefied hydrogen on one side of the camp and the other side of the camp is like ammonia and methanol, basically. Yeah, exactly. And that really answers, goes back to the initial question. Why are we looking at localized production in Europe and why are we looking at imports? And the reason why we're looking at localized production is because if you can produce hydrogen locally at a acceptable price, it doesn't have to be the lowest price, but it has to be lower than the cost of importing it from far away and cracking it back, then produce it locally, produce it within Europe, and I think there is enough demand in Europe for that to happen. And then for everything

else, for things that you can import at the lower price without cracking them back into hydrogen, whether that's ammonia, whether that's methanol, do that. And I think that's what's going to happen. There's one other interesting dynamic here that speaks to sort of geopolitics in a broader sense, which is, I think both North America and Europe, as they build out the hydrogen economy, so to speak, are mindful of what happened as we built out the solar and to some extent the wind market, which is that we did successfully build large end markets for both of those products. We did not end up being the dominant manufacturer of those products. China ended up being the dominant manufacturer, and then at least in North American context, we started introducing

import tariffs, and the supply chain got all complicated, and so now a lot of it's produced in Southeast Asia, but still by Chinese companies. In any event, we didn't build a big, manufacturing base within North America, also true of Europe in a solar context. And you had lots of, and probably even more painful in Europe, because there were much more longstanding, important, particularly German solar companies that basically all went bust as China took over that market. And so there's this open question in hydrogen world, particularly as we scale up electrolyzers, is the same thing going to happen again? And are we okay with that? If so, are we willing to seed the manufacturing of electrolyzers to low-cost regions and particularly to China, or can we

somehow change the course of history as we build out this new market? That's definitely an active conversation in North America, the IRA has all these domestic manufacturing provisions within it. This is not just true of hydrogen, true batteries, and other stuff like that, too, really for this clear reason. What does it look like in Europe? Yeah, that is an excellent question. Actually, funnily enough, we are sort of already having the, we're witnessing the entrance of Chinese electrolyzers into Europe, but not in the way that, I think not in the way that solar went. So what we're seeing is one of the largest

producers of electrolyzers today. John Cockrell, or rather Cochrele-Jingley, is going to build a factory in Belgium. Now Cockrell is a joint venture between John Cochrell, a Belgian manufacturing company and a Chinese electrolyzer manufacturer. So it's really interesting that we're seeing these factories actually being built in Europe now, so the supply Chinese Europe, based on Chinese technology. And who would have thought, you know, two years ago you'd have heard that Chinese electrolyzers have cardboard separators, which disintegrate after three hours of operation.

But that's not true. And then, you know, two years ago when Bloomberg and EF came out with their, came out, saying Chinese electrolyzers are super cheap. Nobody believed it. And yet, we're going to manufacture Chinese electrolyzers in Europe. Now, as to the question whether all of it will go like solar did,

that is an insanely hard question. And I think that's people, like you said, Shail, people are asking that question. I don't think there is a clear answer just yet. The reason for this is that whilst the electrolyzers share some similarities with solar. I also think they share a few similarities with wind.

And that is because so there's somewhere in the middle. So electrolyzer stacks, so the heart of the electrolyzer can be manufactured on mass, but all the surrounding equipment,

the balance of plant, is far more complicated and it's far more customizable to your customer's needs, more akin to a, to a wind turbine. What I'm trying to say that the balance of plant is more bespoke. And that's the word I'm looking for. I think the balance of plant also, I mean, you're speaking my language here. The other thing to understand is that the stack is not the entire system. The rest of the cost of the system, the balance

of plant, can swamp the cost of the stack if the stack isn't designed well and if the system is designed well. And so you can end up with a situation where like, sure, maybe you end up mass manufacturing electrolyzer stacks that look a similar way. and are cheap if you're looking at them in a vacuum, but then the cost of the total electrolyzer system ends up ballooning as a result. And so they don't end up being as cheap as you think they're going to be when you look at the fully loaded cost of the system. With that said, it's early innings clearly in electrolyzer manufacturing.

And so it sort of remains to be seen how the market dynamic is going to play out in terms of where manufacturing take place. Who does the manufacturing? To what degree does one technology? is, does one technology dominate at the end of the day, as has happened for the most part in solar with crystal and silicon, or do we end up with a more diverse landscape of some alkaline electrolyzers, some PEM electrolyzers, some AEM electrolyzers, some who knows what else, right? And this like much more dynamic ecosystem in the long term. Yeah, don't forget solid oxide.

Solid oxide, right? Yeah, I've been looking also at solid oxide and economics. And this is also, I think, a good reason why you will see, why it won't go totally the way of solar, or at least it is a good reason to believe that, because the efficiency gains from integrating solid oxide with refineries, with steelmaking, we've just seen sunfires say that they've reached 84% lower heating value efficiency by integrating their solid oxide electrolyzer at the Salds Gitter clean steel plant. those are, you know, in a business where actually 75% of your levelized cost is down to your electricity cost and natural CAPEX, then these things matter, efficiency matters, and choose the right technology for your end use, is what I'm saying.

Right. I mean, that's a key point, right? So if you can use, if you're solid oxide and you can use waste heat and you want to pair up with nuclear, then you have an advantage there. if you need to operate, if you get really, really cheap renewables, you need to operate intermittently, you should be using probably a PEM electrolyzer, not solid oxide or alkaline. So there may be, you know, application-specific benefits to any given technology or to particular companies. I would go even further than that. You want to use PAM if you are doing hydrogen from wind,

and then alkaline is more suited to solar. That's because, you know, solar is. You know, solar is quite predictable, whereas wind is, when you look at their profiles, far more intermittent intraday. I also think there's just practical reality is also going to suggest that there's just some companies that figure out how to scale up and automate their manufacturing and get to the point where they are stamping these things out quicker than others. And one of the other lessons from solar was like the best technology on paper did not necessarily win out. What won out at the end of the day was who could get to scale. and who could manufacture quickly when the market was ramping. And I think we'll see something similar happen in electrolyzers. I guess in your mind, apart from this waiting game of when are we going to get regulatory

certainty that allows final investment decisions for European hydrogen projects to get made, what else are the biggest open questions around the next couple of years, let's say, of the hydrogen market in Europe? I think there is one big open question on de-industrialization, or rather the extent of the industrialization and the political will to do so. Europe, it's clear that, or rather, I mean, it is an interplay of several factors. So on one hand, perhaps Europe can muster the political will and the strength to deploy as many renewables as we need to produce all that hydrogen internally thereby. And this would be great for European industry.

Well, in a sense, it would be grateful for employers of the European industry. So I guess it would be politically popular. On the other hand, many studies say that it would be more expensive than alternative pathways. On the other extreme, Europe could, you know, if the current energy crisis is prolonged and the prices are sustained and the European industry decides they cannot manufacture in Europe anywhere and they shift abroad, we may get in the longer term, well, there are several benefits. We may get cheaper products. The global South actually gets an opportunity to industrialize,

but at the price of losing many jobs and maybe even popular strife in Europe. So I think the big things to watch out for, other than regulation pertaining to what is renewable hydrogen and what qualifies as low-carbon hydrogen, because that is also, I think, blue hydrogen has, we don't talk about it as much, but it is still part of the discussions, and it is still part of the projects, and for example, the Dutch are still building it. But I think the thing to watch out for is how much renewable deployment there is in Europe, and whether permitting reform will be sufficient, and whether there is political will to actually let some jobs go and implement a just-transference. for the people that lose these jobs in this deal.

All right. Well, once we know what actually qualifies as renewable hydrogen in Europe, we'll have you back on and figure out what it all means for the market. But in the meantime, thanks so much for joining. Awesome. Thanks for having, Michelle. Genevamere Flees is an independent hydrogen consultant based in the UK. Previously, he researched hydrogen at Agora Energy Venda at Decarbonization Think Tank and at Energy Revolution Venture decarbonization VC firm. Well, what did you think? What did we miss? There is a lot going on in hydrogen in Europe, so let us know. You can find the show on Twitter at CatalystPod. You can also find me there. And if you really like the show, as always, go over to Spotify or Apple Podcasts and leave us a rating and review. This show is a co-production of PostScript Media and Canary Media. You can head over to canarymedia.com for links to today's topics. And as always, PostScript is supported by Prelude Ventures, the venture capital firm that partners with entrepreneurs to address climate change across a range of sectors, including

including advanced energy, food and agriculture, transportation and logistics, advanced materials, and manufacturing, and advanced computing. This episode was produced by Daniel Waldorf, mixing by Greg Vilfrank and Sean Marquand, theme song by Sean Marquand. Our managing producer is Cecily Maza Martinez. I'm Shail Khan, and this is Catalyst.