Does low-carbon hydrogen still have a future? | Special pre-ADIPEC preview episode

0:04Hello and welcome to The Energy Gang, a discussion show from Wood Mackenzie about the fast-changing world of energy. I'm Ed Crooks and this is the first in a short series of special episodes looking ahead to the ADAPEC Energy Conference in November. And in this show we're going to be talking about low-carbon hydrogen, which has been widely proposed as a key part of a toolkit for decarbonisation, but also seems to be facing some very significant challenges at the moment. So to find out where low carbon hydrogen is today and where it's going in the future, I'm joined by two industry leaders. Pierre Etienne Thunc is the chief executive of Hi24.

0:40Hello, Pierre Etienne. Welcome to the Energy Gang. Hello. Thank you for having me today. And Alex Tankok is the chief executive of Intercontinental Energy. Hi, Alex. Welcome to the show. Hi. Thanks for having me. It's a privilege to be here. Great talking to you. Thanks very much indeed. ADAPEC 2025, the world's largest energy event, returns to Abu Dhabi this November under the theme Energy Intelligence Impact. More than 1 ,800 speakers and 205 ,000 attendees come together to address a dual imperative, strengthening today's energy systems and scaling intelligent solutions. Join us in Abu Dhabi from the 3rd to the 6th of November to explore how the convergence of energy, AI, investment and emerging economies is advancing global progress.

1:23Register now at adipec.com. We're going to be talking about low carbon hydrogen. Just before we get into some of the wider issues around the industry, I think it'd be helpful to our listeners, some of whom may not be familiar with your companies, if you could just talk a little bit about HIGH24 and intercontinental energy and what it is that you do and where you fit into the hydrogen value chain, if you like. Maybe Pierre-Etienne, start with you. So I see you call Hy24 the world's first and largest hydrogen private equity asset manager. What does that mean? So Hy24 is an asset manager that we've created back in 2021 to basically deploy funds towards the energy transition with hydrogen.

2:05And we've raised first fund of 2 billion with both industrial players and financial players and we are now deploying those into many verticals which in hydrogen to decarbonance can be steel can be methanol ammonia can be soft can be mobility and we're invested into 10 different players including ice but Alex will tell us about ice in a minute yeah I was going to say so tell us about ice you say ice do you for short Alex no ice is perfectly fine and so what you do you're a project developer you have three large uh green hydrogen projects under development um two in australia one in oman some of the largest projects in the world i think you say and you also have a relationship with high 24 right what is that so high 24 is one of our institutional investors um they sit alongside other investors including uh gic the sovereign wealth fund of singapore um and the three large projects that we've been uh developing so we've been a pioneer in this space for over a decade.

3:06These are huge energy hubs the size of small countries, and they will produce green electrons and green molecules for customers that are both local and export. So thanks for that. As I was saying at the beginning of the show, it feels like there's been a lot of negative news flow around low carbon hydrogen over the past year or so. We've had projects being cancelled, companies have been scaling back their ambitions, policy support has been curtailed or threatened in some countries, particularly in the United States. And the number of new low-carbon hydrogen projects being announced has slowed very sharply.

3:43Do you think that does reflect more difficult times for the industry? I mean, maybe, Pierre Etienne, to start with you, do you think that does reflect more difficult times for the industry? I mean, maybe, Pierre Etienne, to start with you, how do you see the state of the low-carbon hydrogen industry today? So I think it's very interesting because people like to get news and bad or big buzz. But if you look at the facts, I know sometimes the facts are not the truth, but the facts are very aligned with the narrative and the fact that the sector, in fact, is very, very strongly deployed. If you take four topics, just four topics, very fast.

4:19First, the projects which are being built, which have passed decision level, have moved from a value of 10 billion to more than 100 billion in five years, which is double the rhythm of the renewable industry at its start, which is what hydrogen is today. Second, the level of consult rate, the one that are making the news, if you count them as part of the overall bunch of projects that are continuing to grow, is only 3%. The attrition rate is 3%. The real attrition rate may be bigger than that, but it's not so huge. Because in fact, we see many projects everywhere. Third, if you take the technology side, back in 2020, when I was on the air liquid side in my past world, we were starting the first largest electrolyzer project was far higher than anyone.

5:12It was 20 megawatts. Currently, we've got every week the equivalent of 20 megawatt modules being deployed in the world. And the average size of the project is 100. So the technology scale-up has been roughly 100, because most of the other projects were 1 megawatt in 2020, 100 in 5 years. I don't believe this is wrong. And the last element is that we have a view which is a bit Western-centric. Because if you look at the overall dynamic, Asia is by far leading the show, with China and India at the top, Middle East being just behind. And the US has a dynamic that is continuing from the Biden area, but is going to be decreasing because of the next wave.

5:57and Europe is still waiting for the regulations to be put in place. But when the regulations will be put in place, there are several millions of tons of agents that are going to be deployed. So no, the dynamic is not negative. It's just back to normal. People were over-excited and over-promising. And now we are only the serious players that are in the game. And by the way, the projects we're in are far better. They're stronger, simpler, faster, closer to FID with big players. So the hype cycle that you always see with new technology. Exactly. Alex, what's your view on this? How do you see the overall state of the industry?

6:33No, look, I totally agree with Pierre -Étienne. You know, when you have any new industry that emerges, we've seen it time and time again with the internet, you know, with previous energy technologies, you know, there's always the hype. You get a lot of explosion of creativity. And then the market does what the market does best, which is creative destruction. and the strongest and the quality players come through and the quality projects come through. And then, you know, the industry turns ambition into action. And that's how we drive global progress. We've seen this story many times before. I think that sort of the doom is greatly exaggerated.

7:11Right. Again, you have these three large projects, as I was saying. They're all still making progress, are they then? Oh, yeah, absolutely. So I've been in renewable energy for more than 25 years. And in that time, I've seen three hiccups on our sort of inevitable pathway of renewables, you know, being cheaper and market share growing. You know, we had the great financial crisis, we had the European crisis, and most recently post COVID supply chain crisis, where you've seen costs go up temporarily. But what we've seen in the last year, and we can talk about China a bit later, a big reason for this, is that we've seen costs in our renewable energy supply chain and electrolyzer supply chain are absolutely tumbling.

7:52And so we're sort of back on our normal trajectory of renewables getting cheaper, you know, deployment levels going up. So, you know, it's sort of business as usual as we see it. And we've always targeted projects that are going to come online at the end of this decade, because that's when we believe the real demand is going to, you know, really start growing even more. And we're very much on track. So yeah, Yeah, all good, really. So Pierre -Étienne, as he was saying, this is a very new industry, has been growing very fast. It seems like we've been learning a lot about it. And one of the things I'm very interested in is the question of what low carbon hydrogen is actually good for, in the sense that I think in the early days when, as we were saying, the hype cycle was very much kind of on the rise, when you're in the upswing of that cycle, there was a tendency to see hydrogen as kind of the answer to everything.

8:44and you know you heard it called the swiss army knife of energy or you know the silver bullet and it would be decarbonizing industry and it would be a fuel and it would be in agriculture and you know everywhere else transport certainly as we've learned more about the industry other technologies have developed as well what's your sense now of where low carbon hydrogen is going to be most competitive and actually realistically most effective as a solution for decarbonization The question is a critical one, of course, but there are several aspects. So first, on what are the markets which are the most obvious ones for moving into low carbon or green or clean hydrogen?

9:26Well, there are three types. The first one is the one that are already using gray hydrogen. They need to shift. If you've got a regulation rate, they will shift. It's mostly refining fertilizers. And those ones are no-brainer because you just change the color of your product, but the product is the same. So it's easy to shift. It's a question of absorbing the cost. So if the regulation contacts you, you can do it. And that's what is moving in Europe. And that's what's moving in Europe is mostly refining. In India and China, it's mostly fertilizers. The second big topic is certain markets for which if you want to decarbonize a process, you have not much other choices than to shift your use of lateral gas or fuels by hydrogen.

10:08And the biggest play is steelmaking. This is moving slowly, but the first big projects have been built as we speak. They will start in the next 18 months. And the big players in China, India, and Korea, Japan will probably follow the route if the route is successful. The biggest one is today in Sweden, as you know, Stegra, we're invested there. And we think it's a very interesting play because the impact on the cost of green steel is basically 100 to 200 euros per ton. And that's something that you can swallow as a final end user if you're selling typically cars. The added cost for a car is only a couple of percent of the car price.

10:50And then you've got a couple of markets that are going to come just next, which are more driven by regulation or by the need to change your energy mix. That's the market of use of ammonia as a green energy feedstock for coal, substitution in coal power plants in Korea and Japan. that's moving. It's not too big, but it's moving steady. And you've got, of course, SAF, everything related to synthetic fuel, because that's the driving force. It being e-methanol, e-ammonia, or SAF, a sustainable fuel, it's going to be critical for both maritime and aeronautics, and that's going to come next. And then we have transport.

11:26Hydrogen has a pure molecule for transport during classical engines or fuel cell. That is not over. It's moving relatively steady in China, Korea, Japan. The issue is to get the OEM to basically get their act together and move faster into deploying the technologies because the benefits are very good. They can complement very well batteries, but it's still a bit shaky to find the right business model. Right. And when you talk about complementing batteries then, how would that work? I mean, I've often heard it said that the issue for heavy transport is there's no very obvious best solution for decarbonization, partly because if you're talking about a battery EV, for a heavy truck to carry around the weight of batteries that it would need would be a huge blow to efficiency.

12:17So that's not necessarily the right route to go down. So what I say it's a complementary is that most of the solutions we move, and the Chinese are very well understood, that's through hybridization of both batteries and other fuels which are clean, and the other fuel that's complementary battery will be hydrogen. And you're right. The three topics that are being an issue for full electric cars is the space of the batteries on the track, the load, the weight, and the time to charge, which goes with the autonomy. So those elements, hydrogen brings something, battery cars are patched. The other issue, which is a systemic issue that we have, especially in Europe, if you go too fast, is that there is a risk of very huge congestion of the distribution on transmission networks.

13:01And the cost to replenish those and revend those is estimated to be 800 billion in Europe. And you're not going to spend those 800 billion in 10 years. It's going to take 30 years. So if you want to be at pace, you need to mix the two. Hydrogen is bringing you a complementary source of energy which is not dependent from the grid deployments. And that's going to be the reason why we still believe there is a place for heavy-duty, medium-duty, light commercial vehicle, intensive mobility sourced and fueled by some parts of hydrogen. Alex, what's your take on this? What do you think are the most attractive markets and what are you targeting with your projects?

13:37Look, I don't want to sort of just repeat what PITN said because he's absolutely right. If I just sort of summarize and then maybe give an interesting statistic to show the sort of level of the problem we've got to solve here. So I guess, you know, when we look at the offtakers that we're currently negotiating with, they're sort of, they fall into five buckets. One would be steel, you know, green iron. One would be power. One would be fuels. One would be refineries and industrials and one would be fertilizers so you know very much what what Pierre Tien would say but I think an interesting statistic just to give you again a wide perspective on this if you take all of the renewable energy that's ever been installed on the planet to date from wind and solar energy so every country's wind and solar energy combined and you turned it into green iron, use all that energy to turn, you know, to make green iron, it would more or less match.

14:34So every wind farm and solar farm we've ever built would be enough to basically decarbonize the global steel industry. So that just shows you the magnitude of the challenge that we now face. And that's just one of those five buckets that we're talking about. One of our projects, the Australian Renewable Energy Hub, is in the Pilbara region of Australia, the world's largest iron ore exporting region. And this project, even though it's quite large at 26 gigawatts of upstream renewables, it would decarbonize about 4 % of the Pilbara's iron ore production. So again, the opportunity here is absolutely massive.

15:13Yeah, that is amazing. Those are kind of staggering statistics, which I suppose both kind of speak to the scale of the challenge, but also the scale of the opportunity, right? And it's interesting to think about from both perspectives. So let's talk, Alex, then a bit about from the production side and the business model side then. So as you're saying, you're developing these projects in Australia and Oman. Presumably the reasons to be developing in those locations is because those are countries with fantastic renewable resource, fantastic solar resource in particular. is that the main driver of where you want to locate or how did you come to pick on those sides again we have history as a guide which is always helpful and i like to sort of think of the lng sector and the gas sector a little bit as an analogy not perfect but but but helpful nonetheless there are countries that are well endowed in energy that can produce for themselves and in the hydrogen sector i think china will be a standout there are other countries that can produce a little and can use a little themselves.

16:18India is probably a good example. But if you want, you know, to export to markets where they can't produce themselves, you know, North Asian economies, Europe economies, where they just don't have the space, then, you know, you need to find countries that have that space that can then serve as an export platform, just like LNG. And so you're looking for the same opportunity sets, you're looking for incredible resource. And again, Solar is fantastic, but you've got to have wind through the night. Otherwise, you've got eight hours of the day where you're producing. So solar on its own doesn't really work long term competitively.

16:53So you want sites where you have the world's best wind speeds through the night, the best solar resource through the day. And then you need markets where you can comfortably deploy billions of dollars in jurisdictions that have track records, the way you can reliably deploy and where capital cost is low because Because cost of capital is a huge driver, as we know, in the renewable energy industry, much bigger than the oil and gas sector. And then what you need is the partnerships between countries. Again, think of LNG. You need those sources of demand and sources of supply to match up. And so that's where this sort of cross-sector, cross-border collaboration, that's what we're going to have to use to transform this industry at scale.

17:39So yeah, so you look at the Middle East and then you look at Australia, they're as good as it gets for producing. Right. And in terms of your business model then, so how are you thinking about it then? Are you thinking about producing hydrogen for export as liquid hydrogen or as ammonia or are you thinking about trying to use it locally? As you say, you gave the example of Australia and the Burrara region there, trying to find a local use that could then take that hydrogen, make some other kind of low carbon product from it, which then could be exported as that product, not as the hydrogen? It's going to be a mix.

18:14I think the most successful projects will play the markets, and there's that level of optionality to optimize for your customers. So, you know, where customers want electrons, where customers want ammonia, or where customers want hydrogen or methanol, these are all products that we can produce from our energy hubs. the the reason we went down this pathway and and if you think of the shale revolution in the united states what you have there is these massive energy fields that can be developed in you know parcels you know you insert a well insert a second well insert a third well so you can produce for customers we we have a very similar approach so actually we don't have three projects we have 60 projects they're just in three locations and so your first project is greenfield but all the others are a brownfield expansion of your existing project and in a way think about it like a lego construction it's three big areas but we actually have 60 lego blocks and each block is a repetition of the same block that went before it but optimized so you know that's how we think you're going to produce these volumes that we need of green molecules at scale in a way that's affordable because if you do bespoke projects at scale, they can often be a disaster.

19:32This episode of The Energy Gang is brought to you by ADAPEC 2025, the world's largest energy event returning to Abu Dhabi from the 3rd to the 6th of November. Under the theme, Energy Intelligence Impact, ADAPEC brings together the entire energy ecosystem to address a dual imperative, strengthening today's energy systems and scaling intelligent solutions that advance global progress. More than 205 ,000 attendees and 2 ,250 exhibiting companies will gather to exchange ideas, forge partnerships and mobilise investment, showcasing solutions that deliver energy to more people, more affordably and with lower carbon intensity.

20:08Across 380 sessions, over 1 ,800 expert speakers will explore how the convergence of energy, AI, investment and emerging economies is reshaping markets and driving opportunity worldwide. Join us this November in Abu Dhabi. Discover more and register now at adipec.com. So Pierre Etienne, I wanted to come back to something you said, which I think is really important. You were talking about essentially the price premium for using low carbon hydrogen in an industrial process. It seems to me that that is very often going to be the critical point. And as you say, in a case like steel, if you can produce a low carbon steel where the price premium is kind of acceptable, it's something that customers are prepared to pay over and above the price of the conventional product, then it's going to work.

21:01but there are other sectors on there i mean sustainable aviation fuel i think is one of them i think of where the low carbon product is many times as expensive as the conventional product and there it feels to me like there's going to be a real problem and regulation and regulation supporting adoption of these products and so on but even and with the best will in the world governments that are trying to encourage decarbonization will have to face a reality check at some point. And if the low carbon product is so much more expensive than the conventional product, then the relations encouraging adoption of that product are not going to be sustainable.

21:49Do you think that's right? I mean, is that really kind of going to be the key to low carbon hydrogen adoption is as they're getting that price premium above conventional product down to something that's really pretty small certainly manageable so i think it's back to what does it take on what do you want to do to make this energy transition work nobody never said and if somebody does it was wrong that the energy transition would be costless and will be simpler for everyone there are some markets where shifting from gray to green has an impact to the end product which remains very limited. That's the case of steel.

22:27Or that the case even of ammonia, if you look at the end bread, piece of bread or a pint of beer, the impact of the cost will be a couple of percent. So that's a no-brainer. But it needs to be protected properly if you want to avoid imports of downstream product within the value chain that basically circumvent the regulations. So those things should be managed. When you move to transportation, in fact, because we have the same kind of issue for cars than for planes, is that, yes, the price of a green solution for transportation, especially for heavy transportation, makes it more expensive. Sustainable aviation fuel is the ultimate solution to eventually decarbonize aviation.

23:19is going to come next to biofuels, which is a bit cheaper. And today, it's indeed five to six times more expensive than kerosene. But there are three elements. First, if you put in place a regulation that is basically imposing everybody to move to that, you're basically changing the level of paying for the global aviation industry. And that's the only way to make everybody paying on the same level. That's what the IMO is trying to do on the maritime, and the regulation is going to push everybody to shift to higher cost fuels, which are going to be green. The impact on the cost of transportation will not be the same for marketing.

23:56But for aviation, that's the first thing. The second one is that we are still at the start of the cycle of the maturity of those technologies. So I think we will never go back to the level of kerosene, but we should manage to get the price difference a bit down. And the third element is that we need also to be a bit consistent. All of the economic models and the transition are showing that we're going to have basically globally to consume less energy. And in fact, most of the reduction will be on the countries which emit the more per capita, the countries which you've got the richest people. And part of that is aviation.

24:36So I think it will generate indeed some kind of a slowdown of some of the people who wanted to fly everywhere. that's going to have an impact there it's going to increase the cost of traveling some will afford it, some will not and that's going to be a big political debate but we cannot continue to say we're going to save the world and just not take action by increasing the cost to do things which are using a lot of energy and emitting a lot so regulation, reduction of prices and behavior will make that safe, will have a play it's not going to be changing everything which you will ever pay. Right, got it, thank you.

25:15Alex, how do you think about this? When you think about the economics of low-carbon hydrogen, clearly then it's going to be very important to get the cost down as low as you can, even accepting everything PRTN's just been talking about, still cost is going to be important. I know there's often been a lot of talk in the industry about a dollar per kilogram of production as being the ultimate goal that you would really like to get to to make low-carbon hydrogen competitive. is that a sensible target to aim for? And if it is, how close to it are you? I think it's not at all a target that we need to reach to make this industry competitive at all.

25:54When you look at the price points that people are signing offtakes at today, and when you look at the price points that we're discussing with potential offtakers for projects in the early 2030s, $1 is not remotely needed to get these projects off the ground. the question of whether we'll ever reach a dollar is it real dollars nominal dollars you know we could talk about this all day but at the end of the day you know again i just sort of look at history and you know 25 years ago you know very few people had ever seen a wind farm or a utility scale solar farm and since then they're now ubiquitous because we've driven the cost down relentlessly and so as i look forward it's it's very inconceivable that we won't be able to do the same with technology-driven solutions like green molecules.

26:42So I think it's a mix of, you know, technology driving ultimately with scale. But it is true that in the early days, all industries get a bit of help. You know, we wouldn't have wind, solar, nuclear, LNG, where they are today, if there hadn't been a kickstart from governments. And I think one of the mistakes we've made globally, you know, in our sector and as policymakers, is I think everybody just assumed the private sector would do it. You know, there was this kind of view that, you know, the PRT ends of the world could, you know, they'd all show up, it'll get done. And, you know, what we've now learned is no matter how good funds like High 24 are, it takes a bit of help to begin with, right?

27:24And, you know, this help was there in all energy sectors through history. So I think we just need to accept that initially you need a bit of help, but we're already looking at our projects and we know that phase two, phase three, phase four, phase five will be cost competitive for our clients. So there are pathways to be subsidy free in the early 2030s, which would be much quicker than many of the other sectors have done historically. I still believe that, I think there are figures for that, that the fossil industry is still getting far more subsidies than the world when you reach. So, you know, subsidies, when you get them, you don't let them go.

28:02Yes, no, that does definitely seem to be the case. So Pierre -Étienne, I want to pick up on something else you said earlier. You talked about the industry facing issues, and you said you would acknowledge that the challenges are there. What are the most important ones as you see it? What are the issues that need to be solved for the low-carbon hydrogen industry to succeed? So there are fundamentally three issues beyond one, which needs to be always in the minds of people, which is safety. We need to make sure the safety of managing producing this utility hydrogen is well managed. But so far, the first one, of course, is cost.

28:40Even though we're getting back to more normal cost pace, it's true that we cannot decarbonize several segments if we don't manage to get the cost of green or clean hydrogen to be in the range of 3 to 4 euros and eventually below later on. And so that requires scale, effects of series effects, and it requires that we move back to low interest rates, financial modeling and financial environment, because this is fundamentally a complex environment, so the cost of capital is driving everything. Now, thanks to the reduction of inflation and the pausing of the interest rate dynamic, which was up. The cost of renewable has decreased and the cost of energy is decreasing again.