Climate-Tech: Green Hydrogen Opportunity Landscape

Green hydrogen refers to hydrogen generated using renewable energy or low carbon power. It is substantially cleaner than the more commonly encountered grey hydrogen which is produced using natural gas or methane without any carbon capture (see Figure 1). The resource is currently in its nascent stages of development with relatively high infrastructural and technological costs, thereby occupying a minuscule share in the world’s total hydrogen output. At present, less than 1% of the world’s total hydrogen is produced with renewable energy.

‍

Despite the current prevalence of grey hydrogen, the share of green hydrogen is expected to increase drastically over time, and so is its contribution to meeting global energy demand (see Figure 2). It thus becomes imperative to identify and support promising application areas where green hydrogen can make a significant mark in global decarbonisation efforts.

Notwithstanding the popular mind share that hydrogen fuelled cars enjoy, hydrogen is particularly unsuitable for passenger cars. In addition to higher costs, their well to wheel efficiency is only about 25% as against a near 70% figure for battery electric vehicles (BEVs). Even if the costs were to come down, the high energy losses coupled with coterminous improvements in battery technologies will mean that hydrogen-based passenger cars will remain uncompetitive against their BEV counterparts for the foreseeable future (see Figure 3).

Where hydrogen, and especially green hydrogen, can be a gamechanger is in tackling certain “hard-to-abate” sectors by utilising certain obvious, “no regrets pathways”. Notable examples include— decarbonising the production of steel, methanol, fertiliser, and ammonia; providing a means for long term energy storage; and greening hard to electrify transportation lines (see Figure 4).

There has been a strong push by the Central Government to make India into a hub of green hydrogen production and a net exporter of the same, with the NITI Aayog forecasting a fourfold increase in the total hydrogen demand for India by 2050. The National Green Hydrogen Mission has recently been approved with the same vision. With India producing some of the cheapest renewable energy in the world, an expected fall in electrolyser prices should position it well to achieve this goal (see Figure 5).

According to an analysis by RMI, adoption of green hydrogen will result in 3.6 giga-tonnes of cumulative CO₂ emissions reductions between 2020 and 2050. Energy import savings within the same period could range from USD 246 billion to USD 358 billion in addition to stabilising input prices for India’s industries.

Prominent energy players including Reliance, the Adani Group, NTPC, Indian Oil Corporation, among others have already outlined green hydrogen in their Net Zero or decarbonisation plans. The most feasible near-term use cases involve-

i) refining, wherein predominantly grey hydrogen can be replaced by green hydrogen in the desulfurization of crude oil;
ii) fertiliser production with a focus on substituting imported ammonia with domestically produced alternatives;
iii) retrofitting ships to run on hydrogen-based fuel.

Despite steel being an industrial mainstay for India, its shift to green hydrogen is slated to occur over a longer period. The major imperatives for such large scale projects with respect to deployment led innovation include: securing and streamlining the feedstock—in the case of electrolysers for generating green hydrogen this takes the form of grid integrated or off-grid renewable energy; fleshing out offtake arrangements for the generated fuel; and sourcing and maintaining professionals and tools to handle operations at the facility. There are a number of avenues for startups to play a role as well. Prominent opportunity streams have been covered in different sections below.

‍
Electrolyser Design for Producing Low-Cost Hydrogen

A number of companies are experimenting with a range of different electrolyser technologies. While the most common ones are Proton Exchange Membrane (PEM) electrolysers and alkaline electrolysis cells, solid oxide electrolysis and anion exchange membrane (AEM) based electrolysers are also steadily gaining ground. At present, alkaline electrolysers account for about 60% of the installed capacity, and PEM makes up for another 30%.

The primary fulcrum for innovation in this space relates to reducing capital costs and critical minerals intensity while improving systems efficiency and overall durability. Like most long gestational, physical infrastructure based technological pursuits, however, the upfront capital requirements are often demanding, R&D imperatives onerous, and returns long drawn. Further, materials intensity remains high, especially for PEM which needs rare-earth metals in addition to gold and platinum. Testing and validating the technology and securing investor and institutional buy-in are additional obstacles.

Having said that, electrolysers are going through an exponential learning curve similar to those experienced by solar PV and lithium-ion batteries (see Figures 6 and 7). According to the IEA, global electrolyser manufacturing capacity increased by more than 25% in 2022 over the previous year. The realisation of all projects in the pipeline could “lead to an installed electrolyser capacity of 170-365 GW by 2030.”

Costs should come down drastically in the coming years. Moreover, capital requirements should not necessarily forestall enthusiasm in the sub-sector with tech licensing opportunities posing as viable revenue generation options with demand expected to stay high for the foreseeable future; India could catalyse electrolyser demand of over 20 GW till 2030, with expectations of a further swell to 226 GW by 2050, and an internal market worth a substantial USD 31 billion. M&A and technology collaboration/transfer activity in this space has also been promising. In late 2021, for instance, Reliance’s new energy arm signed a deal with Danish firm Stiesdal to mass produce the company’s ultra-low-cost electrolyser in India.

‍

Globally, there has been a spate of activity in this domain with startups continually pushing the boundaries for improved cost and efficiency outcomes. Sunfire’s SOEC electrolyser achieved 84% efficiency at a steel plant for Salzgitter AG in April last year. Around the same time, Australian startup Hysata’s alkaline ‘capillary-fed electrolysis cell’ recorded 95% cell energy efficiency in producing green hydrogen from water. While quoted efficiency figures are not always directly comparable across technologies, the past few years have seen new electrolyser designs attain extraordinarily high efficiencies across the board.

Startups are also working to reduce, and even eliminate, the use of precious or rare-earth metals. New Zealand’s bskpl is working to commercialise catalyst coated membrane (CCM) production at scale, furnishing a 25x lower catalyst metal load compared to traditional PEM designs. In the UK, Clean Power Hydrogen has developed a membrane-free electrolyser which does not use any platinum group metals (PGM).

Closer to home in India, Newtrace is building modular and scalable electrolyser systems with 3x lower capex costs, and zero usage of rare-earth metals. Its technology allows for the use of an abundant-earth metal based electrocatalyst and relatively less expensive auxiliary components. Yet another interesting company in this space is Ossus Biorenewables. They have built a bioreactor for on-demand, on-site hydrogen generation. The startup’s retrofittable hardware device uses select electroactive microbial communities to target carbon-rich, industrial effluent streams for biohydrogen production. This can drastically reduce the electricity input needed— from an average of 50-55 kWh for every kilogram of hydrogen produced by traditional electrolysers to less than 2 kWh/kg. It can additionally lower costs by eliminating the need for iridium or platinum as catalysts as well as that for ultra-high purity water.

‍

Fuel Cells and Applied Forward Linkages

Fuel cell development has been a mainstay for hydrogen-based startups for quite some time now. Functionally, they run counter to electrolysers in that instead of splitting water into hydrogen and oxygen using electricity as is the case with electrolysers, fuel cells house an electrochemical reactor that uses natural gas or hydrogen as the primary source to produce electricity.

While fuel cell electric vehicles (FCEVs) have garnered the most amount of attention, non-automotive use-cases are in all likelihood more promising. These include stationary power generation to power buildings, homes, and other stationary applications; backup power applications for hospitals, data centres, and other critical infrastructure; aviation and urban air mobility; and most importantly, industrial material handling and remote power applications. Fuel cells have extraordinary potential in powering forklifts, pallet jacks, and other material handling equipment at factories and warehouses, especially in areas where grid power may not be the most reliable. In such areas, they could additionally be used to power remote equipment such as those for telecommunication.

Fuel cells can also play a big role in catalysing green hydrogen powered micro-grids. A lot many companies, including several in India, are innovating with regard to the underlying stack technologies, in an attempt to bring down their costs. Proton exchange membrane (PEM) fuel cells are the most commonly used on account of their compact design, relatively lower costs, flexibility in input fuel, lower operating temperature requirements, and fast startup. Unlike PEM electrolysers where material costs constitute the preponderant drain, PEM fuel cell costs are dominated by manufacturing costs, and the cost share of materials is much lower. This implies that fuel cell manufacturing is more amenable to economies of scale (see Figure 8). Indeed, investments in advanced manufacturing machinery and aggregated procurement can enable manufacturing scale and bring down fuel cell costs drastically— by as much as 45% when increasing output from 10,000 to 200,000 systems according to an estimate.

There are also a bunch of applied forward linkages that usually present themselves as opportunities at the post-production stage— at the intersection of industrial and technological applications which need to be primed to operate in a hydrogen dominated economy. Retrofitting long distance trucks and off-road vehicles, creating new electrochemical processes and catalytic pathways for refining iron or manufacturing steel, and constructing hydrogen-powered irrigation or refrigeration systems are just some avenue streams which have seen intense startup activity across the world in recent years.

‍

Hydrogen Storage Applications

One of the most exciting use-cases for hydrogen is long-term energy storage, especially when combined with intermittent solar or wind. And while batteries are getting better and cheaper by the day, they cannot be entrusted to store energy to cover for an entire season, say winter, when the intensity of sunlight incident on panels is less than ideal. If an electrolyser and a hydrogen gas storage site were to be positioned close to a solar plant, surplus solar energy could be used to make hydrogen, gradually building a resilient reserve, and solving the “last mile” of decarbonisation.

Together with hourly storage from batteries, hydrogen could help intermittent solar—or wind, as the case may be— functionally replace fossil fuel plants. But storing hydrogen comes with issues of its own. Though hydrogen has high energy per unit of mass, its volumetric energy density is low. Developing cost-effective storage technologies with improved energy density is thus a key challenge. Most solutions revolve around high-pressure compressed storage or materials-based storage technologies. The former often innovate along the axis of secure containment systems, storing hydrogen in gaseous form. Maintaining hydrogen at high pressure, however, is infrastructurally demanding and largely unfeasible for renewable energy farms thereby necessitating storage either in the form of cryo-cooled liquid or by utilising materials which react with hydrogen to enable its storage at ambient pressure. Chemical storage in the form of ammonia and methanol is gaining traction even though energy conversion costs remain high and efficiency losses can be severe. Of late, solid-state nanocomposites have also emerged as viable solutions for high capacity, low cost, space efficient, and low-pressure hydrogen storage. While startups will undoubtedly find it hard to undertake large-scale deployment on account of the steep costs and stakeholder coordination imperatives involved, designing technologies to safely store and transport hydrogen, and creating software backed hydrogen storage and transport management systems will nevertheless remain attractive opportunity spaces in the medium to long term.

To conclude, green hydrogen currently requires substantial new infrastructure to scale and considerable amounts of investments into the distribution value chain. Global VC interest has up until now been concentrated on the production side. “Compression, storage, dispensers, meters and contaminant detection and purification technologies”, should gradually come to command a greater share of the available capital pool for hydrogen.

As discussed in the preceding sections, several promising use-cases and opportunity streams exist for hydrogen enabled interventions in select domains. Innovation in the coming years should coalesce around making green hydrogen production—
i) less expensive: electrolysis is presently nearly four times more costly than steam reforming;
ii) less energy intensive: green hydrogen currently requires about 50-55 kWh of electricity to produce one kilogram of hydrogen; and
iii) more efficient: producing green hydrogen entails significant energy losses at each stage of the value chain. According to an IRENA report, “about 30-35% of the energy used to produce hydrogen through electrolysis is lost. In addition, the conversion of hydrogen to other carriers (such as ammonia) can result in 13-25% energy loss, and transporting hydrogen requires additional energy inputs, which are typically equivalent to 10-12% of the energy of the hydrogen itself.”

Production techniques must substantively move the needle on the abovementioned fronts for green hydrogen to expand its set of use-cases beyond a few specialised areas. The good news is that innovation and advancements in technology are happening at an astonishing pace. With each passing day, companies, including early stage startups, are finding new ways to streamline the hydrogen production process, harness renewable energy sources more efficiently, and develop safer and cost-effective transportation and storage solutions. These are exciting times for the green hydrogen industry, and the path ahead is filled with immense potential.

‍

DISCLAIMER

_{The views expressed herein are those of the author as of the publication date and are subject to change without notice. Neither the author nor any of the entities under the 3one4 Capital Group have any obligation to update the content. This publications are for informational and educational purposes only and should not be construed as providing any advisory service (including financial, regulatory, or legal). It does not constitute an offer to sell or a solicitation to buy any securities or related financial instruments in any jurisdiction. Readers should perform their own due diligence and consult with relevant advisors before taking any decisions. Any reliance on the information herein is at the reader's own risk, and 3one4 Capital Group assumes no liability for any such reliance.Certain information is based on third-party sources believed to be reliable, but neither the author nor 3one4 Capital Group guarantees its accuracy, recency or completeness. There has been no independent verification of such information or the assumptions on which such information is based, unless expressly mentioned otherwise. References to specific companies, securities, or investment strategies are not endorsements. Unauthorized reproduction, distribution, or use of this document, in whole or in part, is prohibited without prior written consent from the author and/or the 3one4 Capital Group.}