WORKWEEK

In one of the more significant venture deals this year (and certainly the most notable venture round to cross the newswire this week), Electric Hydrogen announced a $380M Series C to scale its electrolyzer manufacturing business. 

As a quick refresher, electrolyzers take electricity and use it to make hydrogen by splitting H2 from H2O through a process called electrolysis. The only byproduct is the leftover oxygen – if you use clean electricity as an input, the process is clean on the whole. 

Electric Hydrogen’s flagship product is a 100 MW electrolyzer. Here, the power rating of 100 MW indicates the maximum electrical power the electrolyzer can ‘ingest.’ As a rough estimate in terms of how much hydrogen production that means, the company suggests each 100 MW system will be capable of producing ~50 tons of green hydrogen per day. Some forecasts posit the cost of green hydrogen will fall below the price of fossil fuel-based hydrogen by 2030. Manufacturing electrolyzers at scale is a crucial piece of that projection.

What we do know is that the round Electric Hydrogen raised will help it build its 1.2 GW factory in Devens, Massachusetts, where it aims to begin producing electrolyzer systems in Q1 2024. 

What markets are they ramping up to sell into? What’s H2 suitable for anyway? Let’s explore.

Wherefore H2?

It’s great that Electric Hydrogen is bringing jobs to America to build a domestic electrolyzer and green hydrogen supply chain. Still, a major question inherent to decarbonization debates is what exactly the highest and best uses of green hydrogen are. 

Hydrogen, the lightest element and first on the periodic table, is a very flexible but also finicky element. On the plus side, it has an energy density three times that of diesel or gasoline. That means you can burn it and produce power.

Fossil fuels are hydrocarbons. Their molecular structure is a string of Cs (carbon) and Hs (hydrogen). The Hs in those strings is part of where the energy comes from. Specifically, the energy released in combustion comes from breakingthe chemical bonds in the hydrocarbons and forming new ones. During combustion, the carbon-hydrogen (C-H) bonds and the carbon-carbon (C-C) bonds are broken. After the bonds are broken, the carbon and hydrogen atoms combine with oxygen (O2) from the surrounding air to form new chemical bonds. The combustion of methane, for instance, results in the formation of carbon dioxide (CO2) and water (H2O).

On the minus side, despite its high energy density, hydrogen is less common as a fuel for transport or for producing electricity, primarily owing to difficulties in storage and transportation. Moving hydrocarbons, as opposed to hydrogen on its own, is a lot easier. Hydrogen is a gas at room temperature and atmospheric pressure; to be transported as a liquid, it needs to be stored and transported under high pressure or at extremely low temperatures. This requires much more specialized infrastructure than oil or natural gas. Hydrogen also has a wide flammability range; it ignites or burns at concentrations in the air anywhere between 4% and 75%, making it hazardous. 

In a recent conversation with Adam Goff, the SVP of Strategy at 8 Rivers, a company working on commercial hydrogen applications (among other things), noted that hydrogen is effectively best used for applications where there is no other viable alternative. That means, as the market has also told us, commercial cars are out – batteries are better for that. As an unnamed “Principal” at OGCI Climate Investments also noted in a separate interview recently (not with me), that owes to infrastructure challenges too: 

The idea of building pipelines to transport hydrogen all throughout the U.S. and then create hydrogen fueling stations, I think it’s too much of a realistic challenge, like we’re never going to get there, in my opinion.

But Adam’s comment also means other industrial applications in which hydrogen is already used are ‘in.’ Across applications, hydrogen production already accounts for 2-3% of global greenhouse gas emissions. It’s widely used in chemical and fertilizer production. And in 2022, only 1% of global hydrogen production was ‘green,’ according to IEA. So even without additional hydrogen use cases, there’s plenty of need for electrolyzers to service the 99% of hydrogen production that isn’t green. 

Electric Hydrogen sits upstream of some of these use-case conversations. They are likely agnostic of to whom they sell the electrolyzers they plan to manufacture. They’re not a seller of green hydrogen; they don’t yet plan to get into green H2 project development and operation. 

As noted above, there’s a big need among industrial players who may want to use green hydrogen to reduce their emissions. The attractiveness of this market is also evidenced by competitors who are similarly expanding electrolyzer supply chains. This week, Norway’s Hystar, a green-hydrogen company, announced plans to build a gigawatt-scale factory to manufacture its green-hydrogen electrolyzers in the U.S. The company also aims to build a factory in Norway next year with capacity to produce 4 GW of electrolyzers annually, with a targeted operational date of 2025. 

While the market may be sufficiently large to support many players, success will always come back to cost. Inflation Reduction Act credits will help domestically, but all the usual technical questions will still come to the fore as electrolyzers commercialize in the U.S. and Europe. 

How efficiently do the electrolyzers transform electricity into H2? Energy losses in electrolysis are well documented and are part of why using hydrogen for energy storage isn’t a cure-all; you can plan to lose up to half your energy if you convert electricity to H2 and then convert it back to electricity. 

Similarly, how much cheap renewable energy will buyers of electrolyzers be able to access? Pairing new projects with electrolyzers is easier than connecting to the grid, as you get to sidestep expensive and time-consuming interconnection. Still, as we discussed on Thursday in relation to wind, renewable energy project development is facing a growing list of challenges spanning higher interest rates and difficulty sourcing all needed electrical system components.  

The net-net

Electric Hydrogen’s domestic manufacturing ambitions are also a bellwether for the wave of domestic manufacturing announcements we’re seeing across climate tech. Will they hit their target of commencing manufacturing by Q1 2024? Will they hit the projected 1.2 GW capacity in that factory? By when? And for how long will they be able to operate the plant at capacity? 

As we’ve seen with other announced factories, like Ford’s $3.5B EV battery manufacturing plant in Michigan, which they announced at the beginning of this year, there’s a vast gulf between announcing a factory and actually rolling product off the line successfully for years. 

Ford’s plant is already on hold (six months after they first touted it). Of all the manufacturing and project development announcements we’ve seen since the IRA, how many other projects will get hung up somewhere between breaking ground and meaningfully contributing to decarbonization? 

That’s one of the most essential questions to track in the next 3-5 years, and it’s one I’m spending a lot more of my time thinking about. More on that front before the end of the year.