Landscape understanding
Hydrogen production today is overwhelmingly dependent on fossil fuel technologies, with only 1% of the total hydrogen market being produced through low-emission processes, according to the International Energy Agency (IEA). However, green hydrogen presents a significant opportunity to decarbonize various industries, from transportation to heavy manufacturing. The Biden administration has recognized this potential and prioritized the development of hydrogen hubs as a key component of their strategy to enhance clean manufacturing infrastructure in the United States (The White House). To scale up green hydrogen production, several critical advancements are necessary, including the expansion of electrolyzer capacity and the construction of robust infrastructure for hydrogen production, storage, and distribution.
Industry Challenges
The green hydrogen industry faces several significant challenges, particularly concerning electrolysis capacity and efficiency. Current electrolyzer technology requires substantial improvements in efficiency to make green hydrogen production more economically viable. Additionally, the majority of electrolyzer capacity is currently concentrated in China (IEA), highlighting the need for a more geographically diverse production capability. The costs associated with electrolyzers remain high, including both capital expenditures for the equipment and operational costs for running production facilities. Moreover, hydrogen storage, especially in large quantities, is problematic due to hydrogen's low energy density, necessitating high-pressure or cryogenic storage solutions. Existing storage systems are typically designed for small-scale applications, further complicating the scaling up of green hydrogen infrastructure (IEA).
High production costs of green hydrogen compared to fossil fuels present another significant challenge. Building new green hydrogen plants and developing an extensive distribution network are crucial yet challenging tasks, as substantial infrastructure investment is required. Additionally, the sectors where hydrogen is used remain concentrated in specific traditional applications, such as refining and some industrial processes, limiting broader adoption. Effective integration with renewable energy sources will require sophisticated grid management to handle the variability of renewable power supplies. In the building sector, the use of hydrogen is still at a small scale with minimal targets set globally, and it remains less efficient compared to existing options such as electric heat pumps. This also necessitates the development of new infrastructure. Additionally, transporting hydrogen over long distances is both challenging and costly, demanding substantial investments in infrastructure such as pipelines and transport vessels. These combined challenges highlight the need for significant advancements and investments across the entire green hydrogen supply chain to realize its potential as a cornerstone of decarbonization efforts.
Innovation Categories
Based on my research on crunchbase, the majority of the companies working in this space fall into the following major categories:
- Electrolyzer Technology: Developing more efficient and cost-effective electrolyzers is vital for scaling up green hydrogen production, such as high-efficiency PEM electrolyzers that reduce energy consumption during hydrogen production. Most of the innovations have been in electrolysis based on patent trends over the past 10 years (IEA).
- Generating Hydrogen from Biomass or Waste: Innovations in using biomass or waste materials for hydrogen production, like technologies that convert organic waste into hydrogen, reduce reliance on traditional energy sources and support sustainability.
- Generating Hydrogen from Gas: Advances in producing hydrogen from natural gas with lower emissions, including technologies that integrate carbon capture and storage, are essential for cleaner hydrogen production.
- Water Splitting: Research and development in water splitting techniques aim to make hydrogen production more efficient, with methods like photoelectrochemical water splitting using sunlight for direct hydrogen production.
- Enabling Technologies: Supporting technologies that enhance the hydrogen production and utilization ecosystem, such as advanced sensors and control systems for monitoring and optimizing hydrogen production processes.
- Hydrogen Storage Systems: Advancing hydrogen storage technologies to handle large quantities safely and efficiently, like high-pressure composite tanks for storing hydrogen at high densities.
- Efficiency Systems: Innovations in systems that improve the overall efficiency of hydrogen production and utilization, such as advanced heat exchangers and energy recovery systems.
- Improving Manufacturing Processes: Enhancing manufacturing processes to make green hydrogen production more efficient and cost-effective, including automation and advanced manufacturing techniques.
- Carbon Capture Utilization and Storage (CCUS): Integrating CCUS with hydrogen production to reduce emissions from processes that still use fossil fuels, like using captured CO2 from industrial processes in enhanced oil recovery.
Final Users / Sectors:
Green hydrogen has the potential to transform various sectors by providing a clean and sustainable energy source. One of the primary users of hydrogen today are refineries, where hydrogen is crucial for processes such as hydrocracking and desulfurization. Traditionally, refineries produce hydrogen on-site from fossil fuels, contributing to significant carbon emissions. The shift towards green hydrogen can drastically reduce the carbon footprint of these operations, making refineries a key sector for the adoption of green hydrogen.
In the transportation sector, there has been a notable increase in the use of hydrogen, although it still represents a modest portion of the overall market. Hydrogen is primarily utilized in buses and cars, with China leading the market for hydrogen-powered buses and trucks, while Korea has a significant share of the market for hydrogen cars. The development of hydrogen fuel cell vehicles (FCEVs) is gaining momentum, driven by the need for cleaner transportation solutions and government incentives in these regions.
Hydrogen also holds promise as an energy source for buildings, providing clean heating and power solutions. In electricity generation, however, the use of hydrogen is still in its infancy, accounting for just 0.2% of global electricity production. This is due to the high costs and limited infrastructure currently available for large-scale hydrogen power generation. Nevertheless, as technology advances and costs decrease, hydrogen could play a more significant role in providing renewable and reliable energy for buildings and the electricity grid.
Overall, the adoption of green hydrogen across these sectors will depend on continued innovation, infrastructure development, and supportive policies to make it a viable and competitive energy source.
Current Major Players:
The green hydrogen space is populated by a diverse array of major players, including technology providers, energy companies, and industrial firms. Key technology providers like Siemens Energy and NEL ASA are leading the development of advanced electrolyzers, crucial for efficient hydrogen production. Energy giants such as Iberdrola and Engie are heavily investing in green hydrogen projects to integrate renewable energy sources into hydrogen production. Industrial firms like Linde and Air Liquide are focusing on the supply and distribution of hydrogen, leveraging their extensive expertise in industrial gasses. Automotive companies such as Toyota and Hyundai are pioneering hydrogen fuel cell technology for vehicles, pushing forward the adoption of hydrogen in the transportation sector. Additionally, collaborations and consortia, like the Hydrogen Council, are driving industry-wide initiatives and investments to scale up green hydrogen infrastructure globally. These players are instrumental in advancing the green hydrogen economy through technological innovation, infrastructure development, and strategic investments.
Investment Opportunities:
- Low-emission Hydrogen Production Technologies with Carbon Capture, Utilization, and Storage (CCUS): Investing in CCUS technologies for hydrogen production offers the potential to significantly reduce emissions from industrial processes and power generation. This is a promising area as it aligns with global efforts to mitigate climate change and meets regulatory demands for lower emissions. However, it requires substantial carbon capture capacity to be effective and economically viable.
- Decreasing Equipment Costs, Specifically Surrounding the Electrolyzers: Reducing the costs of electrolyzers can make green hydrogen production more economically competitive with traditional fossil fuel-based methods. This can be achieved through advancements in materials science and manufacturing processes, offering high returns on investment as the technology scales. The challenge lies in the high initial capital investment and ongoing R&D needed to bring down the costs of electrolyzer technology.
- Synthetic Hydrocarbons: Investing in the production of synthetic hydrocarbons using green hydrogen can create sustainable fuels for industries like aviation and shipping. These hydrocarbons can serve as drop-in replacements for conventional fuels, enabling a smoother transition to low-emission energy sources. The production processes, however, are complex and currently expensive, requiring significant technological advancements to be cost-competitive.
- Opportunities that Minimize the Amount of Infrastructure Needed to Incorporate Use but are Still Widely Deployable: Innovations that integrate green hydrogen into existing systems with minimal infrastructure changes can accelerate adoption and reduce costs. Technologies that can seamlessly fit into current energy and industrial frameworks are particularly attractive for their lower deployment barriers. Ensuring these solutions can be integrated into existing systems without extensive modifications is a critical hurdle.
- Chemical Refineries: Supporting the shift to green hydrogen in chemical refineries can drastically reduce the carbon footprint of producing essential chemicals and fuels. This transition offers long-term sustainability and regulatory compliance benefits, making it an attractive investment as industries seek greener processes. Transitioning to low-emission hydrogen, however, requires significant retrofitting of existing infrastructure, which can be costly and time-consuming.
- Supporting Companies that Focus on Building Out Systems Relevant to Existing Applications Wanting to Switch to Low-emission Hydrogen: Investing in companies that develop systems tailored for existing applications to switch to low-emission hydrogen can facilitate industry-wide adoption. These firms are critical in bridging the gap between current operations and future sustainable practices, ensuring a smooth transition with minimized disruptions. Aligning new technologies with the specific requirements and processes of existing applications while maintaining cost efficiency remains a significant challenge.
Thesis Target
Based on my research thus far, I would focus my effort in identifying groups that are targeting existing uses of hydrogen but are looking for low-emissions alternatives compared to existing supply. I would also be mostly interested in technologies that increase efficiency, weather that be through unconventional methods, by optimizing electrolyzer technology, or by optimizing water splitting.
Sources
- https://www.energystartups.org/top/hydrogen-fuel/#google_vignette
- https://techcrunch.com/2023/10/03/electric-hydrogen-is-the-green-hydrogen-industrys-first-unicorn/?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAE2NtGIMJUbNNx_9CXZDyj_tgtNA5pApZIPYxFa0LNQCPb7x_6wDpA3QpBRC9f58Zq7e8LpMBZwHyB3ll_dErknUHAtfjlV1Ft_4SJfpPVvsJGDz-RW-LhL9lE_oJDkenyW0UJIfuqoMkR9t9-1q8RWPt9stUydFby1IG6S3Nz5X
- https://climateinsider.com/2024/01/18/5-climate-tech-startups-innovating-green-hydrogen/
- https://www.sightline.org/research_item/decarbonizing-with-hydrogen-a-primer/
This was written as a part of my application to Vectors Capital as an analyst. It has been slightly modified for posting.
